As we watched the market at 1:15 CDT, we saw the prices jump hard and knew that the Fed had lowered the full 50bps. Then the news hit and we weren't surprised one bit, the market had already told us.
As we look back, we should have known they were going to go the full amount. Looking back at the 50 bps drop in the discount rate, with encouragement from the Fed for the banks to borrow at the discount window, a few weeks back to the Fed's heavy repo activity and then all the way to last week when Helicopter Ben was talking about how the dollar could go down a little to help the trade situation. So, now we know that the new Chairman of the Federal Reserve is living up to his nickname, Helicopter.
Needless to say, the Fed has so far done the bulls a magnificent favor by lowering rates 50 bps, or so they think on Tuesday. Bill Gross now is saying that the fed funds rate will come down another full percent to 3.75%. While we agree with his assessment that the rates need to come down due to economic weakness, the market still thinks it is party time.
We were very surprised by the big move the stock market had. We are similarly surprised at the Fed's lowering these rates even before the stock market went down very much. No one in the stock market has been burned by a drop in prices. The most we saw in terms of downside was 10% and that was during one day and then prices rallied the same day. These participants are fully behind the new found money that the Fed is willing to dish out. We were not so surprised at the big up move the precious metals had.
In any event, we did not have a good day at all. And, with that, we are going to wait until tomorrow to see if there is anyone out there who thinks that selling is a good idea. With the Fed out to make sure the stock market goes up, we are questioning short positions this evening. More tomorrow…after the world is done celebrating the Big Number.