Investors Throw on Rose Colored Lenses Following Fed Cut

Wow...market cheers a .75 cut and DJIA (DIA) is up 420 points.

But here is what people are missing:

1) The Fed is so scared of the markets going down that there is a complete disregard to the plight of the dollar. The dollar index, which measures the greenback against a basket of six major currencies, was at 71.919, up from 71.250 shortly before the Fed announcement. This was more due to short covering rather than fundamental appreciation. This index has huge potential for continued downward movement. According to an article in the CFO. COM, "in a most recent quarterly Global Business Outlook Survey, a stunning 50% of Europe's CFOs and 60% of Asia's believe the decline in the dollar represents a permanent or long-term devaluation". If this trend continues then this has a huge impact on the rate of foreign investment coming to the US. By the way, the oil-exporting countries peg oil prices to dollar and this has negative implications. Without going to lot of background reasons, regardless of OPEC decisions, dollar devaluation on its own may tighten supplies, increase demand and keep oil prices high a long period.

2) The constant drumbeat that I hear from my buddies from financial institutions is that liquidity is not the current issue. I am not sure what the rate cut gets us other than fan inflationary pressures.

3) I did make money on Lehman (LEH) and GS (GS) yesterday....but I also closed all of my positions. In fact, I have taken some positions in the Ultrashort Financials ETF (SKF). Regardless of the assurances, are we absolutely sure of the investment grade of these illiquid assets. (AAA ratings ??? Give me a break..) The following is a statement yesterday from Fitch on Lehman:

Exposures to illiquid assets have increased as securitization markets are no longer available following materially weakened financing acceptance in the capital markets. In typical fashion, the "genius" wall street analysts are now falling over each other to upgrade Lehman. But let us wait for 3-6 months and find out the true value of these assets for all financial institutions.

4) In an article published a few weeks ago, Moody's Economy.com estimates that:

8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak.

With job growth going down rapidly and housing market in shambles, the growth prospects are non existent for this economy.

I could go on and on, but I should really be celebrating the rate cut and a 400 point jump. NOT......

Comments

[sammyg123:]

There's money to be made on both sides of this, for sure.

2008 Mar 19 07:19 AM

[scobbydube:]

Loved your comment on the Rating Agencies.. Why should we believe anything they tell us number one, and why should we believe anything we hear from these Wall Street firms.. Sure there is money to be made by be on the right side of the short term trade, but there sure is the potential to lose a lot over the long term.. The truth is still not out on how bad thier balance sheets really are.. Timing their earnings release to be on a FOMC statement day is interesting in itself..

2008 Mar 19 07:33 AM