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Strategies & Market Trends : Drillbits & Bottlerockets
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To: Lazarus_Long who wrote (11243)5/14/2001 4:05:24 AM
From: Augustus Gloop  Read Replies (4) of 15481
 
Let’s talk rate cuts!

With only 2 days left before the fed plays god I think we need to discuss the possible scenarios.

At this point a 50 BP cut seems to be the most popular thought process for the moment although some do believe we could see 25. I, myself, am of the belief that we see 50. That said, what is the best course of action for this next round.

Before we start spouting numbers lets look at what has happened in 13 months.

1) We saw a giant bubble at the apogee of corporate earnings.
2) During this period the fed raised rates to fend off inflation and to pop the equity bubble.
3) These rate increase came at a time when economists were saying earnings were starting to slip
4) The fed continued to raise rates
5) Energy was showing signs of serious price increases. (always an economy wrecker)
6) The fed continued to raise rates
7) Corporate profits started to slide as predicted
8) The fed stood its ground
9) Corporate profits continued to slide and in many cases turned into losses
10) The fed stood its ground
11) Demand weakened, Christmas was a bust and employment started to show signs of weakness
12) The fed finally broke and started cutting rates.
13) The true house of cards was exposed as we saw unemployment rise and profitable companies start to lose money.
14) The fed starts cutting rates at a rapid pace
15) In April the fed goes so far as to lower rates and IMO lie about the growth in the economy (time will tell on that opinion – stay tuned)
16) Since the beginning of January we have now seen rates drop I believe 2% with another 50 bp’s likely on the way on Tuesday.

As it stands now I think there is a good chance that we will see another 150 BP decline in rates this year (including what I believe will be 50 on Tuesday). The consumer is tapped out with an average of 15k on credit cards for every man, woman and child according to some estimates I have seen. They are currently spending 101% of their income and we are facing the most serious energy crunch since the early 70’s. The point here is that without an advance in the market on a broad scale we don't have a snowballs chance in hell of making a fast recovery. More debt is not the answer for a sustained upswing in the economy…..more wealth is. It's time to rally the equity markets and allow people to recoup some of their losses so as to free up what is currently DEAD money.

As a result I think it's time for the fed to pull out the nukes and exceed 50bp's on Tuesday.
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