3SOF

Fed delivers rate cut

Central bank gives Wall Street the half-percentage point cut investors expected, also trims discount rate


NEW YORK (CNNMoney.com) -- The Federal Reserve cut a key short-term interest rate by a half-percentage point Wednesday, its second significant cut in just over a week, as the central bank tries to combat the growing risk of a U.S. recession.

The federal funds rate, an overnight bank lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans, was cut to 3.0% from 3.5%. The rate had stood at 5.5% only four months ago.

The discount rate, which is what banks pay to borrow directly from the Fed, was also cut by a half-percentage point to 3.5% on Wednesday.

The Fed cut both rates by three-quarters of a percentage point in an emergency move on Jan. 22.

The rate cuts come on a day the government reported that economic growth slowed significantly in the last three months of 2007, matching its weakest performance of the past five years. It also comes as Congress rushes to pass a $150 billion economic stimulus package to spur spending by both consumers and businesses.

What a roller coaster ride.  We actually broke the 137 level on the SPY...only to fail in the last half hour of trading.

Some are speculating that this may be the reason for the sell-off toward the close.

http://www.reuters.com/article/marketsNews/idCAN3023570420080130?rpc=44

US STOCKS-Wall St lower on CNBC bond insurer report
Wed Jan 30, 2008 3:58pm EST

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  (Updates to show stocks turning negative)
  
  NEW YORK, Jan 30 (Reuters) - U.S. stocks turned negative in late-session trading on Wednesday after CNBC reporter Charles Gasparino said he believed that ratings agencies may downgrade bond insurers AMBAC Financial Group Inc. (ABK.N: Quote, Profile, Research) and MBIA Inc. (MBI.N: Quote, Profile, Research) as early as today.
  
  Major U.S. indexes wiped out gains of more than 1 percent spurred by a half percentage point interest rate cut by the U.S. Federal Reserve after the Gasparino comments.
  
  The Dow Jones industrial average .DJI was down 8.45 points, or 0.07 percent, at 12,471.85. The Standard & Poor's 500 Index .SPX was down 2.07 points, or 0.15 percent, at 1,360.23. The Nasdaq Composite Index .IXIC was down 0.39 points, or 0.02 percent, at 2,357.67.
  
  Investors are anxious that Moody's Investors Service and Standard & Poor's Ratings Services may remove their triple-A rating on the two companies, which together insure more than $1 trillion in bonds.
  
  "My gut is telling me Moody's and S&P are going to downgrade either one or both," Gasparino said.
  
  Shares of both fell sharply after the comment.
  
  "Once he (Gasparino) started talking, we got the sell-off. As soon as that went across, those shares went down immediately," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. (Reporting by Jennifer Coogan; Editing by Leslie Adler)
  

Yep, I read the same thing somewhere


The market sold off due to Fitch downgrading a small monoline bond insurer (FGIC). S&P is threatening to downgrade Ambac and MBIA. The New York Insurance commissioner is threatening S&P with 4-letter words. You can bet that Hank Paulson and Pres Bush is somehow involved in those heated discussions.

We already know for a fact that Wilber Ross is looking to buy Ambac.

So here's the gameplan....Should Ambac and MBIA be downgraded, It is highly likely the government or the Fed will supply the capital to take over the business and unwind its positions - possibly letting Buffett take on the risks, at the right price. New York is already talking about that. The worst that happens is a few days of market BS - stuff we already expect, and then from that point forward, there is absolutely no negative news left!!!
Should Ambac and MBIA not be downgraded, business as usual.

Quote from: Se7en on January 30, 2008, 04:32:03 PM
Yep, I read the same thing somewhere


The market sold off due to Fitch downgrading a small monoline bond insurer (FGIC). S&P is threatening to downgrade Ambac and MBIA. The New York Insurance commissioner is threatening S&P with 4-letter words. You can bet that Hank Paulson and Pres Bush is somehow involved in those heated discussions.

We already know for a fact that Wilber Ross is looking to buy Ambac.

