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

To: mishedlo who wrote (67893)	8/21/2007 3:04:07 PM
From: MulhollandDrive	Read Replies (1) \| Respond to of 116555

one analyst aptly stated that there is not a 'liquidity crisis' it is a 'confidence crisis' back in the late 80's i had to go to 12 banks before i could get a commercial loan, with excellent credit, established business revenue and no debt.... people like cramer, krudlow and dodd think requiring fiscally prudent underwriting of loans is the beginning of armageddon

To: mishedlo who wrote (67893)	8/22/2007 12:55:56 AM
From: silenceddissenter	Respond to of 116555

Nobel Prize in Economics - Prospect Theory mosler.org noticed no one at the Fed has stated that cpi is running 4.5% so far this year. Assuming there might be a good reason for this under expectations theory, I did an informal survey where one group of people was asked: What do you think inflation will be for the next three years? 2% 3% 4% 5% over 5% The second group was presented with the following: So far this year inflation has run at 4.5%. What do you inflation will be for the next three years? 2% 3% 4% 5% over 5% Preliminary results show substantially higher estimates from the second group. The first group is mostly answering in the 3% range and the second 5% or higher. This may explain why the Fed doesn't mention the actual cpi annualized year to date. If they are too concerned about inflation expectations to even mention the current rate of inflation, it follows they are also too concerned to cut the fed funds rate which would carry an even higher risk of elevating expectations. this is called the anchoring effect and a nobel prize was awarded for what is called prospect theory mosler.org The Fed calculates a neutral fed funds rate is about 2-3% over the rate of inflation. With inflation at over 4% that means 6 to 7% fed funds is neutral. And with inflation too high the fed funds rate needs to be higher than that to control demand and contain inflation expectations and bring inflation down. Bernanke and all of the Fed 'know' the cost of a recession now due to rates not being cut is far lower than the cost of lowering rates and allowing inflation expectations to rise which requires a much larger recession to reign in. Allowing inflation expectations to elevate is unthinkable and not an option. With unemployment mid 4's, and capacity utilization in general reasonably high, the Fed has been relying on gdp working its way down to 2% to allow enough 'slack' in demand to meet it's goal of modestly declining inflation over time. So current projections of gdp in the 2's for the rest of 07 are a necessary condition for moderating inflation and moderating inflation expectations. This will all be reiterated by Bernanke at today's meeting. ***If gasoline falls through 1.50 as it did in 06 the fed may feel it has some room to cut. Bottom line- things will have to get a lot worse than the market thinks for the Fed to cut the fed funds rate. Trade op- with fed funds futures pricing in a .75% rate cut by Jan and current conditions not 'bad enough' to cause the Fed to cut rates the trade is to get short Jan fed funds futures and also get short (or long) the 'thing' that needs to move from where it currently is to trigger a rate cut. This could include, for example, buying puts on the right basket of equities, maybe buying par mtg constructions, etc. If you have any ideas on the right 'thing' let me know, thanks! Also, unlike the rest of the world, with only national deposit insurance the eurozone has systemic risk to the actual payments system. Now Mr. Mish I bet kim basinger would take another 20 million in loans to try and save that town she ran into the ground and bankrupted - I bet there are still many dumb blondes like her that will take free money - just last month at the salvation army some homeless guy wanted to borrow 20 dollars from me to take a crack head to golden corral. On a brighter note - here are the some top graphic designers images that you may like Mr. Mish smashingmagazine.com