The Fed, obviously, and will they or won’t they cut the interest rate.

I bet a lot that they will NOT… Lots of evidence from their statements and behaviour that they do not want to be seen to be bailing out bad decision makers UNLESS there is a real threat to the economy. There is high probability that there will be a slowdown in the future, but that is actually the goal of the current fed strategy.

So no change. Will there be lots of people betting on a cut who will be shocked/frightened if there is none? You bet. Will it cause a drop in aapl? Maybe, I would really like to hear someone who knows more than me comment on that.

Also when is the actual day of the decision?

What do you think? Will they, or won’t they?

They will not unless the markets tank again in a black cloud of fear. I think they will not see the reason to do so yet if sentiment continues to be mostly bullish or moderately good.

I believe they will. They are smart enough to know that the mortgage problems will have a decelerating influence on growth. Additionally, the risk repricing is here to stay and consumer rates and access to credit will be reduced significantly. The easy availability of credit on home equity loans will probably disappear altogether for several months since the market to collateralize these loans is simply not there and investor appetitite will have been cut dramatically.

All in all, the real estate industry and its ecosystem has taken a body blow and will take several months to recover. Credit repricing will cut consumer spending and all this will impact GDP growth rates and inflation (less money chasing at least the same amt of goods).

Given higher risks to decelerating growth and higher probability of moderating inflation, the Fed will on balance have to side with the risks to growth. Ergo, greater chance of rate reduction that a weeks ago. If the Fed waits to see growth decelerate and then reduce rates, it will be too late and we may at the very least head into a growth recession just as the Presidential election season is underway.

So, I believe they will be proactive now…somethiing they should have done at the last Fed meeting. The lesson will have been learned by Professor Bernanke.

As a non-American staying in California, I agree with quantman and DT reasoning that Fed would reduce rate.  My guess=0.25%.

Oh, yeah. We’ll see at least a 25 basis point cut in the Fed Funds rate if for nothing else then the market is demanding it.

I guess there should be a time limit on the question since they probably will eventually.
However, short-term, I’m not so sure. True the market is demanding it.  But I’m not so sure that it will be necessary to keep things afloat.
Overall the economy is still moving along quite nicely. The Dow is up for the year and now down only 4.4% from the closing high set July 19. And like the internet bubble in 2000, knowledgeable people knew the housing/mortgage bubble would need to burst eventually.
A change is rates is a dramatic move and this may be a little premature to make such a move. There is still too much fear and emotional thinking.

[quote author=“Play Ultimate”]I guess there should be a time limit on the question since they probably will eventually.
However, short-term, I’m not so sure. True the market is demanding it.  But I’m not so sure that it will be necessary to keep things afloat.
Overall the economy is still moving along quite nicely. The Dow is up for the year and now down only 4.4% from the closing high set July 19. And like the internet bubble in 2000, knowledgeable people knew the housing/mortgage bubble would need to burst eventually.
A change is rates is a dramatic move and this may be a little premature to make such a move. There is still too much fear and emotional thinking.

IMHO the sooner the Fed cuts rates the sooner the talk of a “bail out” will fade. For no other reason than to move the foreclosure issue off the front page, the sooner the Fed cuts rates the better.

Unless the Fed acts, the clamor will get louder. A cut in the Fed Funds rate will allow regulated banks to pad their margins and play an integral role is cleaning up the mess.

Play Ultimate,

Can Fed afford to face the consequence of not reducing Fed rate on Sep 18?

As reported yesterday, durable goods orders, a leading indicator of manufacturing activity, were up much higher than expected (even after removing the big ticket transportation items), suggesting that business spending is still moving at a strong pace and that overall GDP growth will be higher, as well.

Enough to offset the effect of some consumer spending being pulled in?

Enough to make the Fed hesitant to cut rates due to worries about inflation?

We’ll see…

I think the only question is whether the September cut is 25 or 50 basis points.

[quote author=“dmbream”]As reported yesterday, durable goods orders, a leading indicator of manufacturing activity, were up much higher than expected (even after removing the big ticket transportation items), suggesting that business spending is still moving at a strong pace and that overall GDP growth will be higher, as well.

Enough to offset the effect of some consumer spending being pulled in?

