9/17/07: Bernanke will cut rates by 25bp, inflation is here to stay, Europeans love American tech, and GM goes solar
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Most economists expect 25bp cut tomorrow
Dealbreaker, a widely-read business blog, contained a post written by John Carney speculating on what leading economists anticipated from tomorrow’ Fed announcement and the much-expected rate cut. The post was titled “Anticipation Day.” Although he stated the obvious by mentioning “there's a clear consensus that the Fed will cut the target rate,” Carney was sure to add that there was, “no consensus about how far the cuts will go.”
He cited a recently conducted survey of economists which found that “77% of respondents expect a 25 basis point cut, 18% expect a 50bp cut, and 5% expect no cut at all.”
The majority of economists and investors seem convinced that a 25 basis point cut is the most likely scenario. However, speculation remains as to whether the Fed will opt for a rate cut of 50 basis points, bringing the key interest rate down to 4.75%. Carney predicted that various members of the Federal Open Market Committee could still sway the rate cut towards 50bp.
Despite cut, inflation won’t go away
The Big Picture- a popular financial blog- believes that the consumer price index and various commodity markets, will effectively ensure that inflation is here to stay; with or without a rate cut. The author of Big Picture is Barry Ritholtz, the chief market strategist for an institutional research firm and fund-manager for a New York-based hedge fund. Ritholtz’s post stated that certain analysts and business bloggers are crying out for a rate cut because they claim that “the economy is slowing, the Fed must cut rates.”
It is clear that Big Picture believes otherwise. Their post states that inflation looms large on today’s economy and that it could keep the Fed from making the big 50bp cut that many investors and hedge-fund managers were hoping for. The post noted “what we continue to find is that inflation remains sticky - even as the economy cools.”
The main reasons contributing to the “stickiness” of inflation include the fact that “oil is near all time (nominal) highs of $80, while Gold advances to a near 16-month high.” Additionally, the post noted that “health-care inflation continues to gain at double digit levels.” Other factors include, “corn hitting over $4.50 last week, wheat is near $9/bushel, soybeans rise to 3-year high.” While other commodities such as, “natural gas and orange juice continue to soar and dairy prices have almost doubled from 2 years ago.”
Ritholtz was confident that the Fed is well aware of all of these issues and that it could impact on their decision to cut rates tomorrow. The author of the post was sure to note, however, that “I don’t expect a 50bp cut.”
European buyers love US tech firms
The New York Times Dealbook, a blog edited by Andrew Russ Sorkin, contained a post this morning regarding the keen European interest in American technology companies. A recent study released by the 451 Group (an independent technology industry analyst group) notes that “European acquirers nearly doubled their spending on North American technology companies in the first half of 2007, a boon for investment bankers that advise on trans-Atlantic transactions.”
While America’s dollar has been steadily losing ground against the Euro, it could be said that these acquisitions are indicative of a broader trend. The 451 Report also stated that “over the past year, the dollar has lost about 8% of its value, relative to the euro. That works out to an $80,000 'rebate' on every $1m spent by European shoppers in the US compared to last year.”
The post revealed that “European-based acquirers- including both operating companies and investment firms- spent $27.9 billion on North American technology companies in the year ended June 30, 2007.” Some of the largest deals included Ericcon’s 2.1 billion dollar purchase of Redback Networks while Siemens weighed in with a 3.5 billion dollar deal to purchase UGS.
GM enters the solar power business
Green Car Congress, a popular blog related to green vehicles and the energy industry, is reporting that General Motors is furthering its commitment to sustainable energy. One of their recent posts noted that “GM is adding a major solar power installation to the roof of its Service and Parts Operations (SPO) warehouse in Fontana, California.” It is important to emphasize that this is not a case of a company installing a single solar panel and then issuing a press release, GM is in the process of installing a significant amount of solar panels. “The system will generate about 1.3 million kWh of electricity a year, about the amount needed to power 200 homes for one year.”
According to the post, “the solar power array will provide about half of the electricity needed to run the facility and will feed extra electricity back to the grid.” Interestingly enough, GM has purposely decided to install more solar power cells than they require for their own needs and they plan to add excess power to the existing power grid. The post also noted that “electricity generated by the solar array not used by the GM facility will be fed back to the grid for sale to other area residents and businesses.”
GM will effectively “reduce greenhouse gas emissions by 355 metric tons each year, while reducing its electricity costs by about 10% a year.” The fact that they will also be selling off excess energy represents a new (albeit small) stream of revenue. It should also be noted that the cost of the solar panels will be partly subsidized by the State of California.
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