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December 11, 2007
Fed Cuts Again
Not surprisingly, one of the most moronic statements made following today’s Fed rate cut came from Jim Cramer.
“Yeah, we will work our way through this. But now, with only a quarter-point cut, we will no longer be able to forestall the bankruptcies. Banks are holding on for dear life, homebuilders the same. But their lifeline just got choked and far fewer will live because of this.” The Fed Blew It
Apparently the Fed, by not cutting an extra 25 bps today, caused banks and homebuilders to adopt dangerous business strategies in recent years. Cramer goes on to add:
“A simple 25 basis points more would have made a tremendous difference for the economy's psyche. It would have showed the Fed is on the case.”
How exactly can the Fed be ‘on the case’ when the problem at the ‘banks’ is bad debts, accounting, and a horrible housing outlook? Moreover, how can the Fed help the ‘homebuilders’ when anyone with common sense realizes that inventories must decline before any semblance of a turnaround can transpire?
Following today’s rate cut the price of gold weakened, the U.S. dollar firmed, and the yield on the 10-year Treasury declined sharply. Last time I checked the yield on the 10-year played a role in determining some mortgage rates, gold is a indicator of future inflation, and a stable dollar is in the best interests of most Americans. As for Wall Street, it tumbled -- apparently some traders were upset by the fact that the Fed is not yet in panic mode like they are.
With more Fed rate cuts likely just around the corner, Mr. Cramer will get ample opportunity to continue his attack against the Fed. What he won’t do is acknowledge that even if the Fed took the Federal Funds rate down to 1% tomorrow this would not forestall many of the write-offs and bankruptcies that are coming...
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