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Great puzzle of Bernanke
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1) Bernanke wants to control inflation.The wall street barons asks for a rate cut.If he cuts the rate he might lose the control over dangerously hidden inflation.If he does not, there is a panic driven risk of recession.( I do not see a recession risk.Wall street barons say so. Up to day, Bernanke obeys their orders and threats in the market..)
2) Bernanke wants growth in economy.Subprime and hedge fund crisis ( excessive risk taking and greeedy investments) made economical outlook negative.
3) Bernanke does not want to encourage excessive risk taking however dow is already around 13,500.He just lowered the rates on discount window.If he cuts the rates and continue to do so I see a 15,000 Dow at the end of year and a dollar on the floor against euro and yen.Actually inflation adjeusted Dow should be at 15,000.However if bernanke decerase the rates there will be even more money around and excessive risk taking.What we need is more regulations not a rate cut.Maybe only.0.25 basis points reduction might be clever to do.That's it.
4) Bernanke wants to control carry trade and he needs Japanese to do it.Japanese economy is depended on exports and they need a low yen against major currencies.Toshikiko Fukui needs to increase the rate not keep it in the same level.However the current market situation might lead to a panic if central banks do not intervene.What we need is more regulations to stop at least control carry trade.
The ball is at the hands of Fed.What I suggest is to keep the discount window low however not to play with the bench mark interest rate on 18 September.For this week, it is hard to see what will happen in stock market unlike past weeks.I still expect volatility to be high but this week stock market might be downwards to 13,000.I came to 13,500(almost) too quick and needs time for digestion.On company basis, I will watch for Ford Motor Company and Toyota.I think metal companies like Alcoa might go both ides.Just like gambling.
I think financials will lose some value this week.
Stock markets around the world are rallying in the wake of the Federal Reserve's decision to cut its lending rate to banks to help avert a credit crisis. Fed told the markets they're not going to let this liquidity crisis become a major contagion.
The central bank on Aug. 17 cut the interest rate it charges banks by 0.5 percentage point to 5.75 percent, acknowledging for the first time a policy shift was needed to contain the subprime- mortgage collapse that roiled financial markets and wiped out $5.56 trillion in global market value in less than a month.
The decision helped ignite a rally in global equities. The Morgan Stanley Capital International World Index of 23 developed markets has since rebounded 5.4 percent, after plummeting 11 percent from its record on July 19.
In the U.S., the Standard & Poor's 500 Index climbed 4.8 percent, while the Dow Jones Industrial Average advanced 4.2 percent. The Dow Jones Stoxx 600 Index of European companies rose 5.2 percent. The MSCI Asia-Pacific Index jumped 8.1 percent, the biggest weekly advance since March 2002.
Emerging markets rallied the most after suffering the biggest losses during the global rout. The MSCI Emerging Markets Index climbed 8.7 percent since the discount rate cut, after plummeting 18 percent from a record on July 23.
The advance in stocks accompanied a rise in yields of the safest U.S. government securities as investors waded back into riskier assets. Three-month Treasury bill yields increased for a fourth day yesterday to 4.21 percent, after touching a two-year low of 2.505 percent on Aug. 20.
On that day, bill yields tumbled by the most since 1987.
The main measure of U.S. stock volatility also declined as stock markets regained their footing. The Chicago Board Options Exchange Volatility Index, known as the VIX, fell 31 percent to 20.72 this week. The drop was the biggest since the CBOE started calculating the index in 1990. Lower readings indicating traders expect smaller share-price swings in the next 30 days.
The Fed's decision bolstered speculation that the central bank will lower its benchmark target lending rate on overnight loans between banks at or before its next meeting on Sept. 18. Goldman Sachs & Co. predicted that the federal funds target rate will fall to 4.75 percent this year.
Interest-rate futures show a 58 percent chance that Fed will lower its overnight lending rate between banks to 5 percent by its Sept. 18 meeting. Forty-two percent are betting on a cut to 4.75 percent by then. |
| Tarih
: 27.08.2007 |
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© 2006 Mert TOKER All Rights Reserved. |
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