The Fed Capitulates, But Will It Help?

January 22, 2008 Fasten Your Seatbelts!

SA Editor at 10:49 am: End of liveblog. Thanks Eddy! Follow the rest on Eddy's blog.

10:44 am: Not to show off, but our Buy List is down just 0.49% today. OK, I guess that is showing off.

10:42 am: Historical footnote. It was 28 years ago yesterday that gold peaked at $875. That evening Jimmy Carter gave a rather downbeat State of the Union.

10:39 am: No Dow 12,000 for now. We seem to have hit a wall at around 11,950.

10:32 am: “A Whiff of Panic...” As usual, Barry has some sharp comments. As a rule of thumb, I'm usually 500-1000 points more bullish that Barry.

10:28 am: It’s a rally! The Dow is closing in on 12,000. Sheesh, Dow 11700 was so 30 minutes ago. Where have you been?

10:24 am: The European markets are improving on the rate cut.

10:23 am: Bank of America’s (BAC) earnings were down 95%. For Q4, the bank earned a nickel a share, down from $1.16 last year. Revenue dropped 31%. The Street was all over the place, but the consensus was for 18 cents a share. These results included LaSalle which BAC bought last year.

10:02 am At Real Money, James Althucher points out an interesting trade. Harrah’s (HET) is going private at $90 a share. The stock is at $88. If you short it and the deal is pulled, you can make a lot. If you’re wrong and the deal goes through, no biggie. You’re out $2. The private equity offer is from Apollo and TPG.

9:59 am: The Volatility Index, the VIX, is back above 35. Since 1990, the market is positive when the VIX is below 22.66. Here's my post from two weeks ago on how volatility impacts the market.

9:53 am: Well, it looks like this has been greatly overrated. The Dow is now down 260. The S&P 500 is off 2.2%. That’s really not a huge move. In the last 10 years, the S&P 500 has had 22 days where it dropped by more than 3%.

9:41 am: The Dow is down 366.

9:38 am: The S&P 500 is at 1278. We're where we were in mid-2006.

9:32 am: All 30 Dow stocks are down. The Dow is down 431. Only two S&P 500 stocks are up, BBBY and IACI.

9:32 am: Some members of the New York Giants rang the opening bell. There's a metaphor in there somewhere.

9:30 am: Ding Ding Ding Ding Ding Ding Ding Ding

9:28 am: Here's your data point for the day. The yield on the S&P 500 is close to the five-year Treasury. The five-year (^FVX) is at 2.66%

9:22 am: CNBC has Maria in Davos. It's snowing there and she's all bundled up. She looks like the little brother in Christmas Story.

9:20 am: Two analyst at Bernstein just upgraded six retailers, including Bed Bath & Beyond (BBBY). It's about time!

9:19 am: Remember, a lousy stock market crash doesn't always mean a recession. It usually does, but 1987, for example, was an exception.

9:14 am: It's not all hopeless. Johnson & Johnson (JNJ) just reported earnings of 88 cents a share, excluding charges.

9:08 am: The Bank of Canada just cut rates as well. The opening bell is just 22 minutes away. Things got so bad in India that the exchange shut down. I said on CNBC last year that the Indian market was vastly overvalued.

8:50 am: My favorite headline of the day: Yahoo May Cut 700 Jobs as Growth Slows, Person Says. Doncha love that sourcing? A Person. The article says, "according to a person with knowledge of the plans."

8:45 am: The Dow futures are now down 376. Cramer is saying that Bernanke won't last long. Rick Santelli just called out Cramer as being a big-time bull. Cramer asked, "Have you seen my show?"

8:20 am: The Fed cut by 0.75! We're now at 3.5%. Here's the statement:

The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.
The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Eric S. Rosengren; and Kevin M. Warsh. Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin.

In a related action, the Board of Governors approved a 75-basis-point decrease in the discount rate to 4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Chicago and Minneapolis.

8:19 am: For you Fibonacci enthusiasts, 2008 is eight years after the 2000 top, five years after the 2003 bottom, 21 years after 1987 and 34 years after the 1974 bottom.

8:18 am: Like 1987? Mark Hulbert thinks so. I don't buy it.

8:15 am: Wachovia's Q4 net income plunged 98%. The stock is off 40% since the market peaked. Scary to think this used to be on our Buy List.

8:10 am: Paulson is speaking right now. UnitedHealth (UNH) reported earnings, 92 cents a share up from 84 cents last year. This matched the Street's forecast. For 2007, UNH earned $3.42 a share. For 2008, they're looking for $3.95 to $4 a share.

8:00 am: A 0.75 rate cut? That’s what traders think. The futures indicate that traders now think there’s a 72% chance that the Fed will cut by 0.75%. The rest are looking for a 0.50% cut.

The Fed meets next week, but don’t be surprised to see a cut today.

7:56 am: I’m going to abandon traditional blogging today in favor of quick updates. The market will open 90 minutes from now and the Dow futures are currently off 546 points, the S&P 500 futures are off 66 points and the Nasdaq futures are off 75 points.

• Investing for Retirement - Cramer's Mad Money (7/3/08)  »
• Independence Day Memories of a Stronger Dollar, Lower Costs  »
• What Was Left Out of the Jobs Report  »
• Commodity Driven Role Reversal  »
• Does Valuation Matter?  »

This article has 7 comments:

• Long-Short
  Guy

  Jan 22 08:55 AM
  Emergency rate cuts don't instil confidence. They point to panic.
• Frank Li

  Jan 22 09:07 AM
  Looks like the Bloomberg story on Yahoo was based on this:
  seekingalpha.com/artic...
  
• Reinko

  Jan 22 09:15 AM
  With 14 minutes to go until the trading session starts one thing is clear: Bernanke is a coward and a weasel. Why not sell the guy to the Iraqis?
• Stephen Ngai

  Jan 22 09:57 AM
  It helps but a couple days late.
  
  If Mr. Bernanke announced this 0.75% rate cut last week, there might not be the Monday & Tuesday global market melt down especially Japan, India & Hong Kong.
  
  I hate the set up of this melt down by those institutions.
  
• Alpha Seeker

  Jan 22 10:34 AM
  Are you trading or writing?
  It's impossible to do both well.
  Rob,
  WallastonInvestments.c...
• eddy

  Jan 22 10:37 AM
  Today, I'm going for both mediocre!
• ebi2505

  Jan 24 04:30 AM
  The Fed's recent cut of 75bps confirmed the market fear and do not restore confidence. The current global assets bubble (property) needs to correct itself. Inflation has to be controlled. I believe we are heading for a stagflation, where monetary policy is faced with a rising inflation and weak economic growth. The Fed should let the market correct itself. What happen to 'laissez faire'?

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