Fed Watch: Absolutely Maddening

Tim Duy wishes new data would clarify the path the Fed will take at its next meeting, but so far that hasn't happened:

Absolutely Maddening, by Tim Duy: This is undeniably the most maddening array of data and anecdotes that I can remember having to sort through. Maddening enough that it makes me wonder if I am making an easy story more difficult that it has to be.

The trouble starts in housing…there is nothing good to be said about housing. Nothing at all. Now, time spent reading Calculated Risk had long ago convinced me that nothing good was going to happen until starts bottom at a million or so annual units, and that would have occurred regardless of recent credit tightening. The central delusion that propelled housing to new heights – the belief that housing prices only go up – has been dispelled.  No amount of easy credit is going to jump start the bubble now.

By all rights, or at least to the extent that we believe history should repeat itself, the housing downturn should already have tipped the economy into recession. This, however, implies a causal relationship, and the no-recession crowd, myself included, have been betting that the relationship is really driven by some third dynamic. So far, that bet has paid off – the impact of the housing downturn has been largely contained. From the most recent Beige Book:

At firms without direct ties to real estate and construction, contacts are still wary that credit tightening and slowing construction might slow activity in their industry, but there is cautious optimism because few see much evidence of such spillovers at this time.

This suggests that outside of housing related sectors, the impact of recent events has been primarily to cloud the forecast. This additional uncertainty is why the Fed cuts rates by 50bp – to get ahead of the potential damage from the credit tightening. Indeed, the broad credit tightening is likely that “third dynamic” I mentioned above, the link between a recession and falling housing markets. And is a broad credit crunch really happening?

Lenders in many Districts tightened credit standards, particularly for real estate. The majority of reports indicated an increase in business lending but a decline or slower growth in consumer lending.

This sounds as if the credit tightening is happening right where is should. Realistically, did lending standards for households have anywhere to go put up?

Interestingly, the adjustment in the economy to date is almost exactly as I would have expected. As housing turned down, consumer spending should slow as households realized that they were no longer living inside an ATM machine. A portion of the consumer slowdown would be borne by overseas producers, while domestic firms would benefit from a weaker dollar and a decoupling of the US from the global economy. Back to the Beige Book:

Consumer spending expanded, but reports were uneven and suggest growth was slower in September and early October than in August. The manufacturing and service sectors continued to expand, but growth weakened--mostly for products and services related to home construction and real estate transactions. Several manufacturing and service firms reported that weaker domestic demand was offset by strong sales to global markets.

The net impact should be a solid growth rate – like the 3% anticipated for Q3 – that feels miserable due to declining domestic demand. There should be a dichotomy within the labor market as well as the economy undergoes what is essentially a structural shift as the US weans itself from foreign production:

Job growth eased in some regions, but labor shortages were reported for many occupations in most Districts and are said to be restraining economic activity in some instances. Wages rose moderately except for workers in short supply, where sharp increases were reported for some positions. Upward pressure on input costs are reported in most Districts, but competitive pressures are restraining the ability to pass higher input costs to selling prices in many instances.

The job growth slowdown combined with stable initial unemployment claims is another reflection of that dichotomy – growth has slowed enough to dress hiring, particularly in housing related sectors and retail trade, but not enough to trigger mass layoffs.

The upshot is that the Fed is managing an economy that is on something of a knife edge. If you believe the “structural adjustment as the current account deficit improves” story, then you need to accept some degree of weakness in domestic consumption. Of course, you don’t want the economy to reach a tipping point on the downside. But, on the other hand, you want to be wary about overstimulating domestic demand, especially at a time when the falling currency is signaling a reduced willingness of the rest of the world to support that demand.

