Connelly on Commerce

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

 ”Now is the winter of our discontent” said Shakespeare and the world equity markets, and the good Dr. Bernanke heard and answered with the usual Fed remedy but with a twist of packaging that owes its form to the famous Zithromax treatment for that other winter curse, the upper respiratory bacterial infection.

The by-now famous “Z-Pak” delivers a double up-front dose of antibiotics on the first day, and then tails it down to a more normal dose for the next four days to deliver essentially half the dosage in the first 24 hours, front-loading the remedy to maximum efffect.

Despite notions that the Fed, embarrassed by the disclosure that the market melt in Europe (didn’t Asia matter too?) was all due to Societe Generale secretly unwinding the outsize positions in equity derivatives run up by one of its own rogue traders (and by the way, could the French ‘authorities”, if we can call them that, use a little good old American material event disclosure — how did SG come off not telling the rest of us market participants what had gone on with its accounts until it had swept the debris — nice French derivative word there–under the rug?) …. anyway, the supposed embarrassed Fed will now shy away from any further cuts this Wednesday. This is wishful thinking by those who for quite other reasons believe the Fed’s move was an inflation-inviting, dollar-debasing, moral-hazard waffling, future “bubble” mongering, Bernanke-putting mistake. The Fed crossed a Rubicon last Tuesday morning, whether it fully realized it or not — they shot to kill the incipient recession, and if you do that, you must shoot to kill with all the bullets in your gun. And as Hank Paulson never ceases to point out (you heard it here first), ostensibly to Congress but really to the Fed as well –  “time is off the essence”.

So here’s betting we will get our second dose of monetary Zithro on Wednesday, right after hearing the same morning that at least we weren’t in recession yet in the 4th quarter of 2007.  And so we will proceed  into the most important 1st quarter of 2008 this side of the Super Bowl with the Fed having cut rates  by about 40% in less than six months time: what does that tell you?

Terry Connelly is dean of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

First it was Lawrence Summers with his call on the recession and the need for serious stimulus from both the Fed and the Federal government, then  Bob Rubin chimed in for $100 billion. Now every remaining Presidential candidate from here to Huckabee is coming along with his or her own “stimulus packag” (not to mention the hints from the incumbent in chief; who will probably be constrained to hold his fire until the State of the Union address January 29 (same day as the fed meeting by chance).

 From the Republicans it cut the budget and cut the taxes; from the Democrats, help with the mortgage payments and low and middle income tax rebates for the consumer. (Hillary Clinton’s package is $70 billion — where did she lose $30 billion post-Rubin?

And today secretary paulson weighs to the effect that “time is off the essence” — is this a gentle hint to the Fed to provide an inter-meeting rate cut of at least 50 basis points, say, early next week. Indeed the logic of Chairman Bernanke’s comments yesterday beg the question — why wait? Let’s be on the lookout over the weekend; a surprise cut would catch out a lot of short positions on the Street.