So here's the gameplan....Should Ambac and MBIA be downgraded, It is highly likely the government or the Fed will supply the capital to take over the business and unwind its positions - possibly letting Buffett take on the risks, at the right price. New York is already talking about that. The worst that happens is a few days of market BS - stuff we already expect, and then from that point forward, there is absolutely no negative news left!!!
Should Ambac and MBIA not be downgraded, business as usual.

Warren Buffets getting into the Bond Insurance Business is a good sign.

I feel like something is seriously going wrong in the credit markets.  It almost feels scandalous.  or Enron-esqe   

The Future markets are steadily selling off after market

I think it's fair to say that bulls took a beating yesterday and they'll show their disappointment at today's open.

The magnitude of the decline was small, but considering the very positive news (FED cutting rates by another 50 basis points) and the late day sell off from the highs, the feeling of frustration is justifiable.

You could conclude from 3 SOF yesterday's newsletter that this was the worst case scenario, that is, great news and the market sells off anyway.

However, I would like to caution everybody not to jump into conclusions derived from 1:45 market action. I've been studying and experiencing the market on a tick by tick basis for 12 years and this wouldn't be the first time that I would see the market doing what it does best, that is: hurt the majority of people!

You see, most people (myself included) place a great deal of significance on the $137 level. If the market rises above $137, shorts will be forced to buy to cover and new buyers enter the market. On the other side of the coin, if the market drops below $137, longs will be fearful and they'll run for the exit. At the same time new shorts will enter the market.

Given this scenario, what is the market most likely to do, in order to accomplish its objective of hurting the majority of people? You guessed it, the market will go above and below $137 so many times that traders will feel exhaust and this particular level will lose all its relevancy in technical terms.

So, again, I urge caution about jumping into conclusions. There wasn't enough time for a meaningful reaction to incoming fundamental information.

Moreover tomorrow's employment report will perhaps surprise on the upside and that could be a justification for the SPY to move back above $137. 

Besides this short term mambo jumbo, I remain a long term bull in the stock market, and besides this, the Main Portfolio stocks are so undervalued at this point that they already had their company specific's bear market in my humble opinion.

It looks like the jobs data isn't sweet...

U.S. jobless claims jump 69,000 to 375,000

By Greg Robb
Last update: 8:30 a.m. EST Jan. 31, 2008Print  RSS Disable Live Quotes

WASHINGTON (MarketWatch) - First-time claims for state unemployment benefits rocketed higher in the latest week, the Labor Department reported Thursday. The number of initial claims in the week ending Jan. 26 rose 69,000 to 375,000. It's the highest level since early October and the largest increase since September 2005. The jump was much larger than expected. The consensus forecast of Wall Street economists was for claims to rise to 320,000. Claims in the previous week were revised to an increase of 6,000 to 306,000 compared with the initial estimate of a fall of 1,000 to 301,000. Economists had been puzzled by the low level of claims given the sharp slowdown in growth in the fourth quarter. A Labor Department official attributed the sharp increase to difficulty adjusting to the Martin Luther King federal holiday.

Quote from: berloga on January 31, 2008, 09:06:33 AM
It looks like the jobs data isn't sweet...

U.S. jobless claims jump 69,000 to 375,000

By Greg Robb
Last update: 8:30 a.m. EST Jan. 31, 2008Print  RSS Disable Live Quotes

WASHINGTON (MarketWatch) - First-time claims for state unemployment benefits rocketed higher in the latest week, the Labor Department reported Thursday. The number of initial claims in the week ending Jan. 26 rose 69,000 to 375,000. It's the highest level since early October and the largest increase since September 2005. The jump was much larger than expected. The consensus forecast of Wall Street economists was for claims to rise to 320,000. Claims in the previous week were revised to an increase of 6,000 to 306,000 compared with the initial estimate of a fall of 1,000 to 301,000. Economists had been puzzled by the low level of claims given the sharp slowdown in growth in the fourth quarter. A Labor Department official attributed the sharp increase to difficulty adjusting to the Martin Luther King federal holiday.

Yeah, but on the other hand:

Private-sector jobs rose 130,000 in January

Anyway, employment is a lagging indicator and the market is a money game. SPY is moving back up after the sharp drop at the open ... entirely possible to move above $137 tomorrow.

