The Back Alley Archives

by 50 basis points this morning. If that ain't throwing gas on a fire.....

Although, I doubt it will change much. Most of the lenders with positive cash flow aren't lending right now. Thoughts?

i'm not surprised about how the market tanked as it did on this news...here's my thoughts on rate cuts:

usually, rate cuts are signaled to the market days, weeks, and sometimes months in advance...and usually these rate changes are to take place on the designated days the FOMC (federal open market committee) meets during the two days the committee gathers to decide on such matters...the signals come in the form of fed governor statements, they come in the form of economic data, they come in the form of where and how the money market is trading during a given point in time. point is, these moves to ease or bolster rates are usually telegraphed...the market is efficient and requires the telegraphed movements in order to insure confidence that there is a process and reinforce in everyones mind that there is a system in place.

now when rates are cut (or raised during times there is fear of inflation) between said meetings, they are obviously not telegraphed..for one, they come intra-meeting which indicates to the market that the FOMC could not wait for the next meeting to cut....which would indicate that the FOMC is concerned...so much so that they could not wait....which would indicate that they are behind the 8ball...which would indicate that things are more dire than the market participants would be lead to believe to this point.

an intrameeting move shows despair and shows that there is something that the FOMC is privy to that the market is not yet privy to....and btw - normal cuts/raises come in 25s...50 means that it is doubley more troublesome....we've seen 75 in the days following the 9/11 attacks just so you know...so the concern stems from not only an intrameeting move but a 50 basis point move at that.

Dow is down another 678. For those keeping track at home, that puts the Dow at 8,579. Nevermind the fact that it was at 14,000+ just months ago.