Better be a one full percentage cut
Posted by Frugal on March 18th, 2008
Today is the Fed meeting again. I hope they will cut 1%, because I just don’t want to imagine what might have happened without such a big cut. The financial world is literally falling apart. And bringing down the economy into depression is no fun at all for anyone.
Savers obviously will be hurt by such action. Of course, what hurts the most is the perennial fall in the $US. While the $US should have been rallying, along with gold making a short-term top, it is just nowhere to be seen (yet?). Frankly, I can’t see any fundamental reasons for $US to rally. I wouldn’t want to hold my currency in a country where big brokerage house can go kaput in 24 to 48 hours, and where AAA rated debt skips to CCC without warning, and where practically all banks, brokerage houses, and rating agencies have been lying about the integrity of mortgage debts all along. These are big lies and big losses. USA just cannot repair the trusts from international institutions and wealthy investors quickly.
Yesterday’s markets appeared to be manipulated heavily, and same for the 400 points up day on Dow last Tuesday. The reason that I say that is gold prices are knocked down, while stock markets are supported in the opening, and especially closing hours. No matter though, it’s always the closing prices that matter (at least to the chart technicians).
In any case, I think we could be at least half-way through the bear market. The second half is probably uglier than the first half. But at least, the light at the end of tunnel may be coming. Again, I still wouldn’t buy into this market. But if the sign of hyper-inflation is clear, I will jump in with both feet.
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March 18th, 2008 at 8:41 am
The Fed “should” make a zero point cut. Inflation is out of control and worsening… lowering rates might maybe help things short term while making the big picture worse long term. Short-term thinking is not the way out of this mess…. taking our blows right now, today, and learning from our mistakes is.
March 19th, 2008 at 2:05 am
Well, it was only 75 basis points, but the stock market responded. Not sure if I would put any “stock” in that, though. The huge rally from last week was wiped out by Monday. Same could happen here.
If we are headed toward the hyperinflation you project, P/Es will have to fall mightily, even as earnings, in nominal terms, accelerate. I think this is possible.
I don’t think we’re half way through the bear, though. Credit issues are only beginning to seep through to the real economy - that is when we will see the big drop in earnings and the big layoffs starting.
I suppose the dollar will continue to slide. Any chance the the ECB or BoJ or BoE will will start reducing rates and defending the dollar in a coordinated way?