I liked the reaction yesterday after the GDP number came in at just +0.6% (expectations were for +1.1%) ... a recession is priced in already in my view.

In a week or two it will be clear where we're headed, in the meantime there's going to be a lot of short term noise. Investors are advised not to watch

Probably you already know that Microsoft announced a bid for Yahoo about an hour ago:

Microsoft offers $44.6 billion for Yahoo

What is impressive is the 62% premium over yesterday's close What's Yahoo's jump and other tech stocks going to make to the Nasdaq and S&P 500 today?

Microsoft, which has one of the deepest pockets, is very confident in the future of this economy and advertising in general.

Are you going to fight it?

Damn, should have bought some Yahoo yesterday ...   

fyi:
Old Fool Notes – 02/02/08
We had a very good week last week.  We were up 87 last week and are up 200 points from the bottom in the last 9 trading days.  That is a very nice recovery bounce.  Of course, we hear the old saw "dead cat bounce" and there is certainly the possibility of challenging the 2300 level again.  But, I believe (and my charts support) that a significant washout has been completed – we will see.  Volume on Friday was 3.1 billion – somewhat biased by huge volume in MSFT (4 times normal) and YHOO (12 times normal).  The volume ratio was 2.6 to 1 in favor of the bulls – not especially efficient for 24 points.

The daily chart has a new bull channel because the bulls broke out of the down channel.  One of my primary signals, the OBV, has gone positive.  All of the other indicators are also in very good position.  Nice chart with room to run.

The hourly charts also look good.  I will point out to you the double bottom in the 2225-2200 area and the associated MACD/slow stoc response.  You absolutely have to buy that pattern whenever you see it – especially after a long fall.

The ratio chart has improved nicely but we still do not have a confirmed buy signal.  Note the touches on the bottom red line in Mar and Aug and compared that time period on a Naz chart – you should see something interesting.

The weekly chart is still caught in the down channel and needs considerable more work.  However, I will note that it has moved back up above the green support line at 2350 and that's an important move.

The Wilshire has out performed the NAZ for the past few days and that's very good.  We also have a firm buy signal from the OBV and MACD with a pending confirmation by the slow stoc.  Note that I use a 39/1 stoc.

The P&F chart gave us a Double Top Breakout buy signal on Friday with a 2520 target.  Resistance is at 2630 but is basically meaningless at this point.  I expect further volatility for the first six months of the year so that resistance line will drop further as we gyrate up and down.

Friday was one of the best days I have had in a long time.  I started loading up on large cap tech, financials and utilities on the 18th and have been buying steadily since then.  Examples include INTC, DOW, PFE, XLF, WM, C, HTE, SO and TE.  Added to a number of LT mutual funds also.  Sold 30% of FDG.  Have owned that since late 03 and added periodically in 04 and 05 but it is time to lighten up.  I have now deployed about 75-80% of my LT cash.  Still 100% cash in the TP.  These washouts are what us old fools look for where we can add good, dividend paying stocks on sale.  As I have posted before, it has worked for 40 years and is likely to continue working.  2350 is first support and I do not see a serious problem unless 2300 is taken out.  On the top side, 2425 is decent resistance and then it appears to be clear up to 2475.  Catching another big silver bird in the morning to run out West for a couple of days.  I'll check in when I can.

Charts link below.  Thanks for the votes.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

Shadowtrader update:
http://www.shadowtrader.net/videos/sunday020308st.html

cheers
Oliver

should be a good day for Chinese stocks today

^AORD All Ordinaries 5,921.70 12:11AM ET  39.40 (0.67%)
^SSEC Shanghai Composite 4,581.53 12:25AM ET  260.76 (6.04%) 
^HSI Hang Seng 24,876.46 12:43AM ET  752.88 (3.12%)
^BSESN BSE 30 18,751.13 12:43AM ET  508.55 (2.79%)
^JKSE Jakarta Composite 2,701.10 12:58AM ET  54.28 (2.05%) 
^KLSE KLSE Composite 0.00 Dec 31 0.00 (0.00%)
^N225 Nikkei 225 13,809.83 12:38AM ET  312.67 (2.32%)
^NZ50 NZSE 50 3,711.73 Feb 3  3.61 (0.10%)
^STI Straits Times 3,075.86 4:58PM ET  68.06 (2.26%)
^KS11 Seoul Composite 1,693.53 12:58AM ET  59.00 (3.61%)
^TWII Taiwan Weighted 7,673.99 Feb 1  152.86 (2.03%)

