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Stock Ideas Investors Daily Edge Uh Oh, The Fed Is Going To Try To Help The Market Again
Stock Ideas Investors Daily Edge Uh Oh, The Fed Is Going To Try To Help The Market Again 
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The Federal Reserve is doing its thing to calm the maniacs running around like chickens with their heads cut off. And the president and his administration have come out with a program to bail out who knows how many folks with bad financial judgment. |
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| Uh Oh, The Fed Is Going To Try To Help The Market Again |
| Monday, 27 October 2008 | ||||||||
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The Federal Reserve Board will meet again tomorrow with a decision on rates coming out Wednesday afternoon. As is it is with every Fed meeting, I went to look at the probability chart at the Cleveland Fed’s website. Over the last five or six years of looking at this chart, I have never seen one as confusing as this one:  The predictions are all over the board on this one. Futures traders think there is a 35 percent chance of a 50 basis point cut, approximately 28 percent chance of a 25 basis point cut, and about a 22 percent chance of a 75 basis point cut. The odds of the Fed leaving the rate at 1.50 percent are less than a 10 percent chance.
It would seem that the interest rate prognosticators are as confused as everyone else about this market. My advice to Mr. Bernanke and company is to save your bullets. With rates at 1.50 percent and going in quarter point increments, the Fed is using a six-shooter these days and in this day and age, everybody else seems to be carrying 9MMs with a 15-round clip. If it were me, I would cut by a quarter so as not to shock the market. If they do nothing, the market will be shocked and will likely plunge, so give them the minimum to appease them. At this point, everything they have tried has failed. Using three of your bullets in one shot seems like overkill. The bailout of Fannie and Freddie did nothing. Bailing out AIG has done nothing. The direct investment into banks has done nothing. Why would you waste three of your bullets at one time? I disagree with a lot of what is said on CNBC, but Friday morning when futures were locked limit down in the pre-market, Rick Santelli said that all the Fed and Treasury have done so far is slow the correction process. I couldn’t agree more. I know I stated that I thought the $700 billion bailout passed by Congress was necessary to free up the credit markets, but it hasn’t worked yet. What I keep thinking is how bad would it be without the interventions? Shifting gears a little, I still think we are close or at a short-term bottom. The sentiment is so over the top negative, I don’t see much room left to the downside. Those that have been thinking about selling have to have pulled the trigger already, right? If they haven’t, I would like to know what they are waiting on. There are several other factors as to why I think we are at or near that elusive bottom. I was presented with another piece of ammunition just this past week. Some of you long-term IDE subscribers may remember a gentleman by the name of Richard Smith. He wrote a few articles for IDE in the first few months of publication. Richard stopped by our office the other day to show us some of his recent work. One of the things that Richard showed me was some work he is doing with seasonaltrader.com. These are trades that are strictly based on the calendar, all other information is irrelevant. Richard punched in a seasonal trade on the Dow for a long position being held from October 26- January 1. This trade was profitable 95 percent of the time for the last 60 plus years. When I add this information to the extreme bearish readings on the sentiment indicators and the extreme oversold readings on the indexes, I keep adding ammunition to the bullish case. It might not be a long-term bottom, but I certainly think that after the election we could see a nice two or three month rally. Regardless of who wins the election, the uncertainty of the election itself will be removed. Good luck and good trading, Rick P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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