Bernanke and the Fed show their grasp of the situation
Yesterday's collective sigh of relief accompanying the Fed's 75 point Fed Funds rate cut and more benign financial reporting from Goldman Sachs and Lehman Bros signaled Bernanke and the Fed's grasp of the market. The Fed likely informally surveyed the i-banks on Monday, realized that a reprise of Bear Stearns Act II was not in the offing, and determined that it didn't need the 100 point rate cut that all economists had been predicting. Instead, the Fed hedged against the inflationary momentum of elevated commodity prices and the drooping dollar with a less than expected rate cut, assuming rightly (at least yesterday) that their creative reactions to solving the credit crisis demonstrated their determination to pull no punches in righting the markets. (Today, the government loosened capital restrictions on Freddie Mac and Fannie Mae to get banks to make more home loans).
Today, oil and gold prices (as of 12:30EDT) are lower 4-5% and the dollar is rebounding, temporarily alleviating inflation concerns. The media pundits and the economists are roughly divided 50/50 on whether this is just a dead cat bounce or the formation of a market bottom. It's impossible to call, and too risky to take either side... the Armageddonists do have a persuasive argument because their prognostications, particularly the leveling of Bear Stearns, have been manifesting.
UPDATE Fri. Mar 21, 10:00am pdt
Bernanke vindicated - commodities drop, rally in dollar, stocks
It's impossible to call, uncompromisingly truth.
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Today's near 300 point drop in the Dow surprised me because traders are selling the commodities along with the stocks. Again, potential bankruptcies are spooking the market. Media (perhaps flocking together with the fund managers) are consistently reporting "near bottom" articles, even today. The reason to hold tight is volatility - nobody can predict these swings on a day to day basis let alone a crash scenario. I would feel stupid converting to cash only to see the Fed working overtime to keep the markets propped up... and past this slippery spot.
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See Ben Bernanke on Twitter!
http://tinyurl.com/34box5
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The FED's moves were predictable and had a predictable result on Wall Street - a big one day run up and wild gyrations from then on.
My favorite take on Bear is John Mauldin's post .... a MUST READ
http://www.investorsinsight.com/otb_va_print.aspx?EditionID=667
to your investing success
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The market is changing so rapidly and so fast you never know what is going to be "real" from day to day. I thought the fed cut would prompt a drop in 5 year arms like it did last time they dropped the rates. This time they increased. A month ago five year ARMS were at 4%, now they're over 7%.
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(?)
from Bankrate chart of 5/1 ARMs - the Fed cut effected a mild drop in 5/1 ARM rates
30 yr fixeds are dropping faster
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