09:00 am : S&P futures vs fair value: -21.4. Nasdaq futures vs fair value: -30.2.  The futures market has taken a noticeable dip after the January ISM Services Index level of non-manufacturing business activity checked in at 41.9 versus the consensus estimate of 53.0 and the December reading of 54.4.  The scope of the decline is surprising (and questionable) seeing how this survey never moves more than a couple of points.  In any event, the headline has exacerbated the negative tone.

Hello, I'm at a CyberCafe, since my computer suddenly stopped opening websites this morning. Sorry for not sending the newsletter and daily updates today.

I see that the SPY is still making its little game with the $137 level. Most analysts wrote a negative version of the Microsoft/Yahoo deal, as they continue to see the glass half empty. Also yesterday we've had several downgrades of financial companies to compose the disappointment for this morning.

As I see it the market is just throwing the weak hands out of board, but the long term path is up and the lows were already made.

No doubt I'll keep holding all the stocks of the Main Portfolio.

Again, I'm sorry for any inconvenience today and I hope Ramsburg can fix my computer as soon as possible.

Have a nice day

just fyi, to get a full picture and lots of different statements  :

Economist: Expect Fed to lower Dow to 8,000
Critic claims agreements involving billions used to shift market

Consumers should expect a deep recession, triggered by the "stealth methodology" of the Federal Reserve to "depress" the market even while lowering interest rates in an ostensible effort to stimulate economic growth, an economic analyst is charging.

"The Federal Reserve is directly involved in manipulating the stock market," said economic analyst Mike Bolser in a telephone interview with WND yesterday. The New York Stock Exchange finished the day down 108.03 points, closing at 12,635.16, much as Bolser predicted, despite recent emergency Fed rate cuts of 1.25 percentage points aimed at stimulating the economy. "Fed wants the Dow Jones Industrial Average and other financial indicators to descend in a managed way," Bolser said. "The Fed wants to drive the DJIA toward the 8,000 level, or below, in order to help create a deep recession which will have the effect of slowing consumption across the board, and dampening the otherwise harmful effects of inflation.

"A falling DOW is only one element of the recession effects of the excessive Fed-created housing and credit creation, whose bubbles are now bursting," he added.

"Without this recession, we would be on quick trip to hyper-inflation," Bolser, the author of an internationally followed newsletter published in conjunction with his InterventionalAnalysis.com website, said, "and the Fed wants to prevent this."

In his twice-daily subscription newsletter, Bolser has devised a quantitative methodology for utilizing Federal Reserve repurchase agreements to predict upward and downward movements of the DJIA, measured on a 30-day moving average. Yesterday, Bolser noted the Fed added $18 billion to repurchase agreements, edging the pool up to a total of $153.158 billion in unexpired temporary repurchase agreements. Repurchase agreements involve a sophisticated use of government securities issued every day by the Fed, but little understood or followed, even by sophisticated investors. A repurchase agreement, as defined by the Fed, is a government security offered by the federal government to a small list of specified primary government securities dealers, for a limited period of time, usually 28 days or less, with overnight return being the most common. The government securities are "rented" by the primary dealers and they can be added to the primary dealer's portfolio or collateralized and then used in the open market to implement the Fed's open market policy.

At the end of the repurchase agreement, the Fed obligates itself to take back the government securities from the primary dealers, effectively canceling the contract. Meanwhile, while holding the government securities let out by the Fed in the repo agreement, primary dealers are free to utilize the liquidity provided by the repurchase agreement to manipulate the economy in accordance with the Fed's true monetary policy, whether publicly declared or not.

