Wednesday, December 12, 2007

The Great Fed Bluff that Got Whacked Back

Folks, we must be mindfull of the fact that we're only in maybe year 2 of at least a 5 year residential mortgage cycle full of resets. Today was a roller coaster, huge. Markets opened high on upside due to the 'Fed Auction' surpise pump this morning, then reality set in by 4pm with only a minor gain, way down from yesterday's whipping. Here are two astute reader comments from Roubini's blog... a) "It seems absurd that the Fed would think a secret and anonymous auction of central bank funds could be useful in addressing a crisis of confidence arising from a lack of transparency and liquidity for unpriced, unmarketed synthetic assets and liabilities. The bids and winners will be secret, but everyone will know that whoever won was damn desperate - and that whoever didn't win will be tight and desperate too." b) "All you guys/gals have to do to see who will be at the auction is just go to and look at the top offering rates for 3 month CD's and you will see that names like Countrywide and ETrade ore offering CD rates 100 bps above the current Fed funds rate and 85 bps above where they could borrow Fed Funds or do Repo's...there is you answer."