Tuesday December 16, 2008
Navivest

In a bid to combat the economic malaise affecting the country, the monetary policy-setting arm of the Federal Reserve, the Federal Open Market Committee today, set a target range for the federal funds rate from zero to one-quarter percent. This target rate is the Federal Reserve’s lowest level in over 50 years.

The federal funds rate is the interest rate at which banks and other depository institutions lend their balances at the Federal Reserve to other depository institutions overnight.

The FOMC signaled that the federal funds rate will most likely stay low for a while, stating that “The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

Usually, the FOMC targets a fixed rate as opposed to a target range, however of late, the effective funds rate has been trading below the previously set target rate and having a range instead of a fixed rate allows it to stay ahead of the curve.

The feds fund rate has seen a dramatic decline over the past year and including today’s action, since September of last year, it has been cut ten times from 5.25%, to today’s 0-.25%.

The goal with a cut in the feds funds rate is to make money cheaper and, at least theoretically, stimulate economic growth.

The problem here is that beyond the cutting of interest rates which the Federal Reserve has done today, the government has actually taken the unprecedented steps of loaning billions of dollars under the Temporary Asset Relief Plan, to financial institutions to not only help them strengthen their balance sheet, but to also spur them to loan money to alleviate the credit crunch. But the banks have not been loaning money. So it will be interesting to see if today’s action helps to do what the Federal Reserve hopes it will.

For now though, Wall Street was very happy with the news. Partly responsible for that, is that the Federal Reserve basically said it will do whatever is necessary, to continue to try and boost the economy. In its accompanying statement, it stated, “The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.”

Tags: FOMC  Federal Reserve  Federal Funds Rate  Interest Rates  fed Funds

Tuesday December 16, 2008
Navivest

Today will be an interesting one for the stock market. We could possibly see a move to the downside in early trading, followed by a very nice move to the upside in later trading.

The monetary policy setting arm of the Federal Reserve, the Federal Open Market Committee, will be announcing its latest interest rate decision, after meeting yesterday and today. Most analysts and forecasters are expecting that they will cut interest rates further, with some looking for a cut of as much as half a point.

Before we get the decision on interest rates, which does not come out until 2:15, we have some economic news due out today that should dictate the early tone of the markets.

At 8:30 AM, we will be getting Building Permits numbers, CPI numbers and Housing Starts. There is a very good chance that the housing related numbers could come in worse than expected, so unless the stock market decides to trade higher on bad economic news, we may drift lower at the open.

In addition to the interest rate decision news, will be getting news from OPEC, which is expected to cut oil production perhaps by as much as two million barrels a day. That should help send oil and commodity stocks higher.

We are also awaiting word from the Whitehouse, with regards to help for General Motors (GM), Ford (F) and Chrysler. While we don’t know whether that news will come this week, next week or even later, we know news is on the way.

President Bush leaves office on January 20th, so we are looking for that announcement to come in the next two weeks. To the extent that the automakers are operating on fumes with just weeks’ worth of cash on hand, we could possibly get the news this week.

With all the news that’s due out, we are recommending traders take long positions today. Once the market opens, gauge to see if we have decisive trading or if the market is just treading water. If we are definitely heading down on the economic news, then wait until at least 10:30 AM or so, then start buying.

Trading psychology will come into play today. If stocks are moving to the downside early, don’t be scared to get in. If later on we do get the upside move, then buying on a dip enables traders to extract maximum gains.

If stocks are just drifting, you can start entering into positions around 10 AM. Some oil and commodity stocks that we like are Apache (APA), Anadarko (APC), Devon Energy (DVN), Mosaic (MOS), Agrium (AGU) and Bucyrus (BUCY). We also like the Proshares Ultra Dow 30 (DDM), which is a great play if the stock market is heading higher. While we prefer these names, if we do get a move to the upside, it would be a broad based rally.

If we are fortunate enough to have stocks move to the upside in the latter part of the trading day, then exit today and lock in profits.

Navivest, through our subscription based services, provides trading advisory services for traders. We currently offer two distinct products. These are The Options Capitalist service for options traders and Navivest Equity Trader for short to intermediate term stock traders. If you would like a free two-week trial to either service, click here.

Tags: Stock Recommendation  Trading Ideas  GM  Ford  Interest Rates  FOMC

Monday November 17, 2008
Navivest

It was not too long ago that the investment community was actively debating whether the Federal Reserve would raise rates or not at their next scheduled meetings.

That debate is now off the table as the economy has cooled substantially and if anything, the debate is now whether the feds will continue to cut rates to spur the economy.

Tomorrow, we get the Producer Price Index numbers for October. The PPI measures the price of goods at the wholesale level.

With the state of the economy and the drop in oil prices of late, we expect to see a tame PPI.

Investors watch the PPI numbers as it helps portend the direction of interest rates.

One thing we would like to know is what Dallas Fed President Richard Fisher is thinking now. At the August 5th meeting when the FOMC voted to keep interest rates unchanged, he dissented and voted to raise rates.

We wondered then whether he could not see what was beginning to happen to the economy and that things would get worse. To us, this lack of foresight disqualifies him for his job.

Tags: PPI  Economy  Interest Rates

Wednesday October 29, 2008
Navivest

The Federal Open Market Committee of the Federal Reserve, decided today to cut its target for the federal funds rate 50 basis points to 1 percent.