Adding to the complexity of the Fed’s challenge is what appears to be surging global demand as evidenced by, among other things, rising commodity prices. I can’t imagine that the US economy will be able to resist these increases indefinitely, although for now the Fed sees:

Upward pressure on input costs was reported by most Districts. Pushed up by strong domestic and international demand, energy and raw material costs are characterized as high by several Districts. Prices are up for a broad range of foods, including milk, corn, soybeans, wheat, beef, chicken and vegetables. Declines in the value of the dollar and high shipping costs have made imported goods more expensive…

But, critically:

The ability to pass higher input costs to selling prices was mixed.

Is this better or worse than the September Beige Book?

Most Districts reported little change in overall price pressures.

Sounds a bit worse to me, but I wouldn’t bet the farm on it. And, in any event, the Fed appears to be turning a blind eye to inflation. Indeed, the business press widely touted yesterday’s CPI release as consistent with the Fed’s expectations for slowing inflation. I can’t help but notice that the 3-month annualized core rate is now 2.5%, implying inflation has recently accelerated despite the declining year over year figures. And I did take notice of Barry Ritholtz’s catch:

Food Costs: Domino's Pizza (DPZ), the nations largest pizza chain, missed on both revenues and earnings yesterday. Why? Let's go to the company's CEO: "Unprecedented cost pressures and a weak consumer environment negatively impacted our domestic results in the quarter, which made striking the right balance between increasing prices, while operating in a period of declining traffic, very difficult."

Unprecedented. Cost. Pressures.

The firm noted that higher labor, food and packaging costs, as well as higher interest expenses, were only part of the problem: The company's own pizza price increases could not implemented fast enough by franchisees to outpace their rising input costs.

That's right, inflation has been running faster than their ability to print new menus!

Now, truth be told, I honestly doubt that Dominos is unable to print new menus fast enough. More likely is that management cannot move fast enough, more so for internal reasons than the inflationary pressures. Still, it is an interesting anecdote none-the-less.

But going back to the Fed, my concerns about inflation are irrelevant, as are Ritholtz’s. Bernanke & Co. are currently more focused on the downside risks to growth. The primary risk to growth stems from the housing market. If you focus on the housing story, then, you conclude that the Fed will cut rates at months end. If you focus on the “potential impact of housing to the broader economy” story, then the Fed was intentionally getting ahead of the curve with the 50bp cut in September, allowing them to take a pass on October unless they saw broad based weakness.

I have shifted increasingly to the latter camp. If I make an error on that call, it will be because I have focused on the externally driven growth as a real, structural shift in the US economy. In fact, the Fed may discount the external growth story, choosing instead to cut again on the basis of the housing slowdown. Simply put, their existing paradigm might not be able to incorporate that a fundamental shift in patterns of economic activity. Or that after 25 years of living off the rest of the world, it would be risky to believe that a change was soon at hand.

Or the Fed may simply believe that more easing is necessary at some point, so why not sooner than later. That is the easy answer. And maybe I should be paying more attention to the easy answer – I clearly recall a professor, just before the class was set to embark on a multi-page exercise in calculus and algebra, saying “Just substitute the constraint into the objective function. Graduate students always want to make things harder than they have to be.”

Bottom line: The flow of recent data, outside of housing, in my opinion does not suggest an immediate need for additional easing. I continue to believe that the external accounts are beginning to drive a structural shift in the US economy that is not fully appreciated by many. At the same time, this is another close call, and market participants could very well be 50-50 again on Halloween.

How many Fed posts on Halloween week will be titled “Trick or Treat?” I promise that I will not be one of them.

Comments

[calmo]

Another thoughtful and detailed post --as usual. Thanks Tim. So much brighter than my picture, but it does sound like you budged a little from your 'hold' position in your previous post. I am one of the "many" who need to be sold on this structural shift here:

I continue to believe that the external accounts are beginning to drive a structural shift in the US economy that is not fully appreciated by many.

