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Everyone keeps focusing on Fed Funds and will the Fed Ease. This is like looking at the oil inventories and trying to call oil prices...they are not related...

The global fed governors and equivalent have been raising the cost of capital for two years or more and trying to squeeze the hedge funds to slow and ultimately stop the leverage that has been deployed. The policy makers have succeeded. The first inning is over and now we move to the next inning. This week the hedge funds receive their forward notices for redemption's that might take place at the end of September.....this would be for the lucky few that have their money placed in still liquid hedge funds managers...also many limited partners may not have this option available to them as lock ups and or notices require maybe several months or years before they can try to retrieve their money back through redemption's. Never the less capital has to be raised and stocks have to be sold as this is their only source of money. The prime brokers and commercial lenders are ALL calling in their loans to these businesses and thus creating this shortage of capital...the sub prime housing lending is an entirely different story but related in the sense that risk capital was grossly miss priced and is now in the process of adjusting to higher levels which is were it should have been and will remain.

The next shoe to drop is the $300 billion of bridge loans committed to (in error) by wall street to complete the private equity transactions previously announced and expected to close in September.....nothing in the capital markets is going to happen until these deals get absorbed, busted or renegotiated at a loss to all involved....this is why the fixed income markets are at a stand still and will remain so and why the fed can do NOTHING right now and will do nothing...they want more pain and this nonsense to stop...and the old adage NEVER FIGHT THE FED is back and being relearned by those new to the game.....you also never price or close deals in August or September for those who have been around for awhile.....this is when most of the world is closed historically to the "calendar" investors, bankers and dealers have forgotten this key rule of thumb.

More fun facts:

1) Proprietary leading indicators are turning up for the first time in two years...a major positive.
2) Demand for money is increasing and the Fed will accommodate ..as they are beginning to put money back into the system....this is what you are starting to see...they have been correctly strangulating the money supply to get this current state of affairs.
3) The "Crowded trade" is over i.e. private equity and the unsupervised hedge funds in leveraged debt. This is wildly positive for traditional long only high quality blue chip stock investing and the over all general economy.
4) The "Quantitative model" experienced it's 10,000 year standard deviation...once again the PHD's were wrong...like LTCM in 1998- 1999.
5) Year to date the the Federal government has taken in a record $2.1 trillion up 7% year over year, individual income receipts is up 11% and corporate income receipts are up 10.7%. The idea taxes has to be raise is a fallacy and the economy is not weak it is strong.

Danny Boy seen here likes what he sees and is looking forward to a great boat ride....he wonders what it would be like with Hillary Clinton and Nancy Pelosi sipping coffee in Air force One flying across this great nation and the potential and incredible damage they could cause to the markets ...undoing all the the great policies Ronald Reagan started 25 years ago.,