Historic FED Actions
Stocks soared today, up 360 points, as stock market buyers felt confident after the FED reduced the Fed Funds Rate to HISTORIC lows. My opinion is that stocks are in danger of plumbing new lows (as in water going down a drain) as the FED is in a deep panic, and now has given up on any future use of its main economic tool – the Fed Funds Rate.
Bonds had discounted most of the Fed move, but was also caught by surprise by the massive FED move – so bonds increased in value – decreased in interest rates.
Oil and gasoline were sort of steady today – really not in the news.
The FED move caught the Dollar by surprise, and the Dollar continued its plunge in value against all currencies. The Yen is trying to get below 89 Yen/$. The Euro pulled above $1.40/Euro. No one wants Dollars right now.
Gold also reacted to the news, and increased just a little – but it was a lot higher during the day. Gold pulled back 26% from its high of $1000/ounce this year as the economic meltdown caused lots of gold holding entities to sell their gold to raise money.
In the news today…..
The FED reduced the Fed Funds Rate from 1% to a range of ZERO to 0.25%. Here is the rest of the story:
• The Fed Funds Rate has NEVER been this low before – This is HISTORIC.
• The FED said it will use “All Available Tools” to fight the economic problems we’re having.
• The FED said it would keep the Fed Funds Rate this low.
• Prime is now 3.25%
• The FED move was a SURPRISE to the markets.
Here are my thoughts. The FED has shot its wad regarding interest rate cuts. It can’t make the rate negative. So, ZERO is as low as it can go. The FED could reduce the Discount Rate and make it equal to the Fed Funds Rate – we’ll see. The FED is left with intervening in the Treasury market to reduce medium term to long term interest rates even further – they’ve threatened to do just that.
Just think about this for a second. The FED will take advantage of these historic LOW interest rates, and sell new Treasury Bonds to some poor sucker (think a foreign central bank), and then later – maybe 2 years from now?? – it will allow interest rates to rise to start fighting inflation. In the meantime, those bonds it sold will become devalued by at least 50%. Kind of a nice trick – don’t you think? The key is for Americans to NOT purchase Treasuries now. Let the rest of the world bail us out. Of course, it may not play out that way because the rest of the world is not occupied by idiots – they are just as smart as we are.
Oh, by the way, the CPI was announced today for November, and it fell 1.7% – a very large number.
Here are Today’s numbers:
Dow Jones 30 Industrial – 8924 (up 360 points)
10 Year Treasury Bond – 2.36% (down 0.17%)
Euro – $$1.4047 – $ lost another 3 to 4 cents today – it’s never moved so far, so fast.
Gold – $843 (up $6)
Oil – $43.60 (down $0.91)
Gasoline – $1.04 (no change)