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Strategies & Market Trends : Portfolio Construction -- Ignore unavailable to you. Want to Upgrade?

To: Paul Chiu who wrote (579)	8/23/2007 1:48:45 PM
From: Keith Feral	Read Replies (1) \| Respond to of 1964

FED funds rates are at 4.77 so I'm banking on the profit taking theory. I can't believe that Bill Gross is out admonishing the President by calling for him to bail out homeowners. The brunt of the mortgage crisis was caused by the 17 rate hikes by the FED, nothing that the White House did. I think the financial markets can take care of themselves from this point, with the cut in rates basically giving homeowners direct financial relief from mortgage rates that are restting this year and next. If you can buy a BBB pool of mortgages at $40, and you can resell the home at $65, investors are getting a pretty good return for the risk they are taking at this point. Maybe that is part of the reason why BAC is throwing CFC a lifeline for $2 bln. I think today is healthy since it makes people realize that risk is still out there. More importantly, it keeps pressure on the FED to start easing rates. Personally, I wonder if the FED will cut rates tomorrow morning. Why wait until after the Labor Day if they have already committed to a rate cut. Drop in a 1/4 point now and leave another 1/4 point for the Sept 18 meeting. It would be a convincing strategy that the FED is willing to work through this long term problem that has been ignored for too long. I think the FED put a lot of pressure on the big banks to do the right thing by tapping the discount window they lowered last week. I think it's a game of tit for tat negotiation. Why would the banks borrow at higher levels if they weren't going to make money off those loans. A rate cut this Friday would finally put the market to ease and put an end to the washout in fixed income prices. I think the FED could do a 25 basis point cut between meetings with another 25 basis points coming on Sept 15. Everyone keeps saying the FED is trying to avoid an intermeeting rate cut, but they may want to spread out change in policy as much as possible.