The statement gave a nod to inflation, which is to say they recognize the disent of the Dallas and Philly Fed. Put it this way, they’ve got less and less margin to curb long term inflation. However, I still see the need to cut rates for at least 1 or 2 more quarters. Not a lot though, maybe 25-50bps like futures suggest. Time will tell and the landscape could change.

Were you able to short the ABX index (BBB tranche), you’d probably be too busy spending your money right now!

I think I have to disagree with respect to the FED continuing to cut. They had 2 dissenting votes this time which is very rare. The board is not nearly as united as they were a few months ago. The FED statement this time around appeared to signal a change in sentiment. We’ll have to wait and see what happens.

I think the stock market is the least of the Fed’s worry right now. Their moves are about preserving the financial system not people’s stock portfolio. Your strategy of shorting the market may continue to pay off.

When the Fed stops cutting rates (I doubt they are) it will either signal 1) that they’ve done all they can to inject cash into the system or 2) the mortgage market has been restored or 3) liquidity is back to normal or 4) Fed Funds is down to zero. I pick door number 1.

BTW, were you the few lucky ones who shorted subprime?

It seems to me that we are on close to the same page, however you appear to be more optimistic about the outcome. I also believe that many of the assets have not yet been marked to market. We’ll see what happens to the market when the FED decides to stop cutting. The joy last what, less than 24 hours this time? The market already plunged close to 300 pts today.

Roger,

Shorts and PUTs are mostly used to hedge portfolio’s. Some people, like myself, just play one side or the other. I’m usually either 100 percent long or 100 percent short. Yes, as the sky falls, I have been making a lot of money. My BSC PUT options traded at a premium of over 500 percent when I cashed them out. I also made a killing on CFC PUTs as well. Not everything has paid off for me, I tend to take big risks, but since April they have been paying off a lot more than I have been losing.

Q- I only trade with my own money.

You are welcome and please do the same.

Correct me if I am wrong, but if you have your money in the “short” position, wouldn’t you benefit from a “sky is falling” scenario?

I am not a sophisticated trader by any means, but I did pull mostly out of the stock market in December, and went to bonds. So I guess I agree with you in that we are in for a prolonged market slump, and put my money on that horse.

Probably should have gone for gold, etc…but it’s just too exciting for me.

Q-

Thanks for sharing your credentials and experience. Whenever you feel like sharing more of your financial wisdom and research, please do.

Same holds true for Matthew and b, et al.

I have no idea where Ardell thought this post was going to go, but it has been both lively and informative!

You ask some very good questions and I appreciate your answers to my questions.

First, on my earlier questions:

1. We are in a correction/crisis. I think we all can agree to that

2. The credit/lending markets are in a correction/crisis. We can all agree to that as well.

3. The Fed has failed to react to the market, although I’m not sure how anyone could have seen the magnitude. The rating agencies didn’t see, the regulators/law makers didn’t see it, the investors didn’t see it, the banks/issuers didn’t see it, the Fed didn’t see. The ones who bet right are now coming out bragging about the billions they’ve made. Great for them, this is a free market and they made the right call, so they should be rewarded. As you know, people in business take bets. Not everyone bets the same direction and not everyone wins.

You’re worried about the lack of transparency and I was too. What you have to get your arms around is that the market is already pricing that in based on the fact there is no liquidity for these assets. What I fear though is that they’ve “over shot” in other words, the market has over corrected and by doing so has taken liquidity out of the system without any rationale. When you do that it becomes self-fulfilling because assets that are otherwise safe and performing are now thrown into the same boat. If you read carefully between the lines you’ll notice that many experts use the words panic, absurd, irrational, why? Because what they’re saying is the market has essentially taken price rationality out of mark-to-market of these assets.

Take a look at loan/asset provisioning. How does that work? Banks set aside reserves/provisioning in anticipation of losses not in anticipation of rating downgrades. If you’ve been following the news, you would have seen that more and more reserves are being set aside even though the assets carry AAA ratings. Why are companies doing that if they don’t have to? b earlier said that they are trying to hide losses, but how are they if they’re provisioning increases? Yes, more provisioning may become necessary, but until the assets show further weakness in performance that’s not necessary. By forcing them to mark-to-market in an irrational market you compound the problem. Also, in an irrational market do you think it’s wise for the rating agencies to go on a limb and downgrade all the bonds? Why cause even more panic?

Thoughts on your questions:

1. Banks are borrowing from the discount window because there is no liquidity. I never said there was plenty of liquidity and I’m not sure where you got that from. Remember, what I worry about is this iliquidity is irrational. Most people in the field will tell you the same thing and you have seen how the Fed have responded. The rate cuts are intended to add as much cash into the system as possible. It’s not going to cure the mortgage mess, but it does keep the financial system lubed by encouraging banks to lend to one another.

2. The CEO from Bear came out and said nothing was wrong because he did not think that investors could possibly pull $17BN from his company in 2 days. Bear relies on the Capital Markets for their borrowings and when the rumor began all lines of credit was pulled from them – another event the CEO could not forsee. Again, irrational behavior. How can you tell it’s irrational? Look at their book value, the value of their hard assets. JPM made out with a steal of a deal! If Bear had retail deposits or the ability to borrow from the FHLB, they may not have needed to sell.

So, do you trade for a company or is it a personal account?

I day trade the equities markets, right now primarily on the short side. I also trade a small amount of FX and commodities, and occasionally trade the futures.

To answer your questions:

1. Housing is in a crisis
2. The credit markets are in a crisis
3. The Fed has failed to due their job, to regulate the credit markets. The Fed may or may not be intentionally hiding data. But I know for a fact that many of the financial firms are hiding data. There is such a lack of transparency of whats on everyone’s books right now that it is truly frightening.

Why did GS and LEH borrow against the discount window last night if they have plenty of liquidity? Put that in your bloomberg terminal for me and please give me an answer. Why did the CEO of BSC come out and say that everything was A-OK on Wed and then the company is frozen on Friday?

I answered your questions, please answer those two for me.

I’m glad you finally asked.

No, I don’t have a PhD in Economics though I loved the subject, I have 3 degrees of which 2 is related to finance.

Yes, I did manage a $175BN portfolio of liabilities including CP, FHLB Advances, Repo, Senior/Sub Debt, Fed Funds and CDs for a large West Coast bank. This is what us in the industry typically call “Wholesale Funding” or “Short Term Liquidity.” It represent the largest borrowings of our financial system.

I get my resources from the standard in the industry – Bloomberg financial terminals. Not the bloomberg.com that any Joe can get, but the one that my company pays a good chunk of change to rent. I also get my sources from actual traders, bankers, brokers, underwriters, economist, why? Because I’m in communicaton with them everyday via phone/email.

Why do I choose to come here? To help shed some light on the topic that I know and to hear/learn from the experts in the RE industry.

Lastly, I’m not saying I know more than you or anybody else here. What I try to do is offer info based on experience rather than news.

Where did you get your PhD in economics and what firm do you currently work for? I assume you must manage a several billion dollar portfolio of MBS and CDS, and have an amazing source of information that is not available through Google or the worldwide financial media. I bow to your obvious skill and amazing abilities and I’ve also heard you can bench press 400lbs while reading The Economist, which is truly an amazing feat.

Here is something I think you should read which I found through Google. This argument is pointless, enjoy!