Imagine RE agents finding new work in "the structural shift" working side by side Mexican farm workers --up to their knees in water planting rice for the export market.
Hmmmm.
But before this resolution to a significant labor dislocation materializes (it might turn out that the RE job is immune) there seem to be several more immediate wrinkles/externalities that might interfere: continuing problems in the credit markets; a continuing exit of FDI; a continuing withdrawal by (China and Japan) CBs from the tbill market; that war with Iran, or NK, or Russia, somebody.
So I'm inclined to think that BB will plug away adding to that 50bp start, esp if there is no improvement in the credit markets.

[esb]

With the central bank in the USA the "treat" is always in reality a trick (aka inflation).

The recent behavior of the currency and physical commodity markets indicates that most players are fully aware of the con. The level of awareness is far, far greater than at any time I can recall, probably due to the internet-enabled dissemination of information.

However, the BOG could certainly draw some serious blood by doing nothing. But of course the Board will do something, not wanting to miss the opportunity to get the inflationary "brew" cooking again.

Those readers with solid contacts in the residential real estate sales and lending spaces are no doubt aware that in mid August everything suddenly changed, to as close to a "hard freeze" as anyone living has ever witnessed. As the numbers roll out over the next several months we will be treated to panic behavior in the Congress and in the Marriner S. Eccles building.

[wjd123]

In fact, the Fed may discount the external growth story, choosing instead to cut again on the basis of the housing slowdown. Simply put, their existing paradigm might not be able to incorporate that a fundamental shift in patterns of economic activity. Or that after 25 years of living off the rest of the world, it would be risky to believe that a change was soon at hand.--Tim Duy

I tend to support this view. Wouldn't it be an argument for a wait and see fed stance. Therefore no change would be my guess based on nothing more than intuition. Of course I have no idea what other worries the fed may have, no more than a general reader of economic blogs would be aware of.

[jm]

Tim Duy's statement above that,
"The central delusion that propelled housing to new heights – the belief that housing prices only go up – has been dispelled. No amount of easy credit is going to jump start the bubble now." juxtaposes interestingly with the question over at Econbrowser in Deteriorating Lending Standards asking, "What is the significance of the fact that the most recently issued subprime mortgages are the ones that are running into the biggest problems?"

Could it be that the supply of greater fools for real estate has been completely exhausted? That the age of "Peak Greater Fools" is behind us? That more can be extracted from the depleted Greater Fools Fields only by evermore intensive methods with side effects so obviously damaging even the US financial system will decline to employ them?

I remember as if it were yesterday the moment some young Japanese friends in Tokyo remarked to me that they were thinking of buying a condo, but had decided to wait a few years, because they'd be cheaper then.

It's a long way down.

[jm]

I should add that in Japan, the consequence of exhaustion of the reservoirs of Greater Fools was a long period of very little demand for loans at any rate, well described in Richard Koo's "Balance Sheet Recession", as everyone avoided new debt and turned to paying down the debts they had.

[calmo]

wjd, one of us --the general guessers and possessors of only non-fed worries, opines

Of course I have no idea what other worries the fed may have, no more than a general reader of economic blogs would be aware of.

and I feel like now is not the time to be modest.
No, now is the time to B whipsmart and imagine mightily what one (the mighty you, yourself) would do in BB's shoes.
Mummify Fisher with masking tape for starters...and assign body guards to a quarantined Greeenspan.
Then rent "Over the Rainbow" for the next FOMC meeting.

[dickeylee]

The IMF just announced that the dollar is still over valued against the euro...just thought you'd all like to know.

[Barry Ritholtz]

Sarcasm! (no noe seems to get that b-- too subtle?)

My point was that both the producer prices and the retail prices are each going up significantly -- despite the lack of inflation in the core (or as I like call it, inflation ex-inflation).

