I think more important part of the Fed dropping the discount window rate by 50 basis points to 5.75% for 30 days was the accompanying FOMC statement:

“Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.”

To me, that says the Fed has changed it’s stance from fighting inflation to addressing the economic impact from the mortgage problems and credit crunch.  Instead of having to wait for the September meeting to change it’s stance, now we have a possible rate cut in September if the data will allow the Fed to do so.  Keeping the window open for 30 days takes us to the September Fed meeting at which point the Fed can assess the effects of this move today.

The last time I heard things like “The Fed’s discount window” was about 4 years ago in college for econ class.  The text only glanced over it as part of the FED’s mandate…or rather maybe I glanced over it.  But I’m sure the text didn’t talk about the effects of such moves like the FED did on Friday because frankly, the FED hasn’t had to be the lender of last resort much and each instance and the following effects were different.  Now that people are losing homes, funds are blowing up, and my portfolio’s taking hits- econ textbook’s coming to life!

What I’m wondering is, what would happen if the FED did cut, but only 25 basis points (bps) or 50bps just to give people confidence (since I believe rate moves by the FED doesn’t filter through the system for 6-12 months???).  Then, after things settle down, they bump it back to 5.0% or 5.25% where they’ve held it thus far?  I feel like the FED was reluctant to do what it did on Friday, but HAD TO follow suit of the other central banks.  Or maybe because some AXA money market fund in Europe dropped 20% and the savings of people who have nothing to do with the U.S., let alone U.S. mortgages, got destroyed.  Just feels like the FED was pressured in after their statement on Tuesday…and FED governors coming out on Friday saying “oh we inject liquidity into the system all the time” to save face.  Maybe the FED thought the U.S. economy was strong enough to weather the storm, and let some hedge funds and mortgage companies blow up would rid the U.S. of weak links.  But I suppose the EU didn’t think it’s financial system is as strong, because that was some ginormous bailout by the European Central Banks.

I don’t know if lowering rates is the right answer…if there is such a thing as a right answer.  Might things already be at the point where a rate cut wouldn’t solve the immediate problem?  Maybe the right thing to do was not to raise rates to 5.25%.  So what happens now?  Do we go down with or without a rate cut, and only hoping rate cut would limit the damage and make the bounce come sooner?

…confused and uncertain about the road ahead.  Appreciate everyone’s comments and thoughts!

Well, we didn’t have to wait long for the mortgage and CDO problems to slap the market back into reality from daydreaming of Chairman Bernanke and his beard.

Aug. 9 (Bloomberg) — BNP Paribas SA, France’s biggest bank, halted withdrawals from three investment funds because it couldn’t “fairly” value their holdings after concern over U.S. subprime mortgage losses roiled credit markets.

How ugly is the financials? I haven’t been in the game long, but when the largest foreign banks are hostage to the U.S. problems, it can’t be pretty. Remember this just a week ago?

Aug. 1 (Bloomberg) — Macquarie Bank Ltd., Australia’s largest securities firm, said investors in two of its high-yield funds may lose 25 percent of their money as a rout in the U.S. sub-prime market spreads.

Just because the financials rallied hard on this 2 day Summer Fling with the Fed, it is obvious nothing has changed from Macquarie to PNB Paribas…the credit market is still a mess and there will be several more dominoes to fall. The Mortgage Lender Implode-O-Meter and now, the all new Hedge Fund Implode-O-Meter should serve as better indicators of when the financials will be safe to buy, rather than just the price action in the financials stocks. Lets get a poll…where do you think each Implode-O-Meter will go to? Mortgage: 200+? Hedge Funds: 40+?  Fun to watch, NOOOSTY to be in…

My thoughts are focusing on Japan’s GDP of 3.3 this early Monday morning. Some economists predicted a drop to 1.5 or below, with a upper limit of 3. A reading of 3.3 might spur another “yen carry trade” panic, though traders seem to have gotten more comfortable with their risks appetites with regards to the yen carry trade after the scare earlier in the year. However, I believe the potential damage caused by any unwinding of the yen carry trade would hurt more than the bond rates vs. Fed cutting rates scare we Read the rest of this entry »

U.S. Data Summary for Friday, June 1.
The bombardment this week of economic data ended this morning with a slew of U.S. data, signaling a moderately strong to stronger U.S. economy. Leading the way was the Job’s report by the Labor Department, which showed an increase of 157,000 jobs in the month of May versus an forecast of 135,000 by economists. April job growth was also revised down by 8,000 to an increase of 80,000 jobs. Meanwhile, the unemployment rate remained at 4.5%, in line with economists’ forecast. The main piece of data is most likely Read the rest of this entry »

Bank of America (BAC) pulled back right after it overtook Citigroup (C) as the largest bank by market cap a few days ago as CFO Alvaro De Molina. Since then, Bank of America has slid from above $54 to below $52.5 at a time when there have been several catalysts for banks. Sure it’s a great loss, but I believe this selloff is more of a panick than Bank of America not being the best bank to own anymore. Just yesterday, the huge merger deal between Bank of New York (BK) and Mellon Financial (MEL) boosted the financial sector. Even Citigroup was up on this news while Bank of America is down? (Bank of Amercia should only trade higher or in-line with Citigroup, never trade lower- its an atrocity). Today, the ISM Services reported a great upside surprise, signaling the financial sector as well as the other service sectors are doing great and yet Bank of America is still down. What to do? Read the rest of this entry »

Yesterday, Wednesday, October 12th, Bank of America Corporation (BAC) blindsided all of the online brokers (TD Ameritrade (AMTD), E*Trade (ET), Charles Schwab (SCHW)) and their mothers with this bomb: 30 Free Online Trades each month for customers with at least $25,000 in deposits or other accounts at Bank of America! Other brokerages have tried the free trading plan before, but Bank of America’s unexpected jump into offering online trading is a force to be reckond with as Bank of America is the nation’s #2 bank. Read the rest of this entry »