Fed Cut
December 11th, 2007 by Grant in: Economics, FinanceWell, by now the 25 basis point rate cut is old news. It’s interesting to see the mixed reaction to the cut; some say it wasn’t enough and that The Street was expecting 50 points, others say that the Fed should quit trying to save the economy from recession and let the free market play out.
A few highlights:
This Fed continues to display their cluelessness. They will definitely have to cut more times, so just GET IT OVER WITH now. Silly Fed. -Jordan, In The Money
What is the right number for interest rates? 4%? 3%? 2%? No one knows for sure, and that’s the problem. Investors are becoming like Pavlov’s dogs, frothing at the mouth at the mere thought of an interest rate cut. Once the Fed accedes to their wishes, they are satisfied for a while but wind up wanting more and more cuts.
As today’s market action shows, these people are never going to be satisfied. -Jonathan Burr, Blogging Stocks
The Corner Office Take
In my opinion, Bernanke should have left the interest rates alone. The Fed doesn’t make an economy, and it can only soften the edges of the peaks and valleys.
My Emigrant Direct account will probably take a hit, and the threat of a recession is growing rapidly, thereby taking the attractiveness out of the stock market.
If you can’t make money at a bank, and you don’t want to throw all your money into the stock market, where shalt thou stash thy cash?
Tags: Fed rate cut | FOMC | interest rate | rates
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December 12th, 2007 at 12:18 am
From a global macro standpoint (which I subscribe to), the Fed announcement is a pretty big deal because it is what all the major interest rate players trade off of, and interest rates are what drive economies (again, a global macro bias). Their verbage noting a slowing economy should not be taken lightly, however there are always good quality stocks that are beaten down with the overall market. I believe todays market participants are driven too much by short-term fluctuations and that there is twice to three times as much market noise as there was 15-20 years ago.
So, sure, our economy may be slowing, then you have to look at stocks that are not tied directly towards the US economy and that have been dragged down with today’s movement. One, which I’ve previously written about, is Archer Daniels (ADM). Another one, which again is a agricultural play (I place agriculture into my global macro view), is John Deere (DE). Throw out ethanol margins, price inputs, and commodity prices in general, the fact is that agriculture still has to be pulled out of the ground, thus my belief that DE should be bought. Deere is the worlds premier agriculture machinery component, so if the global commodity play is still intact than DE should be on your radar. I’m also going to keep my eye on Altria (MO) for a dip near the 70 area….not only for a deginerative cigarrette play, but because if a recession is near than people will be buying Macarroni and Cheese (Cheesiest) in BULK!!!!!!!!!!
Lastly, I’ve been doing a lot of research into global fixed income plays. The US is becoming what England was pre-WWI, a weakening economic powerhouse. I don’t want to slam US growth, I generally like our economy and don’t think that things are as doom and gloom as some think, however I think there are better returns to be made abroad. Have a look at GHI (Global High Income Trust). It’s run by UBS and has exposure mainly in Turkey, Argentina, Russia, Brazil, Serbia, etc. It’s not a direct equity play, the funds exposure is primarily in infrastructure debt. A highlight of this fund is that it yields nearly 9.5% given current market price. I’m always hesitant of these types of high-yield ETFs, but I feel that if I have fundamental support behind the fund than the yield should be justified.
Out.
December 12th, 2007 at 9:24 pm
I agree with your notion that “market noise” has increased significantly over the last decade or so.
Do you think the fact that the average joe has been given the tools to day trade and manage his own money more readily today as compared to 10 years ago has anything to do with it? i.e. online discount brokerage firm effect…
I don’t know that I’d place Deere in a global market. Sure, they have a significant amount of heavy machinery geared toward the industrial construction sector, but do you think the pure AG-based aspect of Deere really plays out overseas? I just don’t see it as much as a global player as Archer Daniels.
I like the Altria idea in terms of a safe bet during a recession.
I’ll check out GHI and write about what I find.
December 13th, 2007 at 12:00 am
YES! I definitely think that the average joe is overmanaging his/her money. Discount brokerage has made incredibly easy to enter/exit securities.
Deere is absolutely global. They’re big in South America and have a growing presence in Eastern Europe.