FOMC Minutes

From the Jan 30 FOMC Minutes:

- saw need for relatively low interest for a time, but may need rapid reversal of easing once economy is stable
- Raises 2008 jobless forecast to  5.2-5.3% v 4.8-4.9% previous,
- Cuts 2008 GDP growth to 1.3-2% from 1.8-2.5% previous, 2.1-2.7% in 2009
- Fed official see growth risk to the downside
- Expects core inflation to moderate over the next 2 years, recent inflation data ‘disappointing’
- Saw chance of big rate cuts on earlier Jan meeting conference call, but no taken action, Jan 22 rate cut spurred by weak economy, market strains

 

The inflation data just keeps getting worse, as we saw today.  The Fed has raised the jobless forecast and lowered the GDP growth forecast.

Oil closes over $100 a barrel and the market rallies.  I think I just saw the Mad Hatter run by.

Update On KKR

These are some excerpts from comments made by KKR on the commercial paper problem.  In essence, they are continuing to try and find a solution:

-In talks with noteholders for past 2 weeks to determine if there is a path to a more definitive restructuring that benefits all parties
- As a result of those conversations, the noteholders have agreed to extend the maturity of the February 15 notes by two weeks so we can continue our negotiations.
- Will continue to work with the noteholders to determine if there is a further restructuring that will protect the noteholders and provide KFN shareholders the ability to recover some of the equity that was previously written off. If we cannot come to agreement with the noteholders, they will take the underlying collateral as contemplated by the October restructuring. It is worth noting that the collateral in the portfolio has continued to perform well since October
- The Company’s exposure to the residential mortgage market does not include any assets that are collateralized or backed by subprime residential mortgage loans. In addition, the Company does not have any off-balance sheet exposure to residential mortgage assets as the Company does not hold any investments in off-balance sheet structures such as structured investment vehicles or collateralized debt obligation

More Fedspeak

The Fed’s Poole says the US will skirt a recession, inflation expectations are generally stable.  But, he says inflation is harder to reverse than employment and the Fed policy should not focus on just one issue.  Somebody pull him off the stage please, I believe I heard the gong!

Update:  To be fair, he did say that if inflation increases, it would promise a larger recession later.  Says Fed can always use policy to eliminate recession risk but this comes at the cost of inflation.  It’s still a “if this, then that, but if that, then this”.  And where it stops, noboby knows.

Stock Market and GMAC

The market is trading in a fairly tight range this morning.  Honestly, no telling what the afternoon will bring.  GMAC is planning to shut most of it’s American and Canadian lending offices, leaving open 4 US and 1 Canadian offices.  The Ohio Attorney General, on behalf of state funds, is looking at possible action against Fannie Mae (FNM) over auction-rate securities and a potential lawsuit over disclosure of subprime holdings.

Garmin (GRMN) earnings

Garmin reported Q4 EPS of $1.39 v $1.10 estimate, revenue of $1.22Bv $1.04 estimate.  That’s all good news. Shares were trading up for the first couple hours, but suddenly took a nosedive.  Why?  Because on the conference call they stated they see increasing competition in 2008.  That could cut into their growth and some investors bailed on that news.

U.S. Supreme Court Rules On Retirement Lawsuits

The Supreme Court ruled unanimously that individual suits over retirement losses will be allowed.  This bolsters the rights of 70 million people who could file suit claiming their 401(k) and other retirement plans were mishandled by employers.  I’m not familiar with this particular court ruling, so I only know what came over the wire.  Just wanted to make note in case anyone was interested.

KKR Financial’s Commercial Paper Problems

KKR Financial Corp (KFN) has delayed repayment of billions of dollars of commercial paper for the second time. The bank has also started a new round of restructuring talks with creditors,  less than six months after a rescue rights issue.

S&P down about 10 points, Nasdaq down about 8.5 and the Dow is down around 75 points.  Oil has dropped over a dollar and gold is down 4 bucks.  I see a volatile day unfolding, be careful out there.

Stock Market - Pre Open Report for February 20th 2008

Consumer Price Index (CPI) data for January has been released and it confirms what we here at RebelTraders have been discussing for many months, the consumer is continuing to be pressured by rising costs. The combination of a receding economy, consumer spending contracting, the credit crisis, and the housing market implosion all add up to a sick economy overall. It still makes me laugh every time I hear people say that "the fundamentals are strong".

CPI Data:

JANUARY CPI TABLE
                                       DEC.     Jan. 08    Year/Year
CPI All Items               0.4%      0.4%        4.3%
CPI, Ex Food,
Energy                          0.2%      0.3%        2.5%
Food & Beverages     0.1%      0.7%        4.8%
Housing                       0.3%      0.2%        3.0%
Apparel                        0.1%      0.4%       -0.2%
Transportation            1.0%      0.5%        9.4%
Medical                         0.3%      0.5%        4.9%
Recreation                   0.0%      0.2%        1.0%
Education &
Communication         0.3%      0.4%        3.4%
Energy                         1.7%      0.7%        19.6%

Federal Reserve Chairman Ben Bernanke has been saying for most of 2007 that inflation is "contained". From our vantage point we can not agree with that. As we reported as far back as September of last year we were expecting to see inflation continue to worsen. The futures are down significantly this morning on this news in that it will continue to limit the Federal Reserve and their ability to cut interest rates further. This is all leading to an outright possibility of a credit seizure for the United States.

The S&P Futures have broken below a trend line, this tells us we are looking at a new leg down in the coming days.

 

 

 

 

 

 

 

 

 

 

 

(S&P futures)

Sharper Image (SHRP) has filed for Chapter 11 bankruptcy protection this morning.

Some in the media have been claiming that the housing market may be near a bottom… but today we learned that the ‘MBA Mortgage Applications Survey’ data has indicated that the amount of applications (both refinance and new purchases) has dropped yet again. The REFI index fell -27.9 compared to a drop of -3.0 in the first part of the month. And new purchases fell to -11.5 from -0.3 at the beginning of the month. There is NO bottom in housing and anyone who claims a bottom is in is a speculator, not a follower of facts.