Fed cuts key rate by quarter-point

[RandomGuy]

By MARTIN CRUTSINGER, AP Economics Writer
1 minute ago


WASHINGTON - The Federal Reserve cut a key interest rate by a quarter-point, a smaller move than the aggressive easing it undertook earlier this year.

The Fed action, announced Wednesday after a two-day regular meeting, pushed the federal funds rate down to 2 percent, its lowest level since late 2004. It marked the seventh consecutive rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a deep housing slump and credit crisis.

The rate cut will mean lower borrowing costs throughout the economy as banks reduce their prime lending rate, the benchmark for millions of consumer and business loans.

The Fed move was in line with expectations. Wall Street believes this could well wrap up the Fed's rate cuts unless the economy threatens to fall into a worse slump than expected.


Expect the dollar to fall, oil to either stabilize a bit or go higher.

I am with the "hit it and quit it" Wall Street crowd.

The Fed will likely not touch interest rates for a while, and their next move is more likley to be to raise interest rates than to cut them.

Use this opportunity to refinance now if you can/need to do it.

Investment tip of the day:

Go for large cap growth stocks over the next two years.

[Twisted_Dawg]

Why large cap growth stocks? Where is the growth going to come from? We are in the very early stages of a very nasty prolonged recession. We probably will not hit bottom until later this year or early next year, then lanquish for a year, then hopefull begin a slow climb back up in 2010. For me I will buy stocks with the evil oil companies before I would buy growth stocks.

[1369]

I'm no economics junkie, nor a Street/stocks guru, but from where I sit (heavy industrial construction) it looks like commodities are going to be in large demand. I'd look to folks like Xstrata/Rio Tinto/BHP/Vale/Mosiac for those. Any of you smarter folks see things the same way?

[Nbadan]

....be careful, it's commodity trader speculation that is causing prices to sharply increase, not a sudden decrease in world-wide supply...

[1369]

....be careful, it's commodity trader speculation that is causing prices to sharply increase, not a sudden decrease in world-wide supply...

I'm not too sure about that Dan. There are real and true shortages in things like magnesium/copper/nickel at the moment. That and factor in the demand for downstream items that China and India are consuming at a record pace.

[Nbadan]

There are real and true shortages in things like magnesium/copper/nickel at the moment

There's only one commodity I would put my money on - lead.

[xrayzebra]

Why large cap growth stocks? Where is the growth going to come from? We are in the very early stages of a very nasty prolonged recession. We probably will not hit bottom until later this year or early next year, then lanquish for a year, then hopefull begin a slow climb back up in 2010. For me I will buy stocks with the evil oil companies before I would buy growth stocks.

Not necessarily. We still have small growth. The last two
quarters have been about .6 percent. No negative
figures yet. If Congress would get off their butt and
start allowing drilling in the forbidden areas you would
see OPEC and the speculators ease off on price and
OPEC increase production. Just allowing it would do
that. But the RINO's and Dimms wont do it, it would
piss off the enviormental wacko's. And besides they
have no idea what they are doing in Washington anyhow.
I mean with Harry, the realtor, Reid and Nancy, Miss
America, Pelosi, it kinda says it all anyhow.

Hey it would be nice to see the cat fight if Hillary got
elected and Nancy wanting to be queen of the hill duking
it out.....:lmao

[RandomGuy]

Why large cap growth stocks? Where is the growth going to come from? We are in the very early stages of a very nasty prolonged recession. We probably will not hit bottom until later this year or early next year, then lanquish for a year, then hopefull begin a slow climb back up in 2010. For me I will buy stocks with the evil oil companies before I would buy growth stocks.

Large cap growth stocks, ala Microsoft etc.

I attended a 4hr seminar given by Ken Fischer of Fisher Investments (http://www.fi.com/investment-management-company/financial-management.aspx) to his investors.

A total tanking of the economy is seen by him as very unlikely, and the yield for high-grade bonds has been falling, meaning that it is becoming cheaper for the large caps with good credit ratings to borrow money.

This allows them to both refinance, and take advantage of business opportunities.

