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What to do, where to run?

Written by A Forex View From Afar on Friday, January 25, 2008

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We had a rate cut and a very big one, not seen for some time, a 0.75% rate cut...we heard Bush plans to cut taxes , we missed them since 2001 (if I recall right, we are right now in a tax cut mode, until 2010) ...with all this, the stock markets still doesn’t grow.
The next step is to inject adrenalin to into the stock market's heart. There isn’t any other way to resuscitate it.

Seriously, what do they need or want to have some decent growth? The only step left for the Fed is to start giving money for free. Each one will receive a $10,000 coupon in your mail, of course tax free. Your only charge will be to spend it by the end of this quarter.
Maybe Wall Street will be happy, although I'm not really sure.

Going back to the rate cut, we took out some annalist opinions from one of Bloomberg’s article related to it. Here we go

Stanford University Professor John Taylor says the move ``made sense''

Harvard University's Martin Feldstein calls it a ``very good thing.''

Morgan Stanley's Stephen Roach counters that the decision was ``dangerous, reckless and irresponsible,''

Nobel Prize winner Joseph Stiglitz says it resulted from ``bad economic management.''

``By easing aggressively on the basis of no new information, they're sending a message that they have to protect and defend the markets,'' Roach, Morgan Stanley's Asia chairman

``Doing it at this time, I think it made sense,'' Taylor, author of a landmark monetary-policy formula and the Treasury Department

`A Bad Precedent'
``I am concerned that they moved a week before a scheduled meeting, seemingly in direct response to global equities, and that sets a bad precedent,'' says Mickey Levy, chief economist at Bank of America Corp. in New York. ``Waiting a week would not have affected the thrust of monetary policy.''

By contrast, former Fed governor Lyle Gramley says that ``this was a necessary move, and highly desirable.'' Up until this week, Bernanke and his colleagues were ``timid,'' he says.

``The Fed just didn't recognize the severity of this crisis and therefore didn't act in a timely fashion,'' says Gramley, now a senior economic adviser at Stanford Group Co. in Washington. ``Had the Fed not done it, it would have been considered not just in a slumber but in a coma.''

``The cut is not the problem,'' ``The communication is key. The Fed has to explain clearly to the market why it did what it did in order to avoid a panic scenario. From this point of view, the Fed still lacks clarity in its speeches.'' says Christophe Donay, head of economic research and investment strategy at Landsbanki Kepler in Paris.

George Soros said the Fed is ``doing the right thing,'' just not quickly enough. ``I think the Fed is well behind the curve, and has been reacting instead of being proactive,'' he said.

``The Fed rate cut showed that the Fed can be pushed around by the markets,'' says Nick Parsons, head of market strategy at National Australia Bank Ltd.'s NabCapital unit in London. ``The Fed is a follower and not a leader. In an attempt to gain control, the Fed has lost credibility.''

Mark MacQueen, partner and portfolio manager in Austin, Texas, at Sage Advisory Services Ltd., which oversees $5 billion.
``The 75 basis-point cut was too much too quick,'' Bernanke didn't get ``enough bang for his buck. He used a lot of ammo for very little reward.''

``The Fed has been aggressive and has been helpful,'' David Rubenstein, co-founder of buyout firm Carlyle Group, said in an interview in Davos. ``Probably, had it done what it did a little bit earlier, it might have been more helpful to the markets. But I think the key is the stimulus package.''

Sorry about this long list of quotes, but we had to get to grips with this.

Can you draw a conclusion? We can’t. Trade desks, financial annalists, economists still haven’t got a clue. Just watch how remote and opposite their opinions are.
For the moment, I think I’ll go with Mr. Christophe Donay “The Fed has to explain clearly to the market why it did what it did”.
How can we trade, if nobody has any clue?

It’s clear on the New World, things aren’t too clear, but on the Old World, things are perfectly clear enough; inflation is the only concern and nothing else. Mr. Weber, head of the Bundesbank, declared they are ready to act pre-mptively, on inflation of course, not on recession.

"If there is broad political support for wage claims that don't conform to price stability, this could require additional monetary policy action," said Mr. Weber

Saying about inflation fears in every possible sentence, the Heads of the Ecb will soon start to sound like Paulson singing his job’s anthem “We need a strong dollar”.
Traders, please remember, Trade Desks don’t buy dollars just out of desire, but because whenever they need a comfort blanket, they need it to buy $ denominated bonds.

Fxstreet: ECB's Weber: Ready To Act Preemptively On CPI- Report
Bloomberg: Bernanke Earns Feldstein Cheers, Roach Jeers for Emergency Cut

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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