THE BIG DAY!
Ok, here's my take for the Fed release today:
1. MOST LIKELY : No more than 25 basis point rate cut.
There are really little reason why the Fed should cut rates. A rate cut would only increase core inflation and deflate the already beaten dollar. Controlling inflation is still the number 1 concern of the Fed and nothing's going to change it. However, Uncle Ben has proven himself to be highly subject to market pressure and so, 25 basis points seem just right.
2. LEAST LIKELY : 75 basis point cut.
Don't even think about it.
3. MOST DANGEROUS : No cut.
It is the most dangerous and yet it is POSSIBLE! Like I said, there are really little reason why the Fed should cut right now.
4. MOST FAVORABLE : 50 basis point cut.
There remains a marginal possibility of a 50 basis point cut should Uncle Ben decide to make it a final cut. This could spur the Santa Claus rally everyone's wishing for.. (well, not everyone since a lot of investors are already shorting positions so far).
5. MOST RELIABLE : Trust in the US economy.
Its still the greatest story nevertold, its still got the kind of brains no one else in other economies have and its still the forerunner in all kinds of technological advancement and no matter what the Fed does, the US economy should still do well in the long run.
What's your take? :) Comment Now!
Labels: fomc, us economy, us market
posted by Jason Ng at 4:15 PM
2 Comments:
I'll throw in my 2 cents :)
I think it will be 25bp also. The numbers recently just haven't been bad enough to justify more. Payrolls, PMI, Factory Orders, ISM -- nothing is standing out as being in deep trouble and excluding credit tightness, we could probably make a case for a hold. But the Fed is under pressure to help the banks/mortgage industry and they will feel obligated to cut.
My prediction: Fed Funds 25bp, Discount 50bp.
Last numbers I saw for pricing in probability of cuts is:
25bp -- 100%
50bp -- 34%
I think the market is hoping for a 50bp cut and some of that is priced in. Buy the rumor and sell the news and an only a 25bp cut would be a pretty big disappointment.
Here's my weekly chart on the Dow Composite: http://stockcharts.com/h-sc/ui?s=$DJA&p=W&b=5&g=0&id=p00394261787&a=122768117&listNum=34
We're right on the edge and could go either way. Note the trendlines. It's still a little early and not enough data points, but we may be seeing the start of a downtrend forming. A hold or a 25bp cut would probably cause a bounce down off the upper trendline and a 50 bp cut may push it through. Same story on OBV -- it's right on the trendline and could go either way with the right push.
I'm light in the market right now and my recommendation is that with a hold or a 25bp cut, go short. With a 50bp cut, go long.
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