Fed's plan to take on subprime

[feihong]

To all the gurus out there:

I'm sure everyone is already aware of the DJIA 417 points rally by the time you read this post due to Berno et. al.'s actions:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aMNExWUaiibM&refer=home

What's your opinion on this latest movement? Is the Fed trying to bail out banks by taking subprime on its own? What's your thoughts on its potential impact on credit market, and any longterm repercussion? I personally think that although it may be good short term wise, there could be another bubble in the making before this bubble deflates, if market suddenly feels credit squeeze is no longer an issue, and M&A and massive spending starts again..

 

[Ausprop]

probably a great time to exit stocks if you haven't already

 

[MarkB]

I don't read too much into it (good or bad) and I don't have any comment to make on what implications it will have for Wall St.

It's just the Fed doing what it's got to do.

The two rules that central banks (as central banks) operate under are:

a) Lend freely, but at a high interest rate, and

b) Let the imprudent fail.

It's lending (not giving) money to institutions so the wheels can keep turning.

I'm not saying the Fed is jumping for joy at the rout that is happening with the subprime market, but they likely see some bloodletting as neccesary to allow the system as a whole to move onto bigger and better things.

The Fed will want the market to sort this out, but it doesn't want contagion to take down otherwise good operators.

M

 

[Kennethkohsg]

Dear Feihong,

1. I believe that the positive sentiments are likely to be short-lived as the real key underlying problems to the US Credit Crunch Crisis, are not being adequately addressed i.e as the world largest economy, the US has been "over-spending" more than it earns each year during all these while, resulting in the weakening of the US$ Currency, be it the financing for the US continued military interventions in Iraq, Afghanistan etc or its public consumer spending.

2. Beside over-printing too much of its US $ currency for international circulation and encouraging Americans to live off their debts continually in their own "feel rich" wealth illusion, Bernanke's latest move is likely to weaken/"cheapen" the US Treasury bonds in due course.

3. Future generations of Amercians will probably have to pay dearly for the present over-spending and the financing of its aging babyboomer generation medical/health costs within Amercian polity, in time to come

4. For your further comments and discussion, please.

5. Thank you.

Cheers,
Kenneth KOH

 

[Angelo]

After speaking to a finance broker who was giving a lecture at the property school in Sydney over the weekend, it sounds like America still has a fair bit more pain in the pipelines which will come in the form of ballooning interest payments and peoples inability to pay these repayments

You may want to be a little careful about getting into the stock market at this stage.

 

[asdf]

You may want to be a little careful about getting into the stock market at this stage.

AKA - dead cat bounce

 

[MichaelW]

AKA - dead cat bounce

Yep,

And so long as most people tend to think that's what it is, then that's what it will become. Sentiment is still negative so the trend is likely to remain downwards for the foreseeable future. Its all a sentiment game at the moment. Fear rules the day.

Cheers,
Michael.