Digesting the Fed Rate Cuts: Watching and Waiting

by: Kevin Stecyk

The markets certainly have been interesting. Like many others, I was surprised that the Fed cut the federal-funds rate and discount rate by 50 basis points. I was even more surprised by the stock markets' reactions. Like many of the panelists on Fast Money--Jeff Macke, Guy Adami, Karen Finerman, and Pete Najarian with host Dylan Ratigan--I expect a smaller rate cut and a muted reaction. That was then, and this is now.

My hope had been that the markets would go down and I would be well positioned to realign my portfolio. I am net long by a wide margin, though I do have some short positions. Had the market gone down, I would have covered the shorts. As it is now, the shorts have risen.

Fortunately, however, the longs have risen much more. I also wanted a correction to get longer gold, silver, and oil stocks because I am a bull on the longer term outlook of these commodities. Gold and silver have continued to go up. Gold is roughly $720 per ounce; silver, $13.00 per ounce, and oil (NYSE:WTI) is roughly $81.87 per barrel. Thus far, I appear to be correct in my longer term outlook for these commodities though I might have missed an earlier buying opportunity. One stroke of luck, though, is that I had planned to purchase more oil sands related companies with cash sitting on the sidelines. A report was issued Wednesday urging the provincial government to increase its royalty rate. That report knocked the stuffing out of the oil sands related companies. The damage there is not likely over. Although I did not get my desired outcome, I have done okay.

As an aside, if I read through the report in the near future, I will provide my thoughts.

All that said, what is my plan going forward? To be honest, I am not sure. I am reluctant to go chasing stocks after this pop. The market continued with its robust action again Wednesday, up 0.61% as measured by the S&P 500. Looking at the Asian markets right now, the results are mixed with a positive bias. I am inclined to do nothing and let things settle out. I still do not believe that the housing issue has been solved by the interest rate reductions.

As I wrote this article, I thought back to a recent Jim Rogers' interview on Bloomberg. He states his bullish argument for commodities much more eloquently and forcefully than I can for my argument.

In summary, I was certainly surprised by the Fed Chairman Bernanke's move on Tuesday and even more surprised by the stock markets' reaction. I did not get my opportunity to realign my portfolio. Since the cut in rates, I have done nothing and am just waiting for the markets to settle out. I continue to like commodities and will look to increase my exposure on a pullback. But aside from planning that move, I am still watching carefully.