In the most probable ranges of economic outcomes in the next couple of years, the large cap growth stocks look poised to either lose the least (at worst) or grow the most(at best).

The thinking that one should stay away from growth stocks is widespread and precisely why they will be cheap relative to their long term potential, and precisely why Fisher is betting on them.

He has heavily allocated his portfolio in the following sectors (in order of largest % allocation):
Energy
Financials
Industrials
Technology
Materials

These comprise 80% of his portfolio.

I must admit that even I had a hard time following him in a couple of places (where he got VERY technical about shorting stocks), but I got about 98% of the presentation.

He based his decisions on conclusions drawn from some pretty solid data, and I mostly agree with his conclusions.

If you get a chance to read his book, The only three questions that count (http://www.amazon.com/Only-Three-Questions-That-Count/dp/047007499X), I would recommend it.

http://www.fisher-books.com/

[RandomGuy]

I'm no economics junkie, nor a Street/stocks guru, but from where I sit (heavy industrial construction) it looks like commodities are going to be in large demand. I'd look to folks like Xstrata/Rio Tinto/BHP/Vale/Mosiac for those. Any of you smarter folks see things the same way?

Rio Tinto was exactly one of the investments that Mr. Fischer highlighted. (http://www.riotinto.com/) They are being eyed by BHP for a possible merger/buyout, BTW.

I really like BHP, and have it in a couple of my "practice" portfolios (RG is using them as learning tools for his own retirement investment)

The big thing I came away from the talk was the fact that the rest of the world is growing faster than the US in general, and that makes for some intersting opportunities that large materials and mining companies can exploit.

Look for other things like United Technologies (http://utc.com/), owner of Pratt and Whitney, and China Mobile (http://www.chinamobileltd.com/).

Note:

I was a guest and not an investor in Fisher Investments. I have no financial stake in either FI or any of the above companies. Yet. ;)

[RandomGuy]

....be careful, it's commodity trader speculation that is causing prices to sharply increase, not a sudden decrease in world-wide supply...

Not quite.

It is decreases in US interest rates relative to other economies that is making oil so expensive, among other things.

Note that while oil, traded in dollars, has gotten much more expensive for us, at the same time that oil has been rising in price, the dollar/euro exchange has gone very much in favor of the euro.

Net effect of all the oil price movements in the last year to Europeans: Very little.

There are a LOT of factors feeding the run up in oil prices, and NO expert really has a true handle on the whole picture.

[RandomGuy]

Not necessarily. We still have small growth. The last two
quarters have been about .6 percent. No negative
figures yet. If Congress would get off their butt and
start allowing drilling in the forbidden areas you would
see OPEC and the speculators ease off on price and
OPEC increase production. Just allowing it would do
that. But the RINO's and Dimms wont do it, it would
piss off the enviormental wacko's. And besides they
have no idea what they are doing in Washington anyhow.
I mean with Harry, the realtor, Reid and Nancy, Miss
America, Pelosi, it kinda says it all anyhow.

Hey it would be nice to see the cat fight if Hillary got
elected and Nancy wanting to be queen of the hill duking
it out.....:lmao

Whoever the next president is will be thinking about re-election precisely 17.3 seconds after getting to the oval office.

Given that independents are the ones who decide elections, do you really think the next president will start pandering to the left OR the right on day one?

[RandomGuy]

I'm not too sure about that Dan. There are real and true shortages in things like magnesium/copper/nickel at the moment. That and factor in the demand for downstream items that China and India are consuming at a record pace.

Yup.

China and India will be "exporting" their inflation via this mechanism.

The US will be more affected by what the rest of the world is doing than vice versa. If you want the real direction that the US is headed, look outside our borders.

If China/India AND Europe hicccup, THEN start shitting bricks. This looks highly unlikely, and that is one of the things on which Fisher is bettting.

[xrayzebra]

Given that independents are the ones who decide elections, do you really think the next president will start pandering to the left OR the right on day one?

Not just yes, but hell yes. Especially if the dimm gets
elected. You got a short memory if you think otherwise.
Remember Hillary and Bill. Tax increases, UHC try
and 500 FBI files.

