Sometimes you have to wonder…

[Hyperion]

…how the majority of professional investors are able to keep their jobs?

For more than two years the majority of professional investors, mainly from the mutual fund industry, have brushed aside all bad news and viewed everything as a positive but than wonder when and why there is a problem. In the mean-time they will manage to severely mis-manage their investments.

The markets have screamed their lungs out that there will be a deep housing problem and a credit crunch but the majority were caught by surprise. The data pointed to the headwinds but yet they were all ignored.

Yesterday’s CPI, and very likely next weeks PPI, have showed a continued upward move in inflation, Ben Bernanke’s more than ridiculous rate-cuts which have further devalued the dollar and at the same time have pushed commodity prices across the board to new records which will continue to fuel inflation and sweep consumers of their feet who will cut back on spending which will in turn impact the economy in a negative direction and all you hear about is that the majority hope for more rate-cuts.

The more ignorant market participants are the more they will feel the negative impact and do you really want to bail them out?

Why?

They do not deserve any help.

Markets will reward companies who have managed their business in a sophisticated manner and punish those who do the opposite. The economy, financial markets and business in general will move in cycles and any sound business will manage their performance in any market condition.

The housing crisis was telegraphed by the markets to investors but it seems that the language was not understood or simply ignored. The same is true for the credit crisis.

Just one small point to make when it comes to credit and interest rates:

Any business or consumer whose decision to take out a loan will be drastically affected by a rate-cut, regardless of the size of the rate-cut, should not take out a loan in the first place. Therefore the idea that a lowered interest rate will have a severe positive impact is false and dangerous because:

a) It encourages spending and discourages saving which is not what the economy and the consumers need at the moment
b) It increase input costs across the board for businesses which will continue to fuel inflation
c) The increased costs will filter through to consumers which will have a negative impact on their spending and for the economy

The Philadelphia Fed Survey came in worse than expected but should not surprise anyone. Expectations were too positive given all other reports.

Will investors care?

No, the hope for more rate-cuts, which is the partial cause of the problems to start with, and therefore the report may be viewed as good.

When bad economic data, which even points to a weak economy in the future, is cheered as a good sign any half-way intelligent mammal who is capable to communicate with words should know that something is wrong and that reality is on a vacation.

Regardless of the pull-back so far, equity markets are still over-valued (unless you really believe that P/E ratios can justify a long position).

[Evil-Eye]

Originally Posted by Hyperion

…how the majority of professional investors are able to keep their jobs?

For more than two years the majority of professional investors, mainly from the mutual fund industry, have brushed aside all bad news and viewed everything as a positive but than wonder when and why there is a problem. In the mean-time they will manage to severely mis-manage their investments.

The markets have screamed their lungs out that there will be a deep housing problem and a credit crunch but the majority were caught by surprise. The data pointed to the headwinds but yet they were all ignored.

Yesterday’s CPI, and very likely next weeks PPI, have showed a continued upward move in inflation, Ben Bernanke’s more than ridiculous rate-cuts which have further devalued the dollar and at the same time have pushed commodity prices across the board to new records which will continue to fuel inflation and sweep consumers of their feet who will cut back on spending which will in turn impact the economy in a negative direction and all you hear about is that the majority hope for more rate-cuts.

The more ignorant market participants are the more they will feel the negative impact and do you really want to bail them out?

Why?

They do not deserve any help.

Markets will reward companies who have managed their business in a sophisticated manner and punish those who do the opposite. The economy, financial markets and business in general will move in cycles and any sound business will manage their performance in any market condition.

The housing crisis was telegraphed by the markets to investors but it seems that the language was not understood or simply ignored. The same is true for the credit crisis.

Just one small point to make when it comes to credit and interest rates:

Any business or consumer whose decision to take out a loan will be drastically affected by a rate-cut, regardless of the size of the rate-cut, should not take out a loan in the first place. Therefore the idea that a lowered interest rate will have a severe positive impact is false and dangerous because:

a) It encourages spending and discourages saving which is not what the economy and the consumers need at the moment
b) It increase input costs across the board for businesses which will continue to fuel inflation
c) The increased costs will filter through to consumers which will have a negative impact on their spending and for the economy

The Philadelphia Fed Survey came in worse than expected but should not surprise anyone. Expectations were too positive given all other reports.

Will investors care?

No, the hope for more rate-cuts, which is the partial cause of the problems to start with, and therefore the report may be viewed as good.

When bad economic data, which even points to a weak economy in the future, is cheered as a good sign any half-way intelligent mammal who is capable to communicate with words should know that something is wrong and that reality is on a vacation.

Regardless of the pull-back so far, equity markets are still over-valued (unless you really believe that P/E ratios can justify a long position).

While I see your skepticism for consumer rates these cuts are more for banks then consumers. The rate cuts will also force out the $$ flowing into MM accounts which are hitting record highs.

Wholesale mortgage rates have risen about 1% in less than a month. The cut caused a quick dip in rates but then they went back to where they were. This I assume is due to the banks recouping their losses. The way banks stay in business.

The commercial money dried up. It had been doing well through the consumer credit mess but it finally fell. I say again this problem was created by the rise in interest rates and only will get solved by a cut in the interest rates. The theory that the falling dollar is causing commodity inflation is a little off. Demand has more to do with it.

You want oil prices to drop? Stop using Oil and see what happens. Look at what happened to oil prices when the light bulb was invented. Oil didn't recover until th mass produced automobile came into use.

[Hyperion]

Well, the rate-cuts will primarily have an effect on banks but the hope is that it will give a boost to consumer spending. Exactly, it will force out money from fix-income and possibly increase total debt levels while at the same time reducing foreign investment.

The problems have not been caused by a rise in interest rates but by market participants and the markets took care of that issue.

Commodity prices have decoupled from the supply-demand issue and the recent spike has nothing to do with supply-demand. The primary driver was (and will continue to be) the drop in the U.S. Dollar which has accelerated since Bernanke cut rates.

The rate-cuts so far (as well as the possible rate cut during the next meeting) will have a greater negative impact on the economy than the hoped for positive boost. The more Ben cuts rates the worse the scenario will get.