Primary dealers use the funds provided by the government securities they hold under the repurchase agreements to buy dollar exchange futures contracts, stock market futures, or to buy commodities contracts, including gold mining shares, all in accord with implementing Federal Reserve monetary policy to manipulate currency, commodity and stock markets up or down, depending what goals the Fed wants to accomplish at any particular time, the economist alleges.

Over the past several months, however, the Fed has implemented a policy to issue smaller amounts of daily repurchase agreements, with the goal of reducing the total pool of repurchase agreements available to the Fed's short list of 20 banks that are qualified by the Fed to serve as primary government securities dealers participating in the Fed's Open Market Operations.

Only the 20 banks specified in the Federal Reserve Bank of New York's list of primary government securities dealers are allowed to participate in Fed repurchase agreements.

"The primary government security dealer banks are like a private club," Bolser told WND. "You get to stay in the club as long as you take the repurchase agreements and enter the markets to implement Fed monetary policy the way the Fed wants it implemented. Violate the unspoken rules, and you risk being thrown out of the club."

Yesterday's $18 billion addition to the repurchase agreement pool caused the total amount of the outstanding repurchase agreement pool to remain below the DJIA 30-day moving average in a clear trend.

Bolser used this data to predict the Fed was manipulating the stock market lower, a controversial prediction when most economists see the Fed's emergency actions to reduce the target Fed Funds rate 1.25 percentage points lower over an eight-day period that ended with last Wednesday's meeting of the Federal Open Market Committee.

"Ultimately, the government is in the business of inflating the dollar," Bolser said, "so the Fed is trying to engineer a recession, in order to cushion the pernicious effects of its own inflation."

"In my view, the government intentionally desires a deep recession not unlike that of the 1930s," he continued. "The Fed, however, dissembles, attempting to display the opposite impression with its rate cuts."

"Cutting rates will not boost the economy in an environment where the credit bubble has burst and banks are afraid to lend," he explained. "But decreasing the repurchase pool will push the economy down, especially when the primary banks execute monetary policy in accordance with the wishes of the Fed to short the market with future contracts that push the indices down."

Bolser argued the Fed's ability to manipulate the market by increasing or decreasing the pool of available repurchase agreements amounts to a "stealth methodology" where the Fed can now depress the market, while implementing a policy of lowering interest rates, which most economists would see as trying to stimulate economic growth and the stock market.

"You have to remember the primary goal of the Fed is to support the bond market, which the Fed has done for quarter century," Bolser stressed. "The Fed needs a strong bond market so the Treasury can sell the enormous amount of Treasury securities, especially to China, that we need to sell to finance what this year may be as large as a $400 billion dollar budget deficit calculated on a cash basis."

"As a result, the friend of the Fed is the bond speculator," he added.

Among the U.S. banks and securities firms currently on the list are Bank of America Securities, Cantor Fitzgerald, Countrywide Securities, Bear Stearns, Daiwa Securities America, Goldman Sachs, Greenwich Capital Markets, HSBC Securities (USA), J.P. Morgan Securities, Lehman Brothers, Merrill Lynch Government Securities, and Morgan Stanley.

Also on the list are France's BNP Paribas Securities, Great Britain's Barclays Capital, Switzerland's Credit Suisse Securities, Japan's Mizuho Securities, and Germany's Dresden Kleinwort Wasserstein Securities.

"These dealers are the foot soldiers of the Fed, as it implements monetary policy," Bolser said.

Studying Bolser's "Repos/DOW" chart from Dec. 7, 2007, through yesterday, a broad correlation between the downward movement in the Fed repurchase agreements pool totals and the DJIA as seen by tracking the 30-day moving average is clear.

"With this strategy, the Fed hopes we won't experience the extreme 'stag-flation' we had in the late-1970s," he argues. "The Fed hopes to induce a recession to manage downward stock prices and commodity prices, including oil, gold, copper, and lumber, as well as the overall consumer demand for retail goods."

"Stag-flation" is an unusual economic situation combined when economic stagnation is combined with inflation, much as the economy is currently experiencing, such that economists fear we are entering a recession while food and energy prices continue to rise sharply.

http://wnd.com/index.php?fa=PAGE.view&pageId=55601