The sad part about the way the market is using the Fed is: The powers to be tank the market before a Fed Meeting so Bernie will lower the rates. In reality the only thing that really drives a stock market higher is good earnings reported by 75% or more of the companies in the SP500. For the first time in the 4.5 years of this bull market that has not happened in this 3rd quarter reporting period so far, "but" this reporting period is far from over. These rate cuts are like placing a Sponge Bob band-aid on a severed artery, but they provide good shorting opportunities after the rate cut rally.
I think if they cut at all.....look out below. There are way too many reckless investors out there...The market needs to to douche the system.
no. it was 50:1 last night. but now with 94.48, its something like 2bp risk for 18-23bp immediate reward at FOMC (10:1).
Further cutting will be perceived as now bad in my opinion. 1. Further cuts will be minimal at best (.25 bps), and if ongoing - a sign of a weakening economy. 2. Dollar will become a concern due to political pressure from other countries and could result in an actual global slowdown. 3. Eat your cake now and vomit it later. Current cuts will have to either be taken back rapidly due to inflation woes, or global economy will have to moderate. The latter is unlikely due to Chindia's appetite, so rates will have to eventually rise to combat inflation, our productivity rates of growth are too slow. Also current income growth levels will slow thus weakening the consumer further. The consumer may stay employed but his wages/investments might not be able to keep pace. China will not moderate its growth anytime before the Olympics. 3. Dollar decline has the possibility to get out of hand and any foreign currency benefits through multinational corps. will be outpaced by the increase in the input costs due to dollar weakening. The possibility that the large companies doing business overseas will not be able to make foreign sales quickly enough to offset devaluation issues grows. 4. Last week the state of Florida issued a press release (St. Petersburg Times) that it is on the brink of recession due to weaker tax revenues due to decreased spending by its citizenry and weaker influx of new residents. This confirms the notion of early recessionary signals due to real estate. 5. Lastly, rate cuts may be too little too late. We have not has a simultaneous decline in the housing market and stock market in many years. The upcoming weeks could change that. The upper end of the food chain might finally be faced with the reality that their house is decreasing in value as well as their stocks. This is the most devastating issue that faces the current market. Investor psychology is still bullish/confident, retests and failures of recent highs over the next 3 weeks could finally cause breakdown to sub-13k levels. The only good part, the wall of worry that disappeard last month has re-emerged. More often than not, when the bad news isn't bad anymore, THAT'S THE BAD NEWS seems to be disolving. Grounded expectations should result. Now its up to this market to attempt its assent over the wall. Good Luck!
agree entirely. I am not sure the market will be happy with a 25bp cut anyway, since the fear surrounding the dollar might trump everything. They should just hold. Anyway, if they weaken, remember that might result in more bond dumping (due to inflation), thus resulting in higher long term interest rates --> bad for homeowners. So in the end, the fed taking more action may actually worsen the home market. If in doubt, just wait. I can't believe how expectations are so high for a rate cut, yet minutes and fedspeak lately has only revealed stubborn-ness for the participants to make the past move to 50bps versus 25bp as many desired. And the decent jobs #s doesn't help the fed funds bulls.
We'll probably rally into the Fed meeting because people will be expecting mucha monetary candy from Bazooka Ben and I'm sure he'll deliver on Halloween with helicopters full of cash.
trick or treat Ben: Watch kiddies as I make this USD disappear! With the treat of lower interest rates. Kids: Hurray! Chinaman: You means these IOUs we've been receiving all these years for our hardwork and resources will be redeemed with more IOUs that are worth less than they paper it is printed on? Can't we sell these? Ben: good luck, now if you excuse me, I got to climb into my helicopter. Christmas is coming early this year to Wall $treet!!