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FED Cuts rates by 75 basis points

Discussions about the economic and financial ramifications of PEAK OIL

Re: FED Cuts rates by 75 basis points

Unread postby benzoil » Tue 22 Jan 2008, 11:37:46

$this->bbcode_second_pass_quote('VinceG', 'D')oesn't lower interest rates equal higher consumer spendings equal higher inflation equal an even more devaluated dollar?


Lower interest = higher consumer spending ONLY if the consumer borrows more money to spend. Right now, American consumers appear to be maxed out on debt and those that aren't face tougher lending standards after the subprime fiasco.

The Fed could be pushing on a string. If no one wants to/can borrow, then they are powerless. It should be interesting to watch.
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Re: FED Cuts rates by 75 basis points

Unread postby dorlomin » Tue 22 Jan 2008, 11:51:41

I strongly doubt comsumers will see these rate cuts as the banks have taken such a profit beating over the past few months.
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Re: FED Cuts rates by 75 basis points

Unread postby NTBKtrader » Tue 22 Jan 2008, 12:01:09

I bought gold stocks when gold was around $400 however those stocks have not seen the appreciation that gold has had.
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Re: FED Cuts rates by 75 basis points

Unread postby Tyler_JC » Tue 22 Jan 2008, 12:08:57

The Japanese stock market (as measured by the Nikkei index) fell by 75%.

A similar move in the Dow would push dividend yields past 11% for the Blue Chips.

I don't think we'll see anything close to that.
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Re: FED Cuts rates by 75 basis points

Unread postby Ayoob » Tue 22 Jan 2008, 12:14:03

Holy fucking shit.

We're in for a wild ride!
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Re: FED Cuts rates by 75 basis points

Unread postby Bas » Tue 22 Jan 2008, 12:15:04

$this->bbcode_second_pass_quote('Tyler_JC', 'T')he Japanese stock market (as measured by the Nikkei index) fell by 75%.

A similar move in the Dow would push dividend yields past 11% for the Blue Chips.

I don't think we'll see anything close to that.


Isn't 11% a reasonable dividend rate? If you own a store it would be reasonable to make that amount over your invested capital? Besides that, profits might fall or even turn into losses during a recession.
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Re: FED Cuts rates by 75 basis points

Unread postby dinopello » Tue 22 Jan 2008, 12:24:41

$this->bbcode_second_pass_quote('NTBKtrader', 'I') bought gold stocks when gold was around $400 however those stocks have not seen the appreciation that gold has had.


Which stocks ? I lost the context.

Last time gold was 400 looks to me like mid-year '04. You could now sell for what 800 or 900 ?

Had you bought Apple stock in Mid '04 (an obvious tech) you would have paid 20/share.

Apple is currently 155/share (this is after the plunge), it had been trading at 200/share.

Note: I did not buy Apple stock, but my next door office mate did and keeps bringing this up to me when I try and convince him how screwed we are.

So Gold has a 2X return since '04 and Apple an 8X return.

Am I missing something ?

My BBT is up today but my GE is getting slammed. Rail is holding steady. I expect all be be down at weeks end once the cocaine, I mean interest rate cut wears off.
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Re: FED Cuts rates by 75 basis points

Unread postby mkwin » Tue 22 Jan 2008, 12:25:17

$this->bbcode_second_pass_quote('Bas', '')$this->bbcode_second_pass_quote('Tyler_JC', 'T')he Japanese stock market (as measured by the Nikkei index) fell by 75%.

A similar move in the Dow would push dividend yields past 11% for the Blue Chips.

I don't think we'll see anything close to that.


Isn't 11% a reasonable dividend rate? If you own a store it would be reasonable to make that amount over your invested capital? Besides that, profits might fall or even turn into losses during a recession.


