Fed Risks Impotency With Latest Panic Cut

The Fed blows it…again.

Before I could even get back from the gym, the Fed announced a 3/4 rate cut. While financial players worldwide were calling for them to do something, this is the wrong move. I’ll flesh it out in more detail in a later post but the short summary:

In life, timing is EVERYTHING. The Fed had their chance to cut rates mid-meetings but they didn’t (last week’s fiscal stimulus announcement would have been an opportune time). Instead, they waited for the markets to sell off and confidence is shaky, at best, which will reduce the psychological impact of the cut. Instead of leading with confidence, the Fed is once again REACTING from the back of the pack.

Additionally, the Fed is now actively trying to put in false bottoms which didn’t work in the housing market and it may not work here.. This has the dangerous effect of short-circuiting natural market biorhythms. The vultures (like me) who are sitting with cash are waiting for stocks to get cheap but are being shut out of the market everytime the Fed acts to artificially prop it up. Now, we will have to wait for an even bigger washout as a true bottom was never marked. Additionally, many of the institutional players have been sitting in cash and 2-year t-bills. I can’t see how a rate cut will force them to hop on. They’re going to be more worried about the Fed’s panic and another leg down than they will be about missing the rocket ship back up to 14,000.

As a side note, the FTSE 100 was up when I left for the gym (pre-cut) and down slightly when I came back (post-cut). There may be a short bounce, but it may be short-lived.

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