I think the Fed has begun to pull the trigger and some of the US$ carry trade is reversing is how I would interpret yesterday’s sell off and today’s lower pace. The US$ did get over 148 Euro/US$ ratio premarket and now has slumped slightly. The entire market has seen some support by this in my view Treasuries especially.

The question is where we go from here. I think Wesbury (Brian) has it right and that the ISM PMI will surprise on the upside. But, will psychology lean towards a positive 12mos or will Malpass’ and other forecasts for a 4Q dip evolve?

I would guess that the ship which has turned will continue its direction and that Wesbury has it right barring an unexpected negative event. Unpredictable concerns include the NY terror team which looks to be larger than first thought and we could have other members moving ahead of which we are not aware. There is also a potential and very likely Israeli attack on Iranian nuclear facilities before year end. Both of these events would strengthen the US$ and cause markets to pull back. Without this type of event, the market will continue to rise in my opinion.

When markets esp commodities continue to rise with a falling US$ AND falling US Rates, I think carry trade. I don’t see inflation in the Dallas Fed numbers (Trimmed mean PCE). I see inflation as coming from lack of economic slack and too much money. Either can be the controlling factor depending on economic weakness. The excess capacity coupled with low demand(low monetary velocity) means that money is collecting in commodities and driving up price. If the stuff is not being bought, then a general inflation cannot occur till consumers begin to spend money on goods.

We have to watch for signals where ever they may arise very, very carefully because velocity is the key. If the Fed acts correctly, then velocity will return as the Fed withdraws excess funding. This will be walking a tightrope. The street has already bet on recovery(w/which I agree) and inflation(which has yet to be seen). Gold is not reliable nor are any other commodities whose prices are part momentum trades with not much relation to anything but trader expectation at the moment.

I see us at the top of a seesaw that is wavering but more or less in balance. Which way it is going remains to be seen. Bernanke has fired a shot across the bow of the carry trade because a severe correction or reversal will not be good for the world economy. We need an appropriate SLOW and TIMELY adjustment.

Munger is by far the less known of the Buffett/Munger duo but may really be the more interesting of the two. This is a great listen and very well done by Whitney Tilson.

MP3

AutoNation Inc (AN.N), the top U.S. auto dealership chain, is ready to go “on offense” by acquiring new stores and buying more vehicles as it bets that the battered U.S. auto market is headed for a long and steady recovery, the company’s chief executive said.

“We’re through the abyss. We’re through the trough. There’s no question in my mind,” AutoNation Chief Executive Mike Jackson said in an interview with Reuters.

Jackson forecast a gradual recovery in U.S. auto sales that would take the market back from near 10 million sales this year to more than 15 million unit sales over the next several years.

“We’re not afraid to buy Ford or Chevy franchises where we were in the past,” Jackson said in a wide-ranging interview in his office at AutoNation’s headquarters. “We’ve increased our orders by 50 percent for inventory. We’re doing a whole range of things as we move out of a defensive posture.”

AutoNation benefited from a decision to cut costs early as the recession took hold by cutting jobs and slashing inventory, steps that protected its profitability and balance sheet during a downturn that proved to be far deeper than expected, Jackson and other senior executives said.

But Jackson said the U.S. government-funded bankruptcies for General Motors Co GM.UL and Chrysler had removed a major risk for the industry and killed a “production-push business model” characterized by high inventories for Detroit-made products and sharp discounting through incentives.

‘NEVER BEEN MORE OPTIMISTIC’

“From my time in the auto business, I have never been more optimistic about the long term,” said Jackson, who took over the AutoNation top post a decade ago after a position with BMW. “The sword hanging over the industry is gone.”

He added: “We’re seeing that there’s going to be a gradual recovery, but there’s going to be six to seven years of open recovery.”

There really is not much new here, but, its out there so lets deliver it to you, right?

This goes to a post done here in August after Mike Maroone gave the following interview:

Bottom line is, and longtime readers know this point has been pounded home here since late last year is that recessions are good in that they clear away the fat. In the US auto business that fat has been thousands of unnecessary dealerships. Those dealers left will have larger market share and increased pricing power, both very good things. Being the largest dealer in the US, and losing only a handful of locations that will ultimately be converted to other uses (changes in brand sales), AutoNation is by far the clear hands down winner in the space.

Here is the link for the full Reuters article

Additional Reuters inteview

AutoNation Inc (AN.N), the top U.S. auto dealership chain, is ready to go “on offense” by acquiring new stores and buying more vehicles as it bets that the battered U.S. auto market is headed for a long and steady recovery, the company’s chief executive said.

