The odds of the Fed cutting the Fed Funds from 4.75% to 4.50% have fallen from 50% on October 5th, to as low as 30% yesterday. After today's housing numbers were released, the odds jumped back up to 50% again.
The basic rule of thumb when trying to predict the direction of short term rates is to watch the Fed Funds Futures- better known as market rates. The Fed does not like to fight "market rates", and for October, it doesn't look like the Fed will cut.
Monetary Policy: Fed Funds Rate Predictions
In all honesty, the Fed should not lower interest rates and risk further collapse of the dollar. In addition, not lowering rates would put a lid on the torrid advance in commodities and energy prices.
This morning the CPI showed that consumer prices rose modestly last month, suggesting there are still inflation risks. The questionable CPI data showed a 0.3 percent increase in September, after showing a decline of 0.1 percent in August.
The sell-off in the Financials on Tuesday signaled that the Fed will probably stand pat after its October meeting.
Sometimes you have to let certain segments of the market take their punishment for past misdeeds and stupidity.
Today, the Commerce Department said new home construction for September slowed to its weakest pace in 14 years. Housing starts fell 10.2 percent to a seasonally adjusted 1.191 million annual rate, after falling 3.2 percent in August to 1.327 million.
Yesterday, Treasury Secretary Hank Paulsen finally said some things that needed to be said;
1) “I have no interest in bailing out lenders or property speculators,”
I agree, people do not learn their lesson unless there is a certain amount of pain involved. Many lenders and real estate speculators drank too much from the spiked punch bowl. Now is the time to hug the toilet, and get ready for the big barf.
2) “Let me be clear: Despite strong economic fundamentals, the housing decline is still unfolding, and I view it as the most significant current risk to our economy,”
Housing prices have not declined enough to begin a new demand cycle. A correction has occurred in building construction and lending, but a substantial correction in home prices has yet to occur.
In order to cleanse the system from the speculative price increases since 2002, a 50% give back of the recent price advances can be viewed as natural, and healthy. It would also stop the decline in home sales, and spur new demand among buyers.
Consumers Can't Get a Life
As I was mulling over the reasons for the huge problems surrounding sucker loans such as ARM's, interest only loans, sub-prime mortgages, and various other credit issues, the Ditech Commercial keeps coming to mind. You know the "People are Smart" ads.
People are Smart. No, people are sheep, and sheep are easily led. Here is why...
Get rich schemes and getting something for nothing appeals to most, but particularly families with two working spouses who normally cannot afford to live the life-style they want. These are the prime suckers for companies with keen marketing skills.
Knowing that consumers have very little time on their hands, advertisers come up innumerable schemes to tempt the masses to spend, spend, spend, and borrow, borrow, borrow.
To entice consumers to spend, the TV, VCR, CDs and their PCs are jammed with advertisements to make sure their products sell. These products are cloaked with the promise, or suggestion, sexual pleasure if a consumer purchases the product.
Here are a few items consumers buy in hopes they attract the opposite sex;
Tag-Body Spray- "Sleepless-Scoremore"
Abercrombie & Fitch- clothing for aspirational men and women.
Here are a few TV Networks trying to attract consumers with sex;
ABC- "Dirty, Sexy, Money"- This title pretty much captures the sexual fantasies of everyone.
FOX- "Temptation Island"
Magazine publishers manipulate women's sexual desires by lacing their covers with "better sex" this, and "better sex that".
All Networks- are prostitutes for the pharmaceutical industry. Now my young teenager knows all about Viagra, Celais, and Lavitra. There are more advertisements for these products than for ads for multi-vitamins.
I hated explaining to my son the purpose of Viagra, Celais, and Lavitra. Personally, I believe putting duct tape over the mouths of each spouse for a week works just as well.
Remember, networks, corporations, advertisers that sell their products by using sex don't give a crap about you. They are trying to get your money in the fastest and most efficient way possible. If it means ruining an entire generation get your money, then so be it.
It’s all about bucks.
The real estate/sub-prime/adjustable rate/ interest only/ consumer debt/ and just about anything else related to consumer debt can be blamed on TV networks, companies, and advertisers selling-out their principles of decency to make a buck.
In short, advertisers and corporations use Dirty means, and Sexy advertising to get at your Money.
David Kupelian, President and Managing Editor for World Net Daily had this to say; "major corporations – Viacom, Disney, AOL/Time Warner and others – study America's children like laboratory rats, in order to sell them billions of dollars in merchandise by tempting, degrading and corrupting them."
After thinking about all of the slimy methods used to get consumers to spend, maybe the Fed will lower interest rates after-all.
