Wednesday, June 25, 2003

Well, it seems the markets were expecting a kiss today and all they got was a handshake. The Fed dropped the Federal Funds rate by 25 basis points today, bringing the mark down to 1.0% -- "lowest since Eisenhower" as we're hearing ad naseum. Upon the news the Dow promptly tanked 100 points and the S&P fell 12 points, although both recovered slightly by the end of trading. Clearly the markets thought the date had been going pretty well and fully expected 50 basis points as a result. The claim that recovery is just around the corner also dampened expectations of future rate cuts although the August meeting could very well deliver that kiss down to 0.75% the markets had wanted now. Nonetheless, the commitment to ultra-low rates for the long haul continues to buoy everyone's spirits.

There are some dissenters, of course. Peter Cardillo, chief strategist at Global Partner Securities, said the "mixed signals" coming out of The Great Greenspan Show was confusing Wall Street. "It could potentially begin a market correction, with the market losing about 5 per cent in the next couple of months." In addition, business investment data continued to disappoint -- but who really thought it is on the verge of an upturn??

All the loose money seems to continue getting plowed into housing as sales of new single-family homes climbed 12.5 percent in May to a record annual rate of 1.157 million units and sales of pre-owned homes jumped 1.2 percent in May to 5.92 million. As Teddy at "It's Still the Economy, Stupid" points out, any tick up in interests rates is likely to kill the housing market and maybe even burst a few bubbles in California and on the East Coast. This is an economy running faster and faster just to stay in the same place.

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