[RandomGuy]

Not just yes, but hell yes. Especially if the dimm gets
elected. You got a short memory if you think otherwise.
Remember Hillary and Bill. Tax increases, UHC try
and 500 FBI files.

Funnily enough, the overall growth rate in the first two years of the next administration is projected by Ken Fisher to be pretty much the same no matter who gets in office. The only difference is in the pattern of the growth.

The guy took all the economic data for every year in the last 100 or so, analysed it by what party was president and when, then broke it down by year of election, etc.

Even controlling for the outlier (unusually large/small data) of the Great Depression, there was little difference.

Sorry, but he called McCain a soulless, narcissist. To be fair, he said the exact same thing about Clinton and Obama. He doesn't like politicians.:lol

[RandomGuy]

Not just yes, but hell yes. Especially if the dimm gets
elected. You got a short memory if you think otherwise.
Remember Hillary and Bill. Tax increases, UHC try
and 500 FBI files.

Interestingly enough, he also said tax increases/decreases have a vanishingly small affect on the overall economy.

Something I have been saying for some time. Sorry to burst your bubble there, although I doubt anything that approaches actual data ever gets through your confirmation bias when it comes to new information.

[RandomGuy]

Not just yes, but hell yes. Especially if the dimm gets
elected. You got a short memory if you think otherwise.
Remember Hillary and Bill. Tax increases, UHC try
and 500 FBI files.

You have more faith in politicians than I do.

The next president will, NO MATTER WHAT THEY SAY IN THE GENERAL ELECTION, do what he/she needs to do to get re-elected for a second term.

Yes, this includes my man, Obama.

To think otherwise is to simply let your ideology blind you to reality.

[1369]

Interestingly enough, he also said tax increases/decreases have a vanishingly small affect on the overall economy.


Perhaps, but it damn sure effects my personal economy. I' dlike it if they left things alone for the time being.

About the Rio/BHP courtship; it's going to get real interesting in the near future to see how that one plays out. I think one of the more intriguing aspects is to see how Chinalco/Alcoa have positioned themselves in the mix to snatch up any assets pared away if the merger goes through (Alcoa tried to buy Alcan but when the deal fell through Rio snatched up Alcan and with the Alcan assets not being in the Rio core focus Alcoa could possibly get what they originally wanted, but at a cheaper price).

[RandomGuy]

Perhaps, but it damn sure effects my personal economy. I' dlike it if they left things alone for the time being.

About the Rio/BHP courtship; it's going to get real interesting in the near future to see how that one plays out. I think one of the more intriguing aspects is to see how Chinalco/Alcoa have positioned themselves in the mix to snatch up any assets pared away if the merger goes through (Alcoa tried to buy Alcan but when the deal fell through Rio snatched up Alcan and with the Alcan assets not being in the Rio core focus Alcoa could possibly get what they originally wanted, but at a cheaper price).

Either way, I see the coming years as being VERY good for materials/mining.

The US economy will chug along, but it will be China's massive growth that will prop up commodities for quite some time.

Whatever the US economy does, remember that the US represents a shrinking part of the global economy(about 25%), and that proportion goes down on a yearly basis.

This is not that the US sucks or anything, it is just that our economy is much more mature, and is growing much slower than the rest of the world.

[Viva Las Espuelas]

deeper the hole, they dig.

[Aggie Hoopsfan]

You go with the large cap stocks because many of them have their product spread out worldwide. Take Google, they just posted a ridiculous quarter. Their actual revenue here in the U.S. was down relative to the same period last year but they did so much international business that it made up for it, particularly with the exchange rates.

[boutons_]

does anybody think the finance people, mostly hurting badly, are gonna pass this 0.25% through to the retail level?

This how Club Fed increases the spread to their Wall St buddies.

[smeagol]

This how Club Fed increases the spread to their Wall St buddies.

You are stupid and ignorant . . . and stupid.

Every major bank reduces their prime rate minutes after the Fed reduces the fed funds rate.