Enough to make the Fed hesitant to cut rates due to worries about inflation?

We’ll see…

Here’s quite a different take on both the durable goods and housing numbers.

[quote author=“wheeles”]
Here’s quite a different take on both the durable goods and housing numbers.

He paints such a rosy picture.

So do we all bail out before September OE?

[quote author=“willrob”][quote author=“wheeles”]
Here’s quite a different take on both the durable goods and housing numbers.

He paints such a rosy picture.

So do we all bail out before September OE?

I’d would say the Fed will choose NOT to cut rates.  The Sub-Prime market is around 30-35 Billion in a 10.5 TRILLION dollar mortgage market.  The people getting hurt are twofold:

1. The homeowner who decided to play with fire and go with some teaser rate .... I guess they figured the would either re-finance or well I really don’t know what the hell they were thinking.  I feel bad for the ones who are financially naive ... but bottom line they should have known what the risks were.  We bought our home in So Cal about a year and a half ago ....  got a smoking 5.5% 30 year fixed Jumbo mortgage ... cost me a couple of points but I sleep pretty well at night.  I too could have gone with some nutty program but I didn’t and I’ve had to pay a higher mortgage for the last year and a half ....  so I really don’t feel that bad if they lose their home.  In a lot of areas I believe there are responsible people looking to get in and buy something ... as some lose their homes they will enter the rental market causing rents to go up ... in turn it will push some of those currently renting to buy while bargains are to be had.  MOST homeowners like myself ... will keep paying what we always have ... as long as the JOBS are there and unemployement stays low I’m not worried.

2.  These hedge fund and money managers that bought these loans (packaged as nice as they were )  ... these paid a premimum and last I checked High rewards came with High risk ..... they gambled ... and LOST.  Those participating in hedge funds by law should have plenty of capital and assets ... read RICH ... yes they will lose money but they will still be wealthy at the end of the day ... I don’t think the FED should bail them out.

At the end of the day ... I really don’t care as long as the market goes up ... and Apple with it . But the best quote I’ve heard on the situation goes something like this :

Wall street is supposed to be the shining example of a laissez faire economy ... now all of those same people are asking Uncle Fed for a bailout.  Simply Pathetic.

[quote author=“willrob”][quote author=“wheeles”]
Here’s quite a different take on both the durable goods and housing numbers.

He paints such a rosy picture.

So do we all bail out before September OE?

Did you see his post for Wednesday ? Someone sold covered calls for $1.7B of SPY (that’s 12M shares of Spyders - the S&P 500s) at Wednesday’s price. Whoever that was, has deep pockets and very little faith in the index being above that level by September OE.

[quote author=“wheeles”][quote author=“willrob”][quote author=“wheeles”]
Here’s post for Wednesday ? Someone sold covered calls for $1.7B of SPY (that’s 12M shares of Spyders - the S&P 500s) at Wednesday’s price. Whoever that was, has deep pockets and very little faith in the index being above that level by September OE.

Very interesting! Although I’m not sure his explanation is the only possible one - (though I agree it is the most likely).  For instance some one could have bought a large number of S and P Sept futures contracts and sold those calls in an attempt to capture the premium on them present due to inflated vols.  Also from what I understand - large investment houses often buy large baskets (essentially the whole S and P)  of stocks and sell calls againt them to capture premium. Deep ITM calls normally don’t have much premium but due to the inflated vols they do now (or did - as vols are collapsing fast now as them market rises) - when they do have significant premium they offer a better hedge than ATM or OTM calls.

Nevertheless - very interesting indeed - it will be interesting to see if the high open interest in these calls remains up through expiry.

Interesting time to be following the market to be sure.

BTW IMO if S and P is >1500 at the time of the FOMC meeting - I say they only cut by 0.25 bp and if it’s > 1520 the may not cut at all.

[quote author=“Mace”]Play Ultimate,

Can Fed afford to face the consequence of not reducing Fed rate on Sep 18?

I think it will somewhat depend on the housing numbers on Mon. If existing homes are still selling, then it offers hope that homeowners can sell their way out of mortgage problems. If the numbers are low and the market reacts negatively to the news, then I don’t think the Fed has a choice.