Stock Ideas arrow Stock Ideas arrow Top Headlines arrow By How Much will the Fed cut rates ?
Rating
By How Much will the Fed cut rates ?
User Rating: / 0
PoorBest 
Monday, 17 September 2007
Rick Pendergraft
Dear Reader,
The most anticipated event to hit the market for quite some time is tomorrow’s Fed meeting. 
Traders have been waiting for this event
like a five-year old waits for Christmas - lots of excitement and anxiousness.But sometimes Christmas can be disappointing if you don’t get everything you asked for.  So in this version of Christmas Story, the Fed will be playing the role of Santa Claus and traders will be playing the role of Ralphie Parker. 

The question is whether Ben Bernanke will play the role of the Old Man and pull out the Red Ryder BB gun and save Christmas for Ralphie, or will he be left with the bunny pajamas made by his aunt.
High-Yield Investing newsletter Reviews

What is our "Income Security of the Month" all about? Every month Carla Pasternak and our research staff here at High-Yield Investing, an exclusive newsletter published by...
+ Full Story

8 Reasons to invest in Stock TGGI

Like him or not, President Obama likes to spend. Even if he's starting rumblings about backtracking on domestic spending there's still tremendous opportunities for you to make major money in...
+ Full Story


Here is my take on tomorrow’s highly anticipated event.

As you can see, traders are anticipating a 50 basis-point cut based on this information, with an approximate 55-percent chance of the rate dropping to 4.75 percent.  It also shows approximately a 37-percent chance of the rate being cut 25 basis points.


Given this information and just from listening to the Fed speak over the past month, I do believe the Fed will cut rates by 25 basis points tomorrow.  But that’s no big surprise.  The question is how the market will react to the Fed’s action.

Here is my prediction: if the Fed drops the rate to five percent, the market will fall based on this move.  With so many people expecting a 50 basis-point rate cut, the 25 basis-point cut will be disappointing.


Should the Fed cut the rate by 50 basis points, the market will move sharply higher, as the majority sees this as the step needed to get the economy back on track.  Given the Fed’s continuous hawkish stance on inflation, I just don’t see them dropping the rate by 50 basis points in one move.  Perhaps by the end of the year they will make another 25 basis-point cut.


The last scenario to consider is this.  What if the Fed doesn’t lower rates at all?  If this were to be the case, look out below.  I could see the Dow dropping 500 points within two days if the Fed doesn’t lower the rate. 

The Fed doesn’t answer to the market, as Mr. Bernanke has been so kind to remind us over the last few weeks.

My suggestion to investors is to buy some insurance in the form of puts, especially if your portfolio is entirely on the long side.  Two of the three scenarios lead to a downdraft in my opinion, and a little protection could go a long way.

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
Source : Investor's  Daily  Edge
  • We endeavor to decipher analysis of this Teaser/News Letter to distinguish the thoughts of Authors/Editors.

  • Please post your Review/Comments, your rating helps other users gauge the value of an article ...

  • Was this service a Ripoff ? Click Here To Post Your Ripoff Story !


Bookmark and Share



RSS comments

Write review Your rating helps people guage value of an article
Name:
E-mail
BBCode:Web AddressEmail AddressBold TextItalic TextUnderlined TextQuoteCodeOpen ListList ItemClose List
Review:

I wish to be contacted by email regarding additional comments
Sorry but! We have to make sure that you are not a bot Please solve this simple math before you submit:
IUQ         N        
Q      9    N T   4FB
THH   9YH   8G9      
  6    T      3   R3L
1TP           4      

 
< Prev   Next >