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Stock Ideas Investors Daily Edge The FOMC dropped interest rates by 50 basis points, doubling most expectations
Stock Ideas Investors Daily Edge The FOMC dropped interest rates by 50 basis points, doubling most expectations 
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By Dr. Russell McDougal The Fed sycophants are salivating all over themselves with recent interest rate cuts. It’s never enough, though, and one cut begs another. Let the good times roll. Maybe, on the other hand, it would be better to query exactly why interest rates are being lowered. |
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| The FOMC dropped interest rates by 50 basis points, doubling most expectations |
| Thursday, 20 September 2007 | ||||||
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Did the market get what it wanted on Tuesday? The FOMC dropped interest rates by 50 basis points, doubling most expectations. So will the double-down move by the FOMC spark a solid longer-term rally or will the market wake up with a hangover in a few days after the FOMC party? I thought it was funny to hear Jeff Macke say on CNBC to “dance tonight because we die tomorrow” when questioned about whether the move was rational. I like Dylan Ratigan and his CNBC Fast Money crew, but the euphoric sentiment around a bailout FOMC rate cut is an over-the-top warning that we're not done with this challenging market. The bottom line is that the Street is bubbly after the cut, buying stocks with both hands. The financials, a group that we have been cautious to bearish on, spiked by almost four percent as the one-two punch of Lehman's positive earnings and the rate cuts put investors into a buying mood. Even Morgan Stanley’s profit whiff on Wednesday (profits fell 17 percent) was greeted with buying at the outset. Even the homebuilders were up, as the S&P Homebuilders ETF (XHB) jumped 5.3 percent. Think about it, did the FOMC move really help the homebuilders? The fact is that there is still little to no demand and ample supply in the housing industry. XHB will revisit its lows before even coming close to its year-end 2006 level ($37). On that note, Toll Brothers' CEO was quoted on the Dow Wire Tuesday night that the housing market hasn't bottomed and that the Fed's rate cuts won't work. Source : Investors Daily Edge
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