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Generational Dynamics Web Log for 22-Jan-08
Fed makes emergency ž% interest rate cut, fearing market rout

Web Log - January, 2008

Fed makes emergency ž% interest rate cut, fearing market rout

Initial market reactions appear to have been minor.

At 8:20 am, the Fed cut the Fed Funds rate by ž% to 3˝% from 4ź%.

The emergency announcement appeared to be a reaction to blowouts in foreign markets.

Asian markets had closed 7-8% down on Tuesday, after falling 4-5% on Monday. European markets had fallen 6-7% on Monday, and were down slightly on Tuesday. Canadian and Latin American markets had fallen 5% on Monday.

Wall Street was closed on Monday, but Fed futures indicated that the that Dow Industrials would be down 513 points at the open.

Once the rate cut was announced there was an immediate "bounce," but it's being called a "dead cat bounce," because it didn't turn the market positive, thought it did make it less negative.

The following table indicates the market futures until 9:30 am, and then the indexes after market open:

                ------------- Futures --------------     Market Open
Time (Tue am)   8:15    8:21    8:47    9:02    9:15    9:35    10:00
--------------- -----   ----    ----    ----    ----    ----    -----
Dow Industrials -513    -156    -283    -481    -418    -439     -266
Nasdaq 100       -90     -51     -38     -82     -70    -108      -62
S&P 500          -68     -42     -38     -60     -53     -51      -32

There was a debate among pundits as to whether this emergency rate cut was a good idea. The argument AGAINST the rate cut is that some people wanted a sharp fall in the markets, so that all the "bad stuff" could be "cleaned out." Some pundits claim that the economy will "grow like gangbusters" in the last half of the year.

Several things are apparent:

The Fed does not appear to be in control. The Fed appears to be in a state of panic.

Last August, the Fed's an emergency cut in the discount rate had a big palliative effect on investor anxiety. This rate cut appears to have no such palliative effect on investors.

There is evidently nothing more that the Fed can do to cure the current crisis.

Nobody has any idea what's going on, and everyone seems to be grasping at straws, desperately hoping that something can change.

From the point of view of Generational Dynamics, the stock market bubble has been leaking for several months, and the leak is turning into a blowout. Absolutely nothing can stop this.

If you go back through history, there are many small or regional recessions. But since the 1600s there have been only five major international financial crises: the 1637 Tulipomania bubble, the South Sea bubble of the 1710s-20s, the bankruptcy of the French monarchy in the 1789, the Panic of 1857, and the 1929 Wall Street crash.

These are called "generational crashes" because they occur every 70-80 years, just as the generation of people who lived through the last one have all disappeared, and the younger generations have resumed the same dangerous credit securitization practices that led to the previous generational crash.

We're now overdue for the next generational crash, and it might occur tomorrow, next week, next month, or next year. However, based on the current market situation, the possibility should be considered that it's imminent. (22-Jan-08) Permanent Link
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Generational Dynamics Web Log for 22-Jan-08 Fed makes emergency ž% interest rate cut, fearing market rout

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Generational Dynamics Web Log for 22-Jan-08
Fed makes emergency ž% interest rate cut, fearing market rout