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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (18840)	12/17/2004 11:15:54 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

I think FMN has "aggrivated" the treasury markets two days in a row. Seems to have settled down now. Forced unwinding by FNM to reduce their portfolio? Mish

To: russwinter who wrote (18840)	12/17/2004 11:30:49 AM
From: RodgerRafter	Read Replies (3) \| Respond to of 116555

Hey Russ, I don't think the Fed or the Republicans want to save FNM. It's a "Democratic" institution both in terms of its goals and who's campaigns they typically fund. They want to take it down and shift all the profit of selling mortgage backed securities to Wall Street. Taking down the GSEs won't be hard when the economy tanks and defaults rise. It will be more of a matter of just not supporting them. I think the Fed has been trying to cushion Wall Street from the effects of inevitably rising interest rates by injecting in time to boost the bond market each month shortly before witching days. That way hedgers pay premiums for their hedges during interest rate spikes, then the underwriters make their profits when their derivatives lose value. The basic theory is that the Fed works to suit the interest of big Wall Street bankers, both during booms and busts. Comments?

To: russwinter who wrote (18840)	12/17/2004 4:53:55 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Higher rates not likely to slow U.S. manufacturing - Friday, December 17, 2004 9:23:29 PM afxpress.com NEW YORK (AFX) -- Climbing interest rates normally would threaten the U.S. manufacturing sector's recovery, but economists say the healthy corporate balance sheets and relaxed bank lending practices will minimize the impact "All other things being equal, materially higher rates would hurt the manufacturing sector. But in this environment, higher rates won't hurt that much," said Richard DeKaser, chief economist at National City Corp On Tuesday the Federal Open Market Committee declared the year's fifth one-quarter percentage point increase for its key short-term rate, lifting the federal funds rate to 2.25 percent. Fed officials have hinted that the program of gradual quarter-point increases will continue in 2005 as the central bank follows though on the rollback of the soft monetary policy it followed in the wake of the Sept. 11, 2001, attacks Though cheaper money fueled the manufacturing recovery, making funds incrementally more expensive is unlikely to slow industry down to a dangerous degree, DeKaser said Improved profits, linked in part to dollar weakness, have given many companies greater cash flow, decreasing their borrowing needs, he said In addition, recent healthy corporate profits statements have made many banks agreeable to sizable lending packages, another factor that leaves companies less vulnerable to steeper rates. In addition, even with rising rates, companies also can borrow money in the capital markets at attractive rates. "The bond market has not reacted badly to the rate hikes," said Michelle Girard, an economist with Greenwich Capital Even with the federal funds rate at 2.25 percent, Federal Reserve policy remains stimulative, although decreasingly so, pointed out Girard "Rates are still low by historical standards and are still below the neutral level," she said. "There should be some impact when policy becomes more restrictive." Greenwich Capital estimates that could come after increases of another 200 to 300 points Dave Ressler, a Nomura Securities economist, said the impact of rising rates on industry would be more extreme if the increases were larger and more abrupt "If we went to a 4 percent rate in a few months, manufacturers might feel it, but the Fed has indicated this is unlikely," Ressler said. In fact the greatest threat to the manufacturing recovery is not more expensive money "The real risk to manufacturing is the rising cost of raw materials," said Lynn Reaser, chief economist with Banc of America Capital Management, pointing to the factor that some manufacturers have cited as a drag on earnings in recent warnings. forexstreet.com