It depends on growth expectations, if there is no growth or negative growth expectations, I would argue yes 11% is a reasonble yield for all but the most solid blue-chips.
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Re: FED Cuts rates by 75 basis points

Unread postby dinopello » Tue 22 Jan 2008, 12:27:09

$this->bbcode_second_pass_quote('Bas', '')$this->bbcode_second_pass_quote('Tyler_JC', 'T')he Japanese stock market (as measured by the Nikkei index) fell by 75%.

A similar move in the Dow would push dividend yields past 11% for the Blue Chips.

I don't think we'll see anything close to that.


Isn't 11% a reasonable dividend rate? If you own a store it would be reasonable to make that amount over your invested capital? Besides that, profits might fall or even turn into losses during a recession.


11% is outta sight ! But companies will often cut their dividend if the yield gets above a certain number like 10% so you rarely will sustain that.
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Re: FED Cuts rates by 75 basis points

Unread postby mkwin » Tue 22 Jan 2008, 12:29:37

$this->bbcode_second_pass_quote('', '1')929 when they restricted the money supply for far too long I believe


Yes, but the sub-prime credit mess could continue to hit the capital ratio of banks and cut into their ability to lend. This feeds back on itself until you have a collapse in credit availability al la 1929.
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Re: FED Cuts rates by 75 basis points

Unread postby Bas » Tue 22 Jan 2008, 12:52:40

$this->bbcode_second_pass_quote('dinopello', '
')
11% is outta sight ! But companies will often cut their dividend if the yield gets above a certain number like 10% so you rarely will sustain that.


well, it is in this growth economy as we know it, in which investor rely on stocks going up in price rather than on dividends. However if we would be in a world where companies would be failing left and right that would be a reasonable reward for risking your money.

$this->bbcode_second_pass_quote('', 'Y')es, but the sub-prime credit mess could continue to hit the capital ratio of banks and cut into their ability to lend. This feeds back on itself until you have a collapse in credit availability al la 1929.


Haven't there been some huge cash infusions into the major banks from places like Singapore, Kuwait and Abu Dhabi? I would also note this:

$this->bbcode_second_pass_quote('Benzoil', 'T')he Fed could be pushing on a string. If no one wants to/can borrow, then they are powerless. It should be interesting to watch.


which indeed would create deflation and a rate cut wouldn't help much in that situation.
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Re: FED Cuts rates by 75 basis points

Unread postby EndOfGrowth » Tue 22 Jan 2008, 13:01:04

$this->bbcode_second_pass_quote('mkwin', '')$this->bbcode_second_pass_quote('', '1')929 when they restricted the money supply for far too long I believe


Yes, but the sub-prime credit mess could continue to hit the capital ratio of banks and cut into their ability to lend. This feeds back on itself until you have a collapse in credit availability al la 1929.


AKA credit crunch.

Stagflation is now the order of the day.
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Re: FED Cuts rates by 75 basis points

Unread postby nero » Tue 22 Jan 2008, 13:12:40

The problems for the debt market is the potential loss of default insurance from the monolines. The monolines are being hammered by the defaults in the housing market. The defaults in the housing market are mostly related to the decrease in housing prices. So the only way this rate cut is going to save the day is if it convinces people to go out there and start buying houses in the face of a recession and falling house prices.

This rate cut and future rate cuts won't reverse the course of the housing market until the prices have gone back to historically reasonable valuations. What it will do however is prime the pump for the next asset bubble.
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Re: FED Cuts rates by 75 basis points

Unread postby benzoil » Tue 22 Jan 2008, 13:19:26

$this->bbcode_second_pass_quote('nero', 'T')his rate cut and future rate cuts won't reverse the course of the housing market until the prices have gone back to historically reasonable valuations. What it will do however is prime the pump for the next asset bubble.


