Fed Fired Last Bullet...

The Fed fired their final bullet today by taking rates down all the way to almost 0. So far, fed fund rate has been the only thing the Fed can do that investors are even interested in and I supposed Uncle Ben is doing that more as a political move rather than an economic move. With economic numbers deteriorating the way it has been, Uncle Ben certainly don't want to be the guy holding the last bullet while watching people die. Why do I say that? I said that because the effects of the 1% rate target will take at least 6 to 9 months to filter into the real economy and by taking rates even lower so quickly, there really isn't much fundmental reason to support why the rate wasn't cut all the way to 0 from the last meeting if it is going to come down again in just 1 month's time. Strangely, why hasn't the rate cuts helped stemmed the recession so far? Well, imagine you have an army of ten thousand up against an army of a thousand but all you do is send in squads of ten or hundred against that thousand all the time, would you ever win?

So, will a 0% rate help the economy? Definitely it will but it's just not going to show up within the next 1 or 2 months. These things takes time to filter into the real economy but I would say it certainly set the stage for a recovery in 2009. The Fed's job ahead would be to strategically bring the rate up fast enough to stem the effects of inflation. Well, discretionary monetary policies does have its drawbacks.

On the technical front, the Dow continued trading within its neutral channel today despite significant gains and with the futures pointing downwards after market, it seems like investors are trying to sell into this rally to make their year end accounts look pretty. Well, I am going to just leave 2008 behind me and look forward to 2009.