[evagrius]

Richard W. Fisher
Inflation Measurement and Price Volatility
Remarks Before the Charlotte Economics Club
Charlotte, N.C.
October 4, 2007

"Those of us responsible for crafting U.S. monetary policy cannot afford to be distracted by the flux of short-term price changes that are destined to be unwound. Our eye should be focused on underlying inflationary pressures, some of which may indeed be coming from food and energy markets. Routinely excluding food and oil price movements from our inflation gauges may have made sense in the 1970s, the 1980s and even the 1990s—but not now, nor in the next few years. The conceptual beauty of trimmed mean inflation measures lies in their ability to capture steady increases in food and energy prices, which may be germane to the pursuit of price stability, while excluding the temporary spikes and dips that do not presage changes in the underlying inflation rate."

Fisher is the president/CEO of the FRb in Dallas.

http://www.dallasfed.org/news/speeches/fisher/2007/fs071004.cfm

[Don]

The credit squeeze in August has not worked its way through. Citi is hoping the US Treasury will save it from itself (can anyone say "off-balance sheet shenanigans like Enron")and its so-called "Structured Investment Vehicles" by midwifing a super SIV. Housing has much yet to fall, and anyone in the business (I am) will tell you that after August it finally and conclusively started crashing (not just declining), the bottom of which does not appear to be near.

But here's the rub--every time it looks as though the Fed will be forced to lower rates again, the euro reaches another record high against the dollar. Internationally falling dollars mean increasing dollar prices at home (inflation), which is patently obvious if one just even glances over at the commodities markets. The fed has about run out of ammo. Printing more dollars is not the answer for having too many of them in the first place. It is time we swallowed our medicine and returned our balance sheets to reality, and in the process probably suffer a (hopefully) mild recession.

If we don't clean things up from the fantasy we've been living the last several years, we run the risk of long-term stagnation such as Japan experienced in the nineties after its real estate boom crashed, but its banks refused to come clean. Better some short-term pain now (no more interest rate reductions) for the opportunity to return to long-term real growth in the future.

[S]

No spillover is kind of like the no decoupling (note the IMF revisions)

The global growth myth and commodities bubble are two sides of the same coin...China at 54x hang seng up 40% since August India at record highs Russia syurging -- did I hear a strong buy on venezuelan CDS?

Structural shifts? What are they? We sell more cars into china? Come on

the only structureal shift occurinbg is the fallout/blowback from perverse geoeconomic policy

Fed on inflation? where have they been for the past few years? Either cognitive dissonance or wholeheartedly disengenious? you choose. The curve doesn't seem to be paying attension to your more sanguine look? And watch those rates go up when the long end subsidy caputed in foreign buying continues to erode and treasury increases auctions to patch shortfall (tax and buying). Watch gold and dollar as we move into the end of october.

Walmart cutting prices on already everday low prices = more consumer debt.

Our greatest structural shift has been mastering the press and creating debt. then again with the collective wisdom in congress amounting to an IQ smaller than a concumbines slipper is it any surprise?

yet again economics is a social science

[donna]

California is already in recession - the rest of the country will follow.

We're currently taking out a mortgage equity loan for some remodeling and the credit union is giving us the promotional rate - 3.9%....

[Patricia Shannon]

http://www.msnbc.msn.com/id/21358747/

Biggest jobless claims rise since February
Increase of 28,000 in latest week was much bigger than expected

The number of newly laid off workers filing claims for unemployment benefits shot up by the largest amount since early February, a far bigger increase than had been expected.

[Patricia Shannon]

http://politicalticker.blogs.cnn.com/

Nearly half of Americans feel the U.S. economy is in a recession, marked by a significant decline in economic activity, according to a survey released Thursday.

The poll by the CNN-Opinion Research Corporation found that while 46 percent of Americans hold that belief, 51 percent don't.

Black citizens were more pessimistic than whites, findings show.

Sixty-nine percent of black Americans feel the United States is in a recession, while only 42 percent of white Americans feel the same way.

[gc]

Is Tim Duy just projecting that he sees no good choice? Raise, lower, stay the same; whichever one is chosen will cause a lot of unhappiness. It's just different people in each case.