Next asset bubble = gold?
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Re: FED Cuts rates by 75 basis points

Unread postby mkwin » Tue 22 Jan 2008, 13:29:42

$this->bbcode_second_pass_quote('EndOfGrowth', '')$this->bbcode_second_pass_quote('mkwin', '')$this->bbcode_second_pass_quote('', '1')929 when they restricted the money supply for far too long I believe


Yes, but the sub-prime credit mess could continue to hit the capital ratio of banks and cut into their ability to lend. This feeds back on itself until you have a collapse in credit availability al la 1929.


AKA credit crunch.

Stagflation is now the order of the day.


A serious collapse in credit availability is deflationary not inflationary. Deflation is arguebly worse than inflation because it is harder to reverse. It is also bad for debt as the relative value of debt is constantly growing.

I would prefer a CPI of 5% than a CPI of -5%.

$this->bbcode_second_pass_quote('', 'H')aven't there been some huge cash infusions into the major banks from places like Singapore, Kuwait and Abu Dhabi? I would also note this:


These people are not stupid. They are advised by often western professional fund managers, they are not going to waste hundreds of billions propping up bankrupt western banks.
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Re: FED Cuts rates by 75 basis points

Unread postby vision-master » Tue 22 Jan 2008, 13:36:07

$this->bbcode_second_pass_quote('', 'A') serious collapse in credit availability is deflationary not inflationary. Deflation is arguebly worse than inflation because it is harder to reverse. It is also bad for debt as the relative value of debt is constantly growing.

I would prefer a CPI of 5% than a CPI of -5%.


Not for us poor folk. You people with "the means" think you can just keep buying your way out of the abyss by using inflation.
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Re: FED Cuts rates by 75 basis points

Unread postby Bas » Tue 22 Jan 2008, 13:43:15

$this->bbcode_second_pass_quote('', 'T')hese people are not stupid. They are advised by often western professional fund managers, they are not going to waste hundreds of billions propping up bankrupt western banks.


They probably got in at a bargain price, actually if that's what you're trying to say.

And I guess we'll see if it turns out to be inflation or deflation, an instable situation it is for sure. (I'd still say will see quite strong inflation judging from the specific American situation but I guess it's a tough call for anyone)
Last edited by Bas on Tue 22 Jan 2008, 13:47:45, edited 1 time in total.
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Re: FED Cuts rates by 75 basis points

Unread postby joeltrout » Tue 22 Jan 2008, 13:46:06

$this->bbcode_second_pass_quote('dinopello', '1')1% is outta sight ! But companies will often cut their dividend if the yield gets above a certain number like 10% so you rarely will sustain that.


Most of the time if a company is not doing good then it will hold it's dividend constant or decrease the dividend payout. Thus reducing the dividend.

If a company is doing well then the stock price goes up thus reducing the dividend yield also since it is a percentage value. The dividend amount might be the same or actually increase but the yield would decrease because of the higher stock price.

11% is extremely rare and is usually temporary. Stocks prices either go up or the company could do a stock split.

Vice Versa, now is a good time to buy solid companies that do pay dividends because you will have a low cost basis and when the companies begin to do better in the future then your yield will go up considerable but this is for the mid to long-term investor. Not for the short term or afraid investor.

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$90 oil = recession

Unread postby heroineworshipper » Tue 22 Jan 2008, 15:32:30

Like I said. $90 oil is now recessionary. People need a 100% rise in prices to feel economic growth.
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Re: FED Cuts rates by 75 basis points

Unread postby Doly » Tue 22 Jan 2008, 16:25:12

$this->bbcode_second_pass_quote('nero', 'S')o the only way this rate cut is going to save the day is if it convinces people to go out there and start buying houses in the face of a recession and falling house prices.


You forgot to mention that they'll probably won't be able to get a mortgage anyway, even if they want to buy a new house.

Well, maybe it won't be homebuyers that will use that money. Let's think who else is out there...

Corporations? With consumer confidence dropping by the day and banks suddenly much more careful about extending credit? Not bloody likely.

Foreign investors? With the dollar dropping like a stone? Nope.

The little man on the street? Now that he's completely maxed out? Maybe he would love to, but he can't.

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