Monday, August 27, 2007

Ken Fisher: Ballyhoo and the return of greed

Something I meant to post last week, From FT Alphaville:

More calming views this morning, this time courtesy of Ken Fisher, chairman of Fisher Wealth management, writing in the FT’s Insight column.

It’s all just a typical bull market correction, says Fisher:

Conclusion: this is a much ballyhooed, much ado phony credit crunch, not yet recognised as such.

Fisher’s main point is that market players are hoarding cash - not a typical sign of an early bear market, but rather the last stages of a correction:

How to know that? For most of history, US Treasury bill rates have been inelastic relative to Fed Fund rates.

The T-bills have been just a hair below the Fed Funds rate. (Note: T-bills can’t exceed the Fed Funds rate for long or banks would borrow Fed Funds endlessly to buy T-Bills).

When that gap, T-bills below the Fed Funds, has widened very far, say more than 1.25 per cent, it has almost always been from the Federal Reserve jerking its benchmark up in the short-to-intermediate term.

When the gap widens solely from the T-bills falling – while the Fed Funds rate remains steady – it means non-profitable cash hoarding and that is what is going on now....More

And a different view from The Economist:
Enjoy the relative calm, it may not last

THE relief is palpable, though it may prove short-lived. Efforts by central banks to jump-start stalled financial markets by injecting huge amounts of liquidity—and, in the Federal Reserve’s case, by cutting the lending rate at its banks-only “discount window”—have kept worst-case scenarios at bay. But uncertainty over who holds what assets, and what losses have hit where, should keep prudent investors on edge.

For better or worse, there are signs that investors are tiptoeing back into riskier assets, one toe at a time. On August 24th the yield on “safe-haven” three-month US Treasury bills rose for a fourth straight day, reversing an earlier collapse when money-market funds and others switched out of commercial paper and other short-term corporate IOUs (see chart)....