Well the fireworks sure went off this morning with the Bank of Canada cutting rates as expected the Bank of Japan deciding unanimously not to do anything. The Bank of Japan said that they still expect growth to be strong and that exports are strong and there is a “virtuous” cycle of increased production, growth, and income. They said that the housing market is the only disappointment in their economy currently, that inflation will persist and that they are not lowering their growth projections for 2008. The Bank of Canada said they are lowering their growth projections for 2008 and that inflation has been lower due to increased competition in the retail sector due to the stronger Canadian Dollar. I think it is also due to the fact that the rise in commodity prices has been mostly offset by the rise in the Canadian Dollar’s purchasing power of commodities priced in U.S. dollars. They also mention that further monetary stimulus will be needed, from which it can be implied that they will cut rates again soon. The big news of course was the 75 basis point cut (.75%) to the overnight interest rate in the U.S. during an emergency meeting. This hardly buoys confidence when the situation is so dire that the supposedly stoic central bank is scrambling around trying to bail water out of a sinking ship. No amount of rate cutting at this point is going to save our ship; it will most likely just serve to sink it faster due to the meddling of the Fed. The Stock market was able to rally today on the news and make back most of what it lost on Monday while the dollar is giving back its recent gains. This should make the Fed happy with their unofficial weak dollar policy in place. Dollar sellers now have another reason to sell the dollar, lower interest rates which will make already weak interest in treasuries that much weaker. Now that the Federal Reserve is buying them up like crazy and driving yields down. Really the only reason to buy them at this point would be bargain hunting, by betting that the dollar will recover. The problem with this whole situation is that as long as the dollar remains weak, commodity prices will remain high and inflation will also be high. This bail out tax relief plan is a joke also. Since as some astute members of congress pointed out last week most of the money from the last such refund went straight to the banks anyways. While this might improve the lot of some already enormously wealthy institutions it does nothing to help the average man. If we wanted to help the working man we would get rid of the I.R.S. all together and tell the Fed to find another way to make their money. Then maybe we could affect some structural reforms that are badly needed. Put simply the system is broken a tax kickback won’t fix it and sooner or later the house of cards the Fed built will come tumbling down. The Richmond Fed manufacturing Index came out twice as bad as last month at -8. Tonight some important data from Australia is to be released, first the WestPac Leading Index and then Quarter on Quarter CPI which is expected to come out 1% higher but which I suspect will beat that expectation. Also the heads of the Bank of England and the ECB are scheduled to speak this afternoon and tomorrow respectively. The deputy governor of the BOE already said that growth was ”slowing quite sharply” and that inflation was going to be high for a long time, especially if the pound loses more value. I am sure the rest of the central bankers out there will try to soothe the markets and tell them it will be alright. It is all about damage control at this point. The bank of England minutes from the last meeting are to be released at 4:30 am along with UK GDP which is supposed to show slower growth than the last reading at .5% quarter on quarter and to shave overall growth to 2.8% on the year. This would not exactly an endorsement to buy Sterling. Tomorrow night at 6:50 pm The RBNZ is expected to keep rates at 8.25% and based on everything I have heard and seen I would agree with this forecast. This should help the Kiwi hold on to today’s gains.
