Thursday, August 16, 2007

Fed's Poole Says Rate Cut Not On The Table

Fed governor Poole made comments last night that only a "calamity" would justify a rate cut. That sounds like more than just jawboning, as the Fed seems bent on not bailing out the mortgage companies, even if it means millions may lose their homes.

But at the same time, the Fed injected another $17 billion into the market, which has pulled the overnight rate down near 5.0%. Isn't this, by default, a de-facto easing in the market? If they are pressuring the fed funds rate down that much, why not just make an official cut?

Overseas, Asian markets plummeted overnight as the Yen rose another 2% to a 1-year high vs. the dollar. This is sparking further unwinding of the yen-carry trade, which is only adding to the global liquidity crisis. If speculators are scrambling to buy back borrowed yen, they are likely selling anything and everything to raise funds.

Bond yields are moving lower, likely exacerbated by a flight to quality, with the 10-year yield down to 4.65% (well below the fed funds rate). And oil is falling today, with crude prices near $71.70.

It has been like shooting fish in a barrel for the short sellers of late. We need some piece of good news that will spark a round of short covering and at least put a modicum of fear into the short sellers again. In the meantime, I am still sitting on the cash I raised recently while I watch for some signs of stabilization for more than just a day.


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