Find the bubbles as early as possible.
Buy them.
The trend is your friend, ’til the end, when it bends.
This is most likely your single best hope to have your personal wealth growth exceed, by a wide margin, the increase in your cost of living over time.
The document doesn't say much about this data except in the following paragraph:"In late-August, developments influencing reserve supply grew more uncertain, including the possibility of heavy use of the discount window under its altered terms. In response, the Desk adjusted the composition of its portfolio to include a somewhat higher level of RPs and lower level of outright holdings, by arranging two redemptions of bill holdings at weekly auctions. In December, further redemptions were made and adjustments to outstanding RPs made as needed, to accommodate the impact of TAF loans and swap drawings on reserve supplies. These adjustments were designed to maintain an overall level of reserves consistent with achieving the operating objective for the overnight federal funds rate while still meeting the objectives of the TAF and swap programs."
Here’s what they meant:
"We thought in August that there would be a run on the discount window, so we began to cut the size of the permanent SOMA to allow more reserves to go out the Window. Oops nobody showed up. So we started the TAF, and cut the size of the SOMA even more. But the effective Fed Funds rate in the market kept dropping faster than we could lower the official rate. So we had to cut the size of the SOMA even faster so that the effective Fed Funds rate wouldn’t collapse too far below our targets and reveal us to be the powerless Eunuchs that we are.
We didn’t think about the fact that removing reserves from the Primary Dealer accounts would trigger a mass liquidation in stocks."
So what does this all mean? It means the Fed has very little control over the short rate, the consequent open market liquidity, and therefore has little in its bag of tools to effect or "stabilize" the economy. Credit spreads have remained fairly constant and the banks overnight lending rate has been falling even though the Fed has been aggressively reducing the amount of cash.
“Over the past few months, we have become increasingly concerned that the U.S. housing and credit market downturn would trigger not just a growth slowdown and substantial Fed easing — our long-standing view — but also an outright recession. The latest data suggest that recession has now arrived, or will very shortly,” Goldman said in a research note. The bank also expects a decline in consumer spending, which didn’t happen during the 2001 recession, amid spillover from the housing market."
"The US has entered its first full-blown economic recession in 16 years, according to investment bank Merrill Lynch.
Merrill, itself one of Wall Street's biggest casualties of the sub-prime crisis, is the first major bank to declare that a recession in the world's biggest economy is now underway.
US Treasury Secretary Hank Paulson has admitted that the US economy faces severe challenges David Rosenberg, the bank's chief North American economist, argues that a weakening employment picture and declining retail sales signal the economy has tipped into its first month of recession.
Mr Rosenberg, who is well-respected on Wall Street, argues: "According to our analysis, this [recession] isn't even a forecast any more but is a present day reality."
