Posted on 04/30/2008 2:38:04 PM PDT by shrinkermd
Investors were unimpressed by the Federal Reserve's relatively small interest-rate cut and downright spooked that the central bank's long-running cycle of pouring cheaper money into the U.S. economy may soon be over altogether.
The result: A day-long stock rally sparked by profit news and economic data disintegrated following the Fed's announcement Wednesday, leaving major indicators in the red. The Dow Jones Industrial Average, which had posted a gain of more than 120 points prior to the Fed announcement, finished down 11.81 points, or 0.1%, at 12820.13. A 9.4% rise in its component General Motors helped the blue-chip avoid an even steeper decline.
Usually, a go-slow approach by the Fed would have a silver lining, since it might signal that a pickup in economic growth is just around the corner. The central bank doesn't like to cut rates in such scenarios because it runs the risk of causing the economy to overheat by encouraging investors and consumers to put cheap money to work.
For now, however, Wall Street is increasingly expecting a more dire catch-22, with growth remaining in the doldrums but inflation driven by high commodity prices and a floundering dollar a big enough risk to keep the Fed at bay.
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(Excerpt) Read more at online.wsj.com ...
Kind of a strange reaction. The markets seemed pleased with the move for a while. Then towards the end of the day, the market decided it did not look some of the wording and sold off.
At this point, NOTHING will make fickle investors happy short of a miracle.
The market does what it was going to do anyway, and then people look for news to explain it.
Today’s action strikes me as a “Groundhog Day” event. The Wall Street cousin of Punxsutawney Phil saw his shadow today, and the bear market will now continue, who knows for how long!
typical sell the news reaction. it’ll be up tomorrow because the bias is still toward easing. If 30 year fixed rates dip below 5.25 we’ll have a nice rebound.
otherwise, in the words of Borat, not so much (of a rebound). Good folks who never abused credit will refi their 2003 rock bottom loans if they can shave 1/2 point or more off. 2003 rates bottomed at about 5.625 for the luckiest people in 2003.
Reports about .6% GDP can do that to some.
The markets just want big money flows, all the time. After years of easy money, The Fed has finally got to be worried about the tanking dollar and inflation, which is far greater than the headline 4% (my own household expenses, while not scientific, are up 13% this year - and I am trying to economize).
Stop making our money more worthless. Hell let the chips fall where they may. Get the pain over with quickly. As long as they pump out the paper things are going to get worse in the long run.
What happened to “buy on the rumor, sell on the news?” Isn’t that what happened?
I’m watching gold, now down $130 in a couple of months from a high of over $1000. I’m no math whiz but that’s 10% off gold.
Maybe they could drop rates to Zero, and then the market would really take off? I’m only half joking with the logic, I really just think this is crazy - these rate cuts are just killing the foreign exchange rate of the dollar, foreign CBs are bailing on their treasuries or at least not buying anymore, etc, oil is well over a hundred bucks, etc.
These guys aren’t “investors.” They’re “speculators.” They only care about the short-term swings.
The investor class acts like junkies starving for their next hit of free cash. The FED appears to have hit the limit of pumping out the red ink as commodities are now responding to helicopter Ben’s actions over the last few months.
Not likely, I don’t see the spread between the 10 year US Treasure and 30 year getting that close again to achieve 5.25 until the credit crunch really is over and I don’t see the 10 year yield going under 3% to get the mortgage rates to 5.25.
13%? Unless you drive 100 miles to work in an SUV that’s doubtful. Food & Energy are up around that much averaged out but food is 10% of the average households budget and energy is a bit more. Almost everything else is flat or dropping (housing, electronics, clothing, etc)
The US $ was dropping when the Fed was raising rates. The US $ was dropping when the US rate was 1.5% higher than the EU rate. It’s been on a slide since 2002.
So, dropping rates even further will improve the exchange rate then?
Then I guess we underperform until the next big thing comes along with respect to transportation and energy.
No, but the $ has been on a decline since Iraq war and deficit spending mainly as well a general retracement from it’s all time high in 2002. The last 10-15% was probably because of rate cuts but the first 35% was other factors.
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