Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

leaving no doubt

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You’ve heard by now about the Fed’s discount rate cut. It wasn’t the usual 1/4 point. It was a full half point. They were going for the bears’ carotid arteries with this action.

The Fed cut rates this morning before the market opened. Why time it like that? Today (Friday Aug 17) was futures options expiration day. The exercise price was the opening print of prices this morning. By announcing the rate change before the market opened this morning (after yesterday’s afternoon monster recovery) they guaranteed the bears would get skinned by an additional 2.5%.

In case you had any doubt the Fed manipulates the market for the benefit of politicians, this ought to help you decide.

By the way, they lowered the discount window rate, which is the rate the Fed charges for big banks that want to borrow money from the source. Their action only helps struggling banks. If they wanted to help the economy [sic] they would have changed the fed funds rate, which affects all bank, healthy or otherwise. Their inaction in the fed funds rate also leave them the future opportunity for yet another headline intervention.

Just Wednesday Fed Governor Poole said any Fed action before a regular meeting would not be desirable. They wouldn’t act unless something cataclysmic occurred. Actions speak louder than words here.

Also, gold and silver sold off hard lately. In a credit crunch, cash is king, and desperate investors sell whatever they can get their hands on. In any market turmoil, use someone else’s radically changing preferences (or forced selling) to improve your own positions.

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Written by heyercapital

August 17, 2007 at 3:20 pm

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