Central banks around the world last night executed a coordinated assault on the liquidity crises. The Fed, the ECB, The Bank of England, The Bank of Canada, Sweden’s Risk Bank, China’s central bank, and Switzerland took part. Japan liked the idea but couldn’t play because their rates are already so low. The Federal Reserve cut the Fed Funds Target rate by 50 basis points to put us at 1.50%.
This move is unprecedented because of the coordination involved. Facing slowing consumer spending and rising borrowing costs this feels like a last ditch effort to keep global economies from falling into recession. A military analogy applies here. When in a defensive position things may become so tenuous that in order to keep from being over-run you order a Final Protective Fire. Final Protective Fire (FPF) involves every man on the line dumping everything he has into the wire as fast as he can, and every supporting fire available is called to bear on your line…dangerously close to friendly forces. It is a last ditch effort to keep from being wiped out. This feels like someone just called for FPF.
As soon as I printed the screen shot below it was outdated. The 10-year is now actually trading up almost ¾’s of a point to trade at 3.42%. World Equity Index futures are indicating that the Dow will open down 200 or more. Libor actually increased overnight with the one week spot trading at a 4.51%...that’s up from around a 4.19% most of this week. The Fed Funds effective rate is running at 4.50% this morning although this usually eases down lower in the day as the Feds liquidity operations get traction.
The Fed Funds futures market is now pricing in a 94% chance of a 1.25% Fed Funds level at the 10/29/08 FOMC meeting. Futures are pricing in a 43% chance of a 1.00% level by December.
This will be a very interesting day. Look for more news as the day develops. If you have any questions or if there is anything you need just let me know.
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