Ask the Advisor – 12/11/2007

12/11/2007:

In today’s post, Hoboken411’s Financial Advisor discusses recent economic news making headlines.

Good Tidings & UnCheer?

ask-the-advisor-hoboken411-logo-small.jpg“Financial markets can kiss goodbye any chance of a half-point cut,” Chief U.S. Macro-Economist from Bank of Tokyo’s Ellen Zentner said this past weekend.

With the release from the Labor Department last week, the nation gained a modest 94,000 jobs in November, pulling back considerably from the previous month in the clearest sign yet that the American economy was headed for a substantial slowdown. The jobs report, a religiously much-anticipated indicator of the health of the economy, also provided some comfort that the U.S. had not quite slipped into a recession and might not be weakening as rapidly as some experts feared. With business leaders expressing uncertainty about the prospects for further growth, a better view of the direction of the economy was not likely to emerge until next year. “The expansion is intact, but increasingly frayed,” mentioned Mark Zandi, Chief Economist at Moody’s Economy. The job creation numbers are indicative of a very fragile economy that will come undone unless conditions improve soon. The unemployment rate held a steady 4.7% for the third consecutive month, as households found strong growth in the number of people saying they found new jobs last month.

On Wall Street, markets barely moved Friday, absorbing the jobs data with ambivalence. The employment picture offered assurance that the economy was not plummeting and might continue to expand, sustaining corporate profits. But those very assurances sowed worry that the Federal Reserve would feel less pressure to ease interest rates aggressively when it convened last week. A number of market participants have urged a half-point cut, as well all know, in the Fed’s key throttle control over the banking system, which has dominated decision-making across all industries. Central bankers have signaled that they intend to try to avert a recession with looser credit, but remain wary of fueling inflation with an unnecessarily sharp cut in rates.

Research conducted and supported by The Wall Street Journal and MSNBC for week of December 10, 2007.

Have any questions for our Financial Advisor this week? Put her to the test and see what she comes up with!

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53 Comments on "Ask the Advisor – 12/11/2007"

Hobo91
Member

The OIS (Overnight Index Swap) curve is benchmarked at the Fed Fund rate. It’s allowing institutions that can currently borrow from the Fed at the discount rate to now bid at lower rates ( the projected Fed Effective rate over the term of the auction). There will be no new banks going to Fed to borrow. There will be an additional $40 billion available to current institutions at lower rates.

By bringing in the ECB, troubled European banks will be able to tap $20 bilion in funding.

rag246
Member
rag246

Hobo – I was thinking the opposite – wondering what the yield will be on the auctions and thinking they’ll go off in th 5’s. It’s demand driven, right? One would think if liquidity is so scarce the private sector would pay a premium for it.

I admit I’m removed from that space – not a trader – so I might be reading this thing all wrong.

Hobo91
Member

Good quote that came accross the wire:

WACHOVIA CEO SAYS CREDIT CRUNCH IS NOT OVER AND ‘I DON’T KNOW WHAT INNING WE ARE IN’ – RTRS WACHOVIA CEO SAYS THIS IS ‘AS TOUGH AN ENVIRONMENT AS I’VE EVER SEEN’ – RTRS

Hobo91
Member

More announcements from the Fed:

http://www.federalreserve.gov/newsevents/press/monetary/20071212a.htm

First impression is that there is nothing extraoridinary about the liquidity injections. No lenghtening of the one month term and no substantial collateral being made avaiabkle.

The new auctions should definitely go off at levels lower then current discount rate. Amounts are not substanial.

I like the fact that they are opening a small USD window to European institutions that currently can’t borrow at Fed. It might bring small relief.

At the moment, there is still no meaningful $$$ available. We’ll see how it pans out. 3 month FRA offered at 4.94 at the moment.

Stpaddygirl
Member

Kooky Kat is miserable !

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