The federal funds rate is the key bench mark interest rate in the U.S. and is also the interest rate that banks charge each other on overnight loans. This is the lowest the fed funds rate has been since 1958.

They also cut the discount rate by half a percentage point to 1 1/4%. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility, or the discount window.

Tags: Interest Rates  FOMC  Fed Funds

Wednesday October 29, 2008
Navivest

The stock market will probably be trading in a tight range until about 2:15 PM today, when we get the latest interest rate decision from the Federal Open Market Committee. the monetary policy setting arm of the Federal Reserve.

Traders might do well to just sit on the sidelines and digest yesterday’s gains until then. A cut is very much expected, so unless the cut is extreme, it probably won’t move the markets much and if anything, there is a chance stocks could start moving to the downside after we get the news unless again, we get a massive bigger than expected cut.

The benchmark Fed Funds Target Rate is now at 1.5% and while Wall Street is angling for an interest rate cut, some are already beginning to question whether we will benefit at all from lowering interest rates further. So it might not be worthwhile to trade ahead of the news.

Tags: Interest Rates  FOMC  Federal Reserve
 

The Federal Reserve, in a globally coordinated effort that also saw interest rates cut by the Bank of England, Bank of Canada, the European Central Bank and Sweden’s Riksbank, cut the U.S. federal funds rate 50 basis points to 1-1/2 percent.

While not part of the globally coordinated action announced this morning, China also cut interest rates, with today’s cut being the second time in just three weeks that it did so. China’s key benchmark interest rate now stands at 6.93%.

With the global economy in a downward spiral and stocks around the world in a free fall, the Federal Reserve undertook this action hoping it can help slow the fast growing economic malaise.

According to the Federal Reserve, “the Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures. Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months.

Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.”

With the global interest rate cuts, key benchmark rates in the participating countries now stand at 1.5% in the U.S, .5% in Canada, 3.75% in the Eurozone, 4.25% in Sweden and 4.5% in the United Kingdom.

The Federal Reserve also reduced its emergency lending rate to banks by half a percentage point and that rate now stands at 1.75% percent.

Tags: Federal Reserve  Interest Rates

The monetary policy setting arm of the Federal Reserve, The Federal Open Market Committee, at their scheduled Tuesday 09/16/08 meeting, voted unanimously to leave interest rates unchanged. As such, the feds funds rate stays at 2.00%, while the discount rate stays at 2.25%.

The decision was something of a surprise to forecasters, who were betting that with the drastic change of the economic environment such as falling oil price and the implosion of Lehman Brothers (LEH) that occurred since the last FOMC meeting back in August, the FOMC would be compelled to lower rates, in a bid to boost the economy. Stocks initially fell on the news, but started rallying on rumors that the government might bail out AIG (AIG).

The Dow Jones Industrials Average index closed at 11059.02, up 141.51 points, for 1.30%. The Nasdaq closed at 2,207.90, up 27.99 points for 1.28%, while the S&P 500 index closed at 1213.59, up 20.89 points for 1.75%

Besides watching for what the vote will be at any FOMC meeting, the investment community also pays close attention to the wording of the FOMC’s accompanying statement of such meetings. At the August meeting, the feds all but indicated they were done lowering rates for the year and the most likely direction going forward, for interest rates will be up.

Today’s statements however, somewhat softens that view. Below is the statement:

“The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.”

Tags: FOMC  Federal Reserve  Interest Rates  Lehman

While the Lehman Brothers (LEH) and AIG (AIG) crisis currently affecting Wall Street will be front and center today, driving stock market action, we also have an active economic calendar in store. At 8:30 AM, we will be getting the Consumer Price Index Numbers for August. 

Additionally, the Federal Open Market Committee (the FOMC is the monetary policy-making group of the Federal Reserve.) will be meeting today.

After their last meeting, it was pretty much a foregone conclusion that they would not be lowering rates further this year. If anything, it was more likely that they would raise rates. We’ve never understood this, as the economy is suffering. But because oil and other commodity prices have been strong of late, some at the Federal Reserve felt a hawkish stance was neccessary.

At the last meeting when they voted to keep rates unchanged, Dallas Fed President Richard Fisher, dissented and instead voted to raise rates. Now that the sky is falling, with the Lehman (LEH) and AIG (AIG) situation and the obvious is now very clear for those who apparently could not see it before, and commodity prices also falling, it will be interesting to see whether they vote to lower rates, which would be the logical course of action and who votes to lower rates and who doesn’t.

 FOMC Federal Reserve Interest Rates

The Federal Open Market Committee or FOMC, which sets interest rates, will be meeting today and announcing their decision at 2:15 PM today. While faced with rising inflation, which in normal times, might prompt the feds to raise rates so as to try and temper too high a growth in the economy, the feds now have to add a weakening economy into their decision making process.

The credit crisis has limited the extension of credit in the economy, so the Federal Reserve does not have to worry about that. Most economists polled are predicting that the FOMC will keep rates the same. As a result, should the feds do the unlikely and raise rates, the markets would react rather dramatically.

However, we expect for today, that oil prices will probably be the key driver for the markets.

Tags: FOMC, interest rates, oil prices, federal reserve

As expected, the Federal Open Market Committee decided to take no action and left rates unchanged at 2 percent. Below is an excerpt of the press release issued by the FOMC.

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending.  However, labor markets have softened further and financial markets remain under considerable stress.  Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.

The Committee expects inflation to moderate later this year and next year.  However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time.  Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.  The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.