Tuesday, December 11, 2007

Market Does Not Like Magnitude of Fed's Rate Cut

Given the stock market's reaction-Dow Industrial Average down 294 points or 2+%- to the Fed's 25 basis point cut (or .25%) in the Fed Funds Rate today, it appears market participants wanted at least a 50 basis point cut (or .50%). The Kirk Report detailed reactions from some market participants. One that I particularly agree with is below:
"Boom Boom almost did the right thing. Had it spared us the pandering 1/4 point begged for by financial speculators, he would have finally shown the kind of stones that will be needed to guide us out of the current mess. Equities do not like it one bit, as well they shouldn't; the wimpy move is likely to worsen the credit environment and the financial markets as a whole could be in for a year-end pasting. So why do I suggest the Fed did the almost right thing? Because one cannot devalue its way out of a gigantic pile of debt. Companies, many companies, need to fail, go away forever, and allow those who have a business existing to once again prosper not on the back of borrowed money, but on the strength of real demand, rather than demand generated by a need to circulate make belief money. Had the Fed figured this out in 2001, by 2003 we would likely have forgotten the then recession. Instead it decided to try to fool everyone into believing that we could borrow our way into a permanent plateau of prosperity."- Fil Zucchi

Thoughts on the Fed
The Kirk Report
By: Charles Kirk
December 11, 2007

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