50 bp cut is actually going to be a negative in the medium term for stocks. In the short term, who knows, maybe some shorts will get squeezed out and dumb momo funds will buy at higher prices. The economy is going downhill, its something that is just getting started, and not reflected much in the current stock prices. Right now, the last thing the bulls needed was overenthusiasm over a big rate cut when the reality of the current environment is one that can't be fixed with just rate cuts. There are still too many homes, too many people in over there head in debt with ARM resets coming up. Look how low interest rates were in 2002 and the market still got crushed. Who knows what happens in the next few days, but the market will likely end lower this year once people calm down and face reality that Uncle Ben cannot save the market.
Asset pricing is based on perception. http://www.elitetrader.com/vb/showt...7396&highlight=arealpissedgoy+fed#post1547396 07-28-07 02:15 AM "The sky is falling......The sky is falling......" Amazing what a simple market correction will do to chicken littles who don't trade for a living. This move down was much expected and is a set up to move equity markets to all time historic highs. The fed isn't going to raise rates and M3 is going to keep the markets floating higher. In the meanwhile, all the chicken littles can keep on short selling and screaming "The sky is falling......The sky is falling......"
Interest rates only matter in extreme cases, 50 bp - 75 bp means very little in the big picture. Maybe Uncle Ben will cut rates down to 2-3%, who knows, he is that crazy and may be even easier with money than Easy Al, if that's even possible. But the world is not going to just stand there and invest in dollar based assets if they know the Fed's game is to keep printing dough. They will dump their bonds and dump their dollar based assets and use them to buy non dollar denominated assets.
Trillions worth of ARMS resetting by the end of 2008. Foreclosures continue to skyrocket. If they think 50 BP cut is going to jump start the real estate industry they are really wrong.
Says Mr. Resident ET bear. Is there any news that's not confirming your bearish stance over and over again? 3 months ago it was HIGH INTEREST rates that made you proclaim we're entering a bear market. Now its LOW INTEREST rates. Stay short, it's just short covering on low volume.
You will be the first to know when I turn neutral or bullish my friend, IF you are still around. It would take too long for me to write it out for you at the moment, but it is much more complicated than some simple solution. To make it easy for you and as simple as possible, we'll call it a cycle for now.