Should we send the economy a get well soon card care of BB, because life is treating him so badly as to give hime no good choice? Do we deflate overvalued houses, or do we inflate other stuff to compare with inflated house values? We can discuss there two options endlessly. But to what point?

So, is this reference to "the external growth story" supposed to be an answer that says no change is good for now? Should I understand Duy to BB: "don't just do something, stand there!"? So, just what is this external growth story? Is this a return to selling Rockefeller Center to the Japanese insurance industry and Iowa farmland to the Germans? I don't remember those as deals that are exemplifying american achievement? Is there a different alternative to external growth? Could we tax ourselves to turn around and hire ourselves to design, build, run and maintain a more efficient transportation infrastructure?

If I understood the structural shift that is being driven by external accounts, then would I want to bring it on?

[esb]

The DataQuick Northern California numbers are finally out (after being checked and rechecked for believability due to the amazing falloff in transactions).

http://www.dqnews.com/RRBay1007.shtm

"Blood in the streets" is a pretty good way to describe this.

[worker]

Part of the problem is that the fed, in spite of its assurances that it does not target asset prices, has put itself in the position of letting the market know that it in fact does target asset prices, but only when they are declining.

This uni-directional concern for asset values is chiselling at the fed's credibility and is increasingly putting them into a box where their desire to prop-up junk loans and home prices will increase long term rates and hasten dollar devaluation. It is a con-game that depends on everyone buying into their belief that inflation has been permanently repealed. Yet the idea that inflation is subsiding in this environment will increasingly strike the market as ludicrous.

Unfortunately for the fed, the magnitude of the bubble and the fact that it was stoked with not only low interest rates, but sham financial innovation makes reflation of home prices impossible. Even cutting back to 0% will not bring back the sort of aggressive junk loans that fueled the housing bubble as debt buyers are wise to the structured finance game, though it may make wall street happy as they churn their way through multiple new asset bubbles. Only if the Fed recognizes its impotence in dealing with the housing problem, will they retain their credibility in world markets. My bet is that the Fed will be doing anything other than Wall Street's bidding here and the next asset bubble will have more losers than the late housing bubble.

[calmo]

gc(no blues) maybe sinking under a barrage of self-inflicted questions...of course I might only be projecting my need to rescue any question with an answer no matter how flippant or cunning.
This one strikes my fancy:

Do we deflate overvalued houses, or do we inflate other stuff to compare with inflated house values?

I think it's because ordinarily we at most suffer the devaluation of houses as a result of say an industry closure in the area. We don't have an industry of house deflators. We have house appraisers...leaning somewhat the other way. We say that housing deflation happens unfortunately in some locals/regions and rarely for extended periods over national-sized geography. Not only do we generally think it is not a swell idea to deflate housing, we are not sure how to do it...it being something nasty that is usually done to us, not by us.
REO properties indicate that the house appraisers and owners are still at work keeping that deflation from collapsing at a faster rate.
But there is hope for "do we inflate other stuff...?" which makes us (ordinary powerless and non HF readers) think about who the "we" is.
As much as the Fed goes on about inflation, it is deflation that they are concerned about and this reluctance to buy (houses particularly) *now* with the expectation of lower, not higher, prices tomorrow is the driver. Will house prices melt down as wages melt up? Will the trend in the disparity in income distribution stage a reversal? Will REO property be held for years until investors are rewarded? Can I bust loose from self-inflicted questions?
Ok, maybe: tis a growing mess gc, but I think we need to lay this more at AG's doorstep than BB's.

[worker]

A trend is only actionable until everyone acts on it.

If banks observe foreign governments don't default on debt, banks will lend foreign gov'ts money until they choke. If a revolutionary technology is the future, then feed the markets interest with an endless supply of junk companies. If house prices have only gone up over time, then lend 100% money to the dumbest speculator until they bid housing prices to completely unaffordable levels. This is the nature of bankers- make hay while the sun shines and play a trend out until it completely busts, hopefully making enough before the bust to retire.

