Ahh, another Fed Day has arrived -- and just in time to stimulate a more joyous holiday shopping experience for all of us!   Who can guess what kind of zany, utterly mindless reaction will greet the “news” today that virtually every tape-watcher in America has known for weeks was coming?  (Click here  for Elmo’s reaction.)  Well, okay, there seems to be some minor confusion on the point:  Are we supposed to be getting 25 basis points this time; or the full-monty, 50?  No matter.  If it’s only 25, then the next 25 points will put some needed pizzazz into stolid January.  Then we could look for 25 more in February for sure, since there’s no way the central bank would make us slog through such a deadly, grey month as February without tossing us some kind of monetary treat.  Personally, we’ve got our fingers crossed hoping that Punxsutawney Phil will see his shadow on February 2. Imagine how sorry the Fed is going to feel for us if ol’ Phil predicts six more weeks of winter. 

We’ve written here before about the shameful histrionics that accompany each and every instance of easing no matter how widely it has been anticipated on Wall Street.  Of course, buyers don’t go crazy with exuberance because they actually believe yet one more rate cut will turn the deeply depressed housing market around, but because they know that all of the other OPM managers out there cannot possibly sit idly by when news of a rate cut hits in real time.

Unaffordable California

Speaking of the housing market, it can only get worse, as this blog-note from MarketWatch makes absolutely clear (with thanks to subscriber Mark Sullivan for sending it along).  Do the math yourself if you think we’ve jumped to a conclusion: "In Northern California, a household income of $90,000 per year could legitimately pay the minimum monthly payment on an Option ARM on a million home for the past several years. Most Option ARMs allowed zero to 5% down. Therefore, given the average income of the Bay Area, most families could buy that million dollar home. A home seller had a vast pool of available buyers.

“Now, with all the exotic programs gone, a household income of $175,000 is needed to buy that same home, which is about 10% of the Bay Area households. And, inventories are up 500%. So, in a nutshell we have 90% fewer qualified buyers for five-times the number of homes. To get housing moving again in Northern California, either all the exotic programs must come back, everyone must get a 100% raise or home prices have to fall 50%. None, except the last, sound remotely possible."

Actually, there’s a fourth possibility that has been suggested by those of our colleagues whom we regard as lotus-eaters:  hyperinflation. Imagine how easy it would be to pay off a $300,000 mortgage when your quintillion-dollar paycheck will barely cover a week’s groceries.