Fuck! Why do you open your ignorant mouth in topics whenre your knowledge comes from cutting and pasting.

Ignorant fuck . . .

[TeyshaBlue]

You are stupid and ignorant . . . and stupid.

Every major bank reduces their prime rate minutes after the Fed reduces the fed funds rate.

Fuck! Why do you open your ignorant mouth in topics whenre your knowledge comes from cutting and pasting.

Ignorant fuck . . .

Knowledge?:lmao

[xrayzebra]

Interestingly enough, he also said tax increases/decreases have a vanishingly small affect on the overall economy.

Something I have been saying for some time. Sorry to burst your bubble there, although I doubt anything that approaches actual data ever gets through your confirmation bias when it comes to new information.

He must be some kinda of dunce. Tax decreases have, as
far as I know, always increased revenue. And increased
activity in job growth and industry. But I could be
wrong. I mean he is the expert and you believe him I
am just a biased individual who believes other people.

[RandomGuy]

He must be some kinda of dunce. Tax decreases have, as
far as I know, always increased revenue. And increased
activity in job growth and industry. But I could be
wrong. I mean he is the expert and you believe him I
am just a biased individual who believes other people.

Re-read what I posted.

Tax decreases do increase revenues, but by very small amounts.

This is vastly different than saying cutting taxes have NO effect.

You just play up the ultimate effects because it suits your own opinion, not because of any honest data.

You like to read conservative sources who, in essence, lie to you and point to X amount of growth after tax cuts, as if 100% of that growth is DUE to tax cuts.

This is a bit like me telling you that I washed my car, then it rained and therefore washing my car causes it to rain.

Sorry Ray, but you are being lied to. It isn't your fault these guys lie, but you put too much trust in people you shouldn't.

[xrayzebra]

^^^Oh Well, I will look up some stuff later. Have something else
to do right now......

[RandomGuy]

[Ken Fisher] must be some kinda of dunce.


Fisher is ranked #271 on the 2007 Forbes 400 list of richest Americans[2] and #677 on Forbes list of world billionaires.[3]


Based on stock recommendations in his monthly Forbes columns beginning January, 2001, CXO Advisory Group as of April 28th, 2008 ranks Ken Fisher as tied for the second place with James Oberweis with an accuracy rate of 65%[14]

Wikipedia entry for Ken Fisher (http://en.wikipedia.org/wiki/Kenneth_L._Fisher) One doesn't have to agree with what it says, but it does provide links for reading about the guy.

Intellectual honesty check:

Mr. Fisher does have his critics, as the wiki article points out.
Links to such articles:
4 page pdf file Wall Street Journal article (http://www.latrobefinancialmanagement.com/Research/Money_Management/Define%20Aggressive%20Fisher%20Sales.pdf)

Businessweek article on some aggressive and potentially misleading sales techniques (http://www.businessweek.com/magazine/content/04_19/b3882100_mz020.htm)

Salon article that is critical of Fisher (http://www.salon.com/tech/htww/2008/02/26/ken_fisher_says_don_t_worry/index.html)

(shrugs)

I have seen him speak, read a book of his, and he is no dunce.

BUT

He is far from infallible, as the above articles show. I give his advice a fair amount of weight, because he is right far more than he is wrong, and he has the time and resources to really gather and analyse a lot of data.

When he says that taxes have little overall effect on the economy, he presents solid economic data on economic conditions before and after such cuts/increases. The conclusions he draws from this data are pretty reasonable.

If you want to argue with his conclusions, you would have to get to the root of those decisions and attack the data itself.

Good luck with that. Maybe you will look beyond your blinders.

[RandomGuy]

Ray, this is how to tell the truth:

I have given both sides of the debate here, both things that point to him being fairly sharp, and some things that point out when he was wrong.

The sources you seem to be reading don't do that. You should be asking yourself why, and what they leave out.

[Nbadan]

Every major bank reduces their prime rate minutes after the Fed reduces the fed funds rate.

That's not necessarily true...I've found instances were banks have been reluctant to lower their prime for even the most credit worthy....but new home buyers with shady credit get lower rates....the system is wack....