“We’re through the abyss. We’re through the trough. There’s no question in my mind,” AutoNation Chief Executive Mike Jackson said in an interview with Reuters.

Jackson forecast a gradual recovery in U.S. auto sales that would take the market back from near 10 million sales this year to more than 15 million unit sales over the next several years.

“We’re not afraid to buy Ford or Chevy franchises where we were in the past,” Jackson said in a wide-ranging interview in his office at AutoNation’s headquarters. “We’ve increased our orders by 50 percent for inventory. We’re doing a whole range of things as we move out of a defensive posture.”

AutoNation benefited from a decision to cut costs early as the recession took hold by cutting jobs and slashing inventory, steps that protected its profitability and balance sheet during a downturn that proved to be far deeper than expected, Jackson and other senior executives said.

But Jackson said the U.S. government-funded bankruptcies for General Motors Co GM.UL and Chrysler had removed a major risk for the industry and killed a “production-push business model” characterized by high inventories for Detroit-made products and sharp discounting through incentives.

‘NEVER BEEN MORE OPTIMISTIC’

“From my time in the auto business, I have never been more optimistic about the long term,” said Jackson, who took over the AutoNation top post a decade ago after a position with BMW. “The sword hanging over the industry is gone.”

He added: “We’re seeing that there’s going to be a gradual recovery, but there’s going to be six to seven years of open recovery.”

There really is not much new here, but, its out there so lets deliver it to you, right?

This goes to a post done here in August after Mike Maroone gave the following interview:

Bottom line is, and longtime readers know this point has been pounded home here since late last year is that recessions are good in that they clear away the fat. In the US auto business that fat has been thousands of unnecessary dealerships. Those dealers left will have larger market share and increased pricing power, both very good things. Being the largest dealer in the US, and losing only a handful of locations that will ultimately be converted to other uses (changes in brand sales), AutoNation is by far the clear hands down winner in the space.

Here is the link for the full Reuters article

Additional Reuters inteview

So the FMOC released its statement today:

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Anyone who is surprised by any of this? Didn’t think so. The FOMC statements won’t get interesting until next year when people are expecting rate increases and want to hear about the economy expanding, not just improving…

Summary
How was it possible that in a world where thousands of people regulated financial markets the whole system crashed down? And should we now give more power to central banks, government agencies, politicians, and regulators? Isn’t that what brought us here in the first place?

Financial Fiasco digs deep into the foundation of the economic meltdown, revealing how it was the product of conscious actions by decisionmakers in companies, government agencies, and political institutions, and by consumers. Financial Fiasco tells the compelling story of how rate-cutting by the Federal Reserve inflated the real estate market and fueled increased risk-taking in the financial markets; how new government policies to promote home ownership blasted air into the credit bubble; how new financial instruments, credit-rating requirements, and accounting rules intended to prevent cheating backfired; and much more.

Financial Fiasco guides readers through a world of irresponsible behavior, warns that many of the “solutions” being implemented are repeating the mistakes that caused the crisis, and offers guidance on how to move forward.

Summary
How was it possible that in a world where thousands of people regulated financial markets the whole system crashed down? And should we now give more power to central banks, government agencies, politicians, and regulators? Isn’t that what brought us here in the first place?

Financial Fiasco digs deep into the foundation of the economic meltdown, revealing how it was the product of conscious actions by decisionmakers in companies, government agencies, and political institutions, and by consumers. Financial Fiasco tells the compelling story of how rate-cutting by the Federal Reserve inflated the real estate market and fueled increased risk-taking in the financial markets; how new government policies to promote home ownership blasted air into the credit bubble; how new financial instruments, credit-rating requirements, and accounting rules intended to prevent cheating backfired; and much more.

Financial Fiasco guides readers through a world of irresponsible behavior, warns that many of the “solutions” being implemented are repeating the mistakes that caused the crisis, and offers guidance on how to move forward.

Join the creators of BackStory with the American History Guys for a live taping of the radio show at the Miller Center. BackStory is the American history-themed public radio show hosted by University of Virginia History Professor Peter Onuf, University of Richmond President Edward Ayers, and Miller Center GAGE Chair Brian Balogh.

The show’s theme is “Looking for Work: A History of Unemployment,” and explores themes such as joblessness, immigration, and internal migration through three centuries of American life.