FOMC Policy Statement: Time to Buy Heavy
Go. All clear for now. Buy. Short investors are about to get gored. Read the FOMC Policy Statement below, and after that we have offered some specific advice. We're recommending you close your solar short play and we have given the buy all clear on Goldman (GS).
FOMC Policy Statement
Release Date: January 30, 2008
For immediate release
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.
Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent 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.
Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, 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; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.
Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.
My Take
So, according to our earlier article, the Fed has officially proven itself Wall Street's tool. Well, thank God for that, but I think I would rather have a chicken with a head in control over there in Washington. Considering the group didn't cut 125 BPS last week with a statement saying no more for now, it seems today's GDP number got their panties all bunched up. I mean, it's either that or this is a weak group of spineless jellyfish...
But, let's focus on what this means for us rather than why (Bush and the Dems in Congress had a gun to his head) Ben did this. And, we'll pretend not to notice that William Poole's name was not on the statement at all. I expect him to write a book sometime soon, and that should be real interesting reading. In the future, when we forecast Fed action, rather than going by silly things like official Fed statements and other logical factors, we'll just go by market expectations, since the Fed seems to do this also.
What's this mean for you....
Well, first off, reverse the curse. Remember that great recommendation we made on January 9th regarding solar stocks, and the shorting of them? We would now close that trade. These stocks are reporting results and some of them actually make money and could do well and take away that paper gain we have. Secondly, the Fed and government have taken aggressive action to preserve the economy. So, oil prices gain a little support from this. Since, we are sure (read SURE for pundits who we respect who didn't buy into our thesis, and keep mentioning it on TV even though it was proven correct) alternative energy shares are positively correlated to the movement of oil prices, especially the expensive ones like solar companies, their stocks gain some support now. We're going to follow this up with a specific piece on the group.
Also, I can now give the "all clear" on Goldman Sachs (NYSE: GS). Remember, previously, in my article Investment Banks Look Good in '08, I said I like them all now, but am weary on Goldman due to its outlier status and profits that might be taken in early '08. That same pundit, who I admire, didn't agree with this either. GS has since given back those profits while the rest of the group has moved higher, following our charted course. You know, we Greeks invented navigation and are pretty damned good sailors. Also, Christopher Columbus spent his teens living in my island ancestors' home town.
We've already cleared Citigroup (NYSE: C) for purchase post the dividend cut etc. (see the article). The rest were recommended in the article on January 10th, and we still like them up to the targets we outlined previously.
We told you yesterday this speed bump looks easily surmountable. Time to roll and buy stocks, and buy heavy! Look to those pillars of strength to regain that strength now. I'm talking Intel (Nasdaq: INTC), Apple (Nasdaq: AAPL), Monsanto (NYSE: MON), even Yahoo! (Nasdaq: YHOO), VCA Antech (Nasdaq: WOOF), SEI Investments (Nasdaq: SEIC)... Growth stocks should lead us up, especially when early signs of economic recovery show. But, many small cap value names have been beaten down into super value buy territory as well.
We're going neutral energy from our underweight call, and we're turning overweight technology. We're still overweight financials, and like the Financials ETF (AMEX: XLF). Healthcare should give back some gains now and we are underweight that group once Hillary wins the nomination and underweight in the very short short term now as well.
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This article has 4 comments:
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Shameless Ko
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18 Comments
Jan 31 04:00 AMThe correct response is to short. Morons. Oh well, I will take your money.
It's hardly done, we are just in the beginning of going into a recession, of which nobody knows how long it will last.
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granger
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289 Comments
Jan 31 04:34 AMWith yesterdays, lackluster response to the FED decision, i put my final portfolio stone in place, by putting another 3% into financials (I used the Fidelity Brokerage mutual fund)
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Tom B
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1771 Comments
Jan 31 08:42 AM"his is the buying opportunity of a decade, maybe the next 25 years"
You are, of course, both right. It depends on your time horizon. As a small investor, I try to hold any stock more than one year, so I'm in the "buying" camp.
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Vocthom
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73 Comments
My Website
Feb 01 12:50 AMRisk of a Global Recession Following the U.S. Hard Landing?
Nouriel Roubini | Jan 30, 2008
It is now clear that the US economy is already into a recession that started in December 2007: the data on December employment, retail sales, manufacturing ISM, housing and other macro variables confirm it. And the 0.6% growth for Q4 GDP confirmed that sharp slowdown of the economy in Q4 and its tipping over into a recession by December. It may take –as usual – almost a year for the NBER to formally declare that a recession started; but when that decision is made it will be clear that the great US recession of 2008 started in December 2007 or – at best – Q1 of 2008.
At this point it is clear that the debate has shifted to how deep this recession will be, a mild one lasting two quarters as the new consensus claims or a deeper, longer recession – lasting at least four quarters – as I have been arguing for a while.
It is also clear now that this US recession will lead to a global economic slowdown – short of a global recession that would occur if global growth were to be below 2.5% - and to actual recession in a number of individual economies.
The main points:
- the US has already entered a recession and this recession will be protracted and severe, more so than the mild recessions in 1990-91 and 2001;
- whatever the Fed does will be too little too late as you cannot resolve problems of insolvency with monetary policy and as it takes years to clear a glut of housing, consumer durables and automobiles;
- the rest of the world cannot decouple from a US hard landing; when the US sneezes the rest of the world catches the cold; and this time the US will have a severe case of pneumonia; thus expect significant contagion to the rest of the world; thus, there will be a significant global economic growth slowdown.
en.wikipedia.org/wiki/...
From Davos Watch this....
www.bloomberg.com/avp/...
NOW PUT CASH ON THE SIDE THIS MARKET WILL CRASH SOON OR LATER WITH "HARD LANDING" COPY THAT HOUSTON???