If the fed wants to worry about deflating asset values, it should concern itself with popping asset bubbles before the market chokes. The withdraw of credit following these bubbles is a deflationary response to an inflationary bubble.

Both of the last bubbles (dot.com and real estate) have been evident to everyone, except (supposedly) the Fed. Possibly participants would be more concerned about creating bubbles if they worried the fed would take steps to pop them pre-maturely and arbitrarily. This would violate the fed's free market ideology, but so does retroactively trying to bail out financial speculators with easy money.

The problem with inflating to bring price levels up to housing price levels is that such action creates a new bubble to chase down.

[kthomas]

worker, good stuff!

What will the next bubble be in?

New Enviro techs, no doubt. On the banking side, I had read (probably on Mark's blog here) that the next banking bubble, such as what you describe, will be in small business loans.

any thoughts on that one?

[Patricia Shannon]

A factor I haven't seen about unemployment figures is that some people don't file for unemployment when they lose their jobs. I don't know what percentage, but that's another reason to look at the percentage of the work force which is employed.

[esb]

worker writes (12:39) " ... even cutting back to O% will not bring back the sort of aggressive junk loans that fueled the housing bubble ... "

This is probably the correct conclusion were it not for the existence of an institution named "Congress." Going out on something of a limb here let me "predict" that late in Q1 2008 the Congress will enact mandates, subsidies and guarantees that attempt to do exactly what you rule out.

"The Nobody Left Behind Home Ownership Act of 2008." Sort of has a "ring" to it, does it not?

Then the boys (and girls) in the Marriner S. Eccles building can drive short term rates down near 0 and presto! you have an extremely-low-rate, interest-only product with direct government guarantees and rate subsidies that "protect" the borrower against resets.

It will not be long before the "mortgage mobiles" are running up and down the streets of East San Jose and East LA once again, roof-mounted loudspeakers blasting out their siren songs (en Espanol).

Just such a plan is (rumored to be) presently in process (staff level) in the offices of one of our lovely California Senators.

[DILBERT DOGBERT]

Calmo,
California rice growing is so mechanized that no human hands touch the plant. Planes plant the seed and fertilize it. Harvesting machines do the rest. The areas in California that grow rice have very low populations. Sorry RE folks there are no job opportunities there. There might be some jobs picking tree crops and vegetable crops however now that the borders are being tightened. Then again all those "off the books" construction workers may get the jobs as they are bilingual.

[anon]

“ This additional uncertainty is why the Fed cuts rates by 50bp – to get ahead of the potential damage from the credit tightening.”

True.

And they’ll cut another 25 to get ahead again.

They have a funds level in mind beyond which this risk management approach on the economy poses too much risk for inflation, and they’re not there yet (Maybe it’s 4.5 %). But until then, the upcoming repricing of VRMs poses way too much danger, given what’s already happened. They can’t run the risk of being behind this curve.

[calmo]

Ok, DD, thinning carrots then...or those prefab bamboo houses (I'm sure after all those years of merely sellin, they are itchin to get buildin and with such cathartic enthusiasm, they'll do just fine covering any absence of skills.), the NBT (nexbigting).
But you're right: those non-Americans who are good at the jobs Americans used to not like doing when they could be real estating.(..time to invest in Mexico, now that they have an experienced work force just waiting for capital.)

I used to think it was too early (UE ~4.6%) to worry about a dislocation in the job market (precursor to the hungry mob), but I now think it could appear as suddenly as the "liquidity crisis". [You see what happens when I miss my anti-depressants.] And there is nothing like war to employ people who might turn civil disobedient...and nothing so war-predisposed as this administration ...which even has a "War Zsar".

[Dickeylee]

Awesome comment clamo, awesome. (!light bulb!)Now I'm thinking that Turkey is being primed to start WWIII...

