Monday, June 05, 2006

Ben Bernanke Speech

Ben Bernanke spoke before the International Monetary Conference today:

In addition, the Committee must continue to resist any tendency for increases in energy and commodity prices to become permanently embedded in core inflation. The best way to prevent increases in energy and commodity prices from leading to persistently higher rates of inflation is by anchoring the publicĂ‚’s long-term inflation expectations.
Ben Bernanke concludes with the following:
Our economy has reaped ample rewards in recent years from the achievement and maintenance of price stability. Although challenges confront us, as they always do, I am confident that we will be able to preserve those hard-won benefits while promoting sustainable economic growth.
At the FOMC June meeting, Mr. Bernanke will raise rates again. I continue to expect a .25% increase.

22 comments:

  1. Whoohoo! Keep those rate hikes coming! Pop the bubble! Pop the Bubble!

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  2. I too expect a 0.25% hike. The 0.5% hike has been dismissed for good reason. But, as you noted, inflation must be kept tame, the dollar must be kept from a large further slide, and the US needs forign money to feed its debt.

    I would add #4: the US also needs to curb consumption of forign goods.

    All of these point to a rate *increase* at the next meeting.

    Neil

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  3. "I would add #4: the US also needs to curb consumption of forign goods."

    Agreed.

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  4. I think (hope?) Helicopter Ben is going to be keeping his trap shut on weekdays for a while after today's market performance.

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  5. Talk of a 50 bps hike for the last meeting was a trial balloon. No one freaked out over it, therefore I think it is a "go" this time.

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  6. 50 bps this time b/c...

    "inflation must be kept tame, the dollar must be kept from a large further slide, and the US needs forign money to feed its debt.

    I would add #4: the US also needs to curb consumption of foreign goods."

    and .25 increases were not getting the job done.

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  7. tomdc/va:
    I hear what you're saying, but I think at this point it's a question of.... 'pay me now or pay me later'. The market will almost always move lower in response to a rise in interest rates. It might just be a question of, does this happen on the day that rates get increased or the day that BB tells people that in the future rates will increase?

    I see it more as an issue of timing than anything else. Nothing wrong with BB chroegraphing his moves.

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  8. I'm in the .50 camp. BB has to prove that he'll be an inflation hawk, and will err on the side of tightening too much rather than not enough. We all remember the destructive power of the inflation of the 70's and early 80's. No one in the Fed wishes us to even remotely creep in the direction of escalating inflation. Just my .02.

    P.S. I work for a real estate law firm. Our in-house title company was in a huge slump at the beginning of the year but has seen business really pick up in the last few weeks. People are dropping prices (albeit modestly) and it's making properties move.

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  9. Not happening 50bps. BB does not have the balls. He will NOT want to be responsible for what happens next if he raises 50bps.

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  10. Quarter and done. Why? Do you think the powers that be will allow BK (aka Bernanke) to push up rates going into the election? If you can't see this then you don't know how the game is played. By the time election is over, we'll probably be in recession.

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  11. hw in dc
    "P.S. I work for a real estate law firm. Our in-house title company was in a huge slump at the beginning of the year but has seen business really pick up in the last few weeks. People are dropping prices (albeit modestly) and it's making properties move."

    Very interesting! I think comments like this would be very helpful to this blogsite. Please keep us posted.

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  12. Part of what Ben Bernanke said today was, "With the economy now evidently in a period of transition, monetary policy must be conducted with great care and with close attention to the evolution of the economic outlook as implied by incoming information. Given recent developments, the medium-term outlook for inflation will receive particular scrutiny."

    I think that signals a quarter point increase. If he feels the need to hike rates quicker, he'd probably do another quarter point change midway between Fed meetings, as Greenspan did a while back.

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  13. Chicken Little Caught the Bird FluJune 05, 2006 10:20 PM

    I think that BB is talking about inflation to get the bond yields up, so that when he does raise .25, he will not create an inverted yield curve. It is not working - still a conundrum. The truth is that there has been plenty of inflation, but the current system of measurement does not recognize the signals. Now that rents are rising, and fuel costs are being passed throught, we will have many more hikes to come. If you think housing is f'ed now, wait til we get back to the 8+ percent interest rates of 1999-2000. We won't see those home hprices again, but we will be closer to them than to where we are now.

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  14. I think you should put your money where your mouth is. Right now on the Chicago Mercantile Exchange you can short real estate futures. You can even pick your favorite real estate market to short (Boston, Chicago, Denver, Las Vegas, LA, Miami, San Diego, DC). Since you're so convinced, I challenge you to put up or shut up. Short $10,000 in the market of your choice and commit to selling it in one year.

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  15. Ha! It's far easier to be a prophet in the wilderness without having to put one's money where one's mouth is.

    Don't expect the followers of the Sacred Bubble to take up the challenge. According to their religious dogma, faith alone will get one into bubble heaven.

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  16. Chicken Little Caught the Bird FluJune 06, 2006 10:09 AM

    Fritz,

    Are you Pro-anything, or just anti-bubble?

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  17. I agree that BB will raise by 1/4 point, with possibility of a final 1/2 point rise in June. No way he will pause. Energy prices and core cpi are still above the fed's comfort zone!

    As for CME housing futures, this index is so new that you would be a fool to play around with it now, until we get a chance to see how the index works in the real world. If you do invest, be sure to get the TIME VALUE on your side by writing CALLS or selling PUTS! Since you want to bet on the bear side of housing, writing a CALL would be a good option to start. Just make sure you have the money in case housing surges unexpectedly!

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  18. Shorting anything is dangerous because your potential for loss in infinite. Its not something that novices should do no matter how confident they are. When you go long, you can't lose more than you invest. But when you go short, there is no limit to how much you can lose.

    On the other hand, there is a mutual fund that I've been intrigued by: ProFunds Short Real Estate. It requires a minimum $15,000 investment. I wish there was a mutual fund that shorted the Dow Jones U.S. Home Construction Index, because I think homebuilders stocks can fall much more than real estate. Real estate has a tendency to just fall by the rate of inflation. Also, commercial real estate is not nearly as overvalued as residential real estate.

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  19. james said...
    Shorting anything is dangerous because your potential for loss in infinite. Its not something that novices should do no matter how confident they are. When you go long, you can't lose more than you invest. But when you go short, there is no limit to how much you can lose.



    I'm confused. I thought that it was "certain" that prices would drop in particular markets. If so, there should be no risk at all in shorting. Sure, it's theoretically possible to lose an infinite amount of money. But if you're really certain that prices will plummet across the board in certain places, if you're really certain that there's a bubble, then there's not much of a risk, eh?

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  20. Buying put options is a great way to take short positions.
    The max loss is your cost of options.
    Plus you won't have to dread the margin call from
    your broker.

    www.hedgestreet.com is a another place to bet on
    real estate decline.
    But since the volumes are really small here, it becomes
    too much work.

    I looked at the CME index some time back. It looked very
    similar to the OFHEO HPI, but w/o the loan confirming limit.
    But dont take my word for it.
    Do your own research and reading.

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  21. I just did a google search for "hedge real estate", and I found this and this. It sounds like it may be exactly what was discussed above.

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  22. We don't want to pop the bubble--that's BAD!!!!! We want the bubble to slowly deflate, that way the values of real estate do not collapse. Look at your phrasing.

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