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Posts Tagged ‘ben bernanke’

Fed BunnyIt has been a week now since the Bear Stearns collapse and the Federal Reserve decision to bail them out and lower rates by 75 basis points. Now what??? We see that Oil is starting to head back up and that the rally that we had in the markets were short and sweet. The dollar seems to be getting crushed again and may end up retesting the highs of 1.5900 again. I would like to know your thoughts on the Fed matters. Please fill out the poll so we can get your opinion on what the Fed is doing. Who knows, maybe the Fed will listen this time.

~ G

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293homealone121107.jpgWell, maybe while you were getting ready for bed. The Federal Reserve Bank decided to make an emergency move this evening and cut the bank lending rate to 3.25 percent from the 3.50 percent it was at earlier. This move made by the Fed was meant to “try” and create some stability in the financial markets. Also, at the same time, Bear Stearns (BSC) is being bought out by JP Morgan (JPM) at a steal of a price. This last minute buyout and the move by the Fed (who also approved this buy out by guaranteeing the deal with $30 billion) had an immediate effect on the overseas market and crushed the dollar. The EUR/USD hit a high of 1.5905 and the YEN hit 12 year low against the dollar at 95.74. Gold also was trading (at time of posting) around 1,026 an ounce. (I guess there goes the gold teeth I was considering!)

One way to help you against the falling value of your dollar is to hedge against it with the other currencies like going long the Euro or even long the Yen. Any trading against the dollar seems to be the most logical move. When asked what should be done about the financial crisis in the US, Federal Reserve chairman Ben Bernanke said “I don’t know!” No wonder the dollar is crashing and the basic carry trade is dead.

Well, hedge your bet for now or wait and see if the fed moves some more on Tuesday with another cut of 75 basis point. Bernankes strategy seems to be trying to keep the economy supported and worry about inflation later. We may see on the EUR/USD 1.6000 before Tuesday if the market sees even more weakness. Also, the USD/JPY may see an even lower level below 95.00 as weakness in the dollar continues. Tomorrow is a new day.

~ G

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Well, Uncle Ben came through for investors and it turns out they were satisfied with the 25 basis point in interest rates. Read the statement here. And everything you want to know about the Fed is here at The Fed 101.

It seems that decent earnings over the past couple weeks and fairly strong economic data are back in focus after the baited breath waiting game.

Here’s another way of looking at this: the VIX. One of the market’s primary fear vs complacency meters described here. Keep an eye on this because after breaking higher, it is coming back down. If it breaks below its trendline (support lines on the chart, the green oval area) , good times are officially back in fashion. If this happens, you can participate in those mad trends going on with much more confidence, or larger positions, because you can more objectively say that glad economic tidings are outweighing negatives.

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201px-ben_bernanke.jpg Tomorrow the Fed steals the show announcing its latest decision on interest rates. Forex basics recap: high rates are good for the dollar, low bad. Low are good for stocks, and stocks still have a leadership cap on, meaning the more rate cuts the better for most currencies out there (the carry, the higher interest payers.)

Here’s the deal. Stock investors have been halfway in a parallel universe of delusion lately! There’s huge expectations of a 25 basis point cut, perhaps 50. I think with this pressure, there is more risk to the downside. What if the Fed only does .25 and everyone is disappointed there’s no .50? What if the .25 doesn’t even come? It’s always possible .50 comes or there is lots ofhawkish pulpit pounding, but I’m a little leery. We’ll see right?

Sooooo, this is called event risk. It’s like super earnings for a stock, but universal. If you’re up a way in a trade, “being careful” here may mean taking some profit off the table. Some tighten stops, whatever that means (I always keep mine as tight as technically makes sense …)

Otherwise, if you trade longer term (daily) it’s business as usual – there just may be a bigger move than usual one way or the other. If you trade long term watch for a break and follow it till it runs out of steam. And enjoy the show!

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