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Photograph of Federal Reserve Chairman Ben Bernanke pausing during testimony last week by Dennis Cook/AP
After an ugly Monday in global financial markets while the U.S. markets were closed and Asian stock markets plunging today, the Federal Reserve lowered the interest rate by 0.75% in an "emergency move for the first time since 2001." From the Fed's press release:
The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets...24/7 Wall St.'s Jon Ogg writes, "This is what we were hoping for. While we would have rather seen this occur during market hours, maybe looking a gift-horse in the mouth isn't necessary...This won't fix all of the problems out there, but it's a start."Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.
Still many don't believe it's enough, given that, as one CNBC expert, Joe Battipaglia of Stifel Nicolaus Private Client Market Strategist, said, "I don't think the Federal Reserve, nor the U.S. Treasury or the federal government can do much to change what we need to go through, and that is, a two-year cycle of housing and credit-market corrections, painful as that might be, along with a slump in the U.S. economy that will lead to more global difficulties in the course of the next nine to 12 months." And another, Cronus Futures' Kevin Ferry, predicts for today, "It's going to be a very, very violent first couple of hours, but we're not down a whole another session like everyone else. We were in front of this, and the rest of the world is, in fact, catching up to us, even though we were closed."
Update: The Dow fell by as many as 460 points this morning, but are now, at 12:15PM, about 116 points down (here's a live chart). How many points down do you think the Dow will end?
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this shit is AWESOME! Burn Baby Burn! But knowing these fucking interest rate cuts the market will bounce back. George Bush promised utter apocalypse when he got a second term and he's still got time to accomplish this.
Dude...Where's my apocalypse?
the market is going to 0.
When the markets tank, it really effects the middle and lower class. Sure, maybe the hedgefund cats can only have one jet instead of two, but they really won't suffer. In many ways, if they're taking short position, dealing in futures, options and currencies, they'll be making a killing. The world markets are too interdependent at this point to have a complete meltdown. Although, I do have my apacolypse outfit picked out.
It looks like Uncle Ben had a margin call last week...
I don't mean to defend the hedge fund guys but they won't all do well. Something like 20% of all hedge funds shut down every year and that's an average. When hedge funds were a relatively new thing it was easier to make money. Then, like everything on Wall Street, hundred of more funds opened because you can make far more money in a good year than you could at an investment bank. Problem is that if you have a great trading idea about 20 other guys have the same idea. When you hear about the great returns at one fund it probably means five others did no better than the market averages. But hedge funds aren't mutual funds so they don't file reports with the SEC. Getting good data is difficult.
That said, you're right, the rich don't really rely on the stock markets for their personal holdings. For them it's about preserving capital, not long term growth. Middle class investors need the growth of stocks if they hope to retire comfortably. The counter side to this is that you don't need stocks to be high when you're working. You need them higher when you get older when you are moving more of your assets to bonds. Point is, if you're in your twenties right now this drop means you're buying at lower prices. If you're in retirement and over invested in stocks then yeah, you're in the house of pain.
don't cry Bernanke. it's only the world on your shoulders.
@ East River: Absolutely. Hedge funds are risky if you're out of the loop, but if you have the cap to get into a brilliant one, of which there are quite a few, the money just rolls in at times like this. It's a double edges sword. They don't report, so it's hard to get info, but since they don't report they have leeway to use investment vehicles and strats that a reporting institution can't touch.
I did pretty good. Bought DXD at 58; sold at 65. Going to start picking up bargains on the market soon...
I guess that's probably not something I should be laughing at.
let's hope it's a real free market and let the chips fall without any fed or market intervention.
nope, that won't happen.
so much for the free market system.