[worker]

esb,

I worry you may be right regarding Congress, but I do think things will have to get much much worse before such an option would be politically and economically feasible. The sheer cost of propping up the housing market is a major impediment, hundreds of billions of dollars. Plus, since it would be funded by foreigners, there would have to be some investment case made beyond political fiat.

Fed's impact on resetting of VRM's will be nil unless they cut down to 0. Most of the recent vintage loans made no economic sense to begin with and were a speculative bet by individuals and lenders on constantly rising prices.

If the goal is to encourage homeownership, the best thing we could do is foreclose every non-performing debtor who bought a home in the last two years and give their houses to random renters/ homeless people on the streets w/ 100% LTV loan. At least the random renters/ homeless people would start with 0% equity instead of -10 to -20%, making such a bailout less costly.

[calmo]

I see the typo gods are tryin to rein me in...
I've taken bigger hits, but better retract some just in case with this observation: the Fed is interested in stability, so a catastrophe is reported as a flesh wound (the opposite of this)
[but exactly like this: "reports of a housing correction have been greatly exaggerated in the overall performance of an economy that continues to grow at a respectable 3%").
As the housing downturn worsens and the economy that has increasingly depended on it for nearly a decade founders, the modulus (stress/strain ...the strength of the material) of the Fed is put to the test. [And good thing BB is there IMO instead of so many other cheap politically appointed substitutes.]
And so that observation:
we in blogdom tend to draw out the understatements [this bein an example: "so a catastrophe is reported as a flesh wound "] from the officials [the crowd control, the non-stampeders --the stabilizers]...possibly exacerbating those very tendencies (ie a humongous catastrophe reported as a slight scratch).
So, Dickeylee, I don't know about Turkey, but I hope that this is not a priming for WWIII. We need some recognition of reality, (and the Fed is now making some of those statements, yes?) and confirmation that the Fed is working with us (not just the investors).
Atleast today (anniversary of the 87 crash) I don't want to be seen prodding the restless herd.

[Dickeylee]

Sorry Clamo, but the DOW down 366 (2.6%), S&P down 2.5%, NASDAQ down 2.6%. Moodys downgraded 1400 different RE backed investment grade securities. One of the largest single-day investment ratings reductions in 80 years, 80 years! Looks like everyone listens to you. Oh, and the dollar? Yikes! Post WWI Germany anyone?

[calmo]

Funny how this anniversary was not generally noted (ok, the Nabob nattered telling us we have another one in 10 days)
http://naybob.blogspot.com/
by the major media until it was safely over...almost a child-like response.
So (now that everyone (not just Dickee) listens to me)[calmo checks pulse...work dammit] it was contained (the parental voice masquerading as the adult response)...although you can bet the Futures are writing in another 25/50 bp "loosening" for the end of the month (that other Bad Anniversary).
But really this "market" represents wealthy interests and those losses today are shouldered by the 1% that own 2/3 of it...they have plenty more where that came from.
But even more really, the remainder, the 99% that don't own 2/3 of the market are generally the employees of companies large enough to be represented by this "market". It doesn't take too many 2.5% loss days before those companies layoff employees...who don't have plenty more choices --esp now that MEW is drying.
So (are you still listening DickeeLee?) the housing dump has these many facets and I do find Kasriel
http://www.ntrs.com/pws/jsp/display2.jsp?XML=pages/nt/0601/1138283681241_6.xml&TYPE=interior
and many others far more informing and thought provoking than yours truly (promising recreational student of economics).
Ok, class dismissed.

[Stuart Sugden]

Of course no body outside the inner circle knows what the Fed will do Wednesday. One thing the Fed will be well aware of is the sinking dollar. Do they want to risk sinking it further and raising the price of oil? Probably not. The fall in oil today may reflect, in part , an expectation by some of a (temporarily) strengthening dollar. 50 bp reduction - no way. 25bp, possibly but I see no good reason for not leaving it right where it is. The stock market doesn't really need more of a boost than it already has. I'll go out on a limb and say no cut, though I wouldn't bet much on the prediction.