Wednesday, April 30, 2008

The Fed Moves

Top Line: So far, so good. The Fed dropped the funds rate by 25bps, yawn, and the market decided to sell off on the news, much as we expected. Of course, not as much as we wanted to see. Now there seems to be a little doubt. We still have about half cash in our portfolio waiting for another opportunity should it present itself. We still don't think there is much chance for the Dow to clear the 13K line.

Yes, the rally just after the Fed moved took the Dow up over that line briefly but from there is was a selloff that ended with the Dow closing at 12,820 nearly 200 points lower. This was not exactly a vote of confidence in the Fed. Now, the Fed is sort of stuck for a while on the funds rate front. The next meeting is a distant June 25th, nearly two whole months (What are we going to do?) and with their significant words of encouragement for the market they really shouldn't be tampering with rates before then.

Here is the pertinent New sentence in their short statement: "The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity."

Some say this means the Fed will pause in their interest rate cutting campaign. We think the Fed is giving way to the fiscal "economic stimulus" package that is hitting bank accounts with a bit of cash over the next couple of months. Nevertheless, we do Not believe they are done cutting even though they would like to have us believe they are.

This morning the first quarter GDP was released and it showed a healthy??? gain of 0.6%. We say healthy because by all accounts it should be negative, all except the account that gets reported. The other news came from ADP. As we reported last night, there was an expectation of a negative number for jobs in the 60K range but the news indicated a 10K increase.

These two pieces of news combined to give the market room to go up and as we have mentioned that's what it did. Well, at least up until about 15 minutes after the Fed's announcement.

Kind of out in left field we heard that GM had lost over $3 billion last quarter. Apparently that was good news??? as the stock was up 10% on the day. GM had been up 15% right around the time of the Fed's announcement but sold off into the close like most other stocks. Still an up 10% day on a loss of $3 billion has to be called a screaming success; however, we don't recommend you try this at home.

We still wait for the Real jobs' report on Friday. In the mean time we will look for other selling opportunities.

FSI: 92.11 (GOOG helped keep this index up today, for speculation)

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