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Tuesday, December 11, 2007

 

fed cuts another 25bps; market tanks


"behind the curve" is the new "contained"!

there's apparent concern that the fed doesn't understand the depth of the housing problem. says mish, says pimco's bill gross and paul mcculley, says screamin' jim cramer, and says the stock market -- the latter two of which at least were certainly looking for more from the central bank as recession forecasts become widespread.

of course, on the flip side, there is speculation that large foreign debt-holders are pressuring the fed to do something to prevent the crash in the dollar. that something may be a slowing of rate cuts.

as noted by mish yesterday, the recent rate cut by the bank of england was met by a bizarre rise in short pound-denominated rates. that was not the reaction in america today, but it illustrates the fact that credit market participants are extremely paranoid now (and not without cause). there's a lot of plain old terror out there. it isn't every day you see the words "liquidity trap" made relevant to current affairs.

i remain profitably long from buy points on november 13 and 16 and (despite having been early and anxious!) continue to be optimistic in spite of it. some of the reasons why are here. there's also the question of isee sentiment, shown here, which is coming off oversold lows and has not rebounded yet to anything like overbought highs. add all that to the anecdotal instances (too few data points to call it a study) compiled by folks feeding the kirk report, confirming the probability of a near-term bounce, and despite today's selloff i still would expect at least a retest of yesterday's high point if not explicitly higher prices based on technical conditions and historical parallel.

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