Wednesday, October 24, 2007

Reverse Curse

The market managed to recover most of the early losses today, running strong on a rumor the Fed is set to cut the discount rate again; not just the fed funds. So much for a bounce in the Dollar, I suppose.

Tonight the CBOT just published their first CME Fed Watch numbers for next week's FOMC meeting. The probability now stands at an 86% likelihood for a 1/4 point cut in the federal funds target rate (FF's) and a 14% probability for a cut of 1/2 point. While this does not indicate anything regarding the discount rate, notice that we have a 100% probability (today) that FF rates are going to be cut next Wednesday.

Like last time out, the media will be reporting that many or most analysts expect a rate cut, but that will be child's play. The Fed WILL cut rates. The only question is how much and now...whether they cut the discount rate again.

And will it be bullish this time around? That also remains. I mentioned before I have to lay a little low ahead of the Fed, but I can't help but think the market is setting up for some disappointment. A mere 1/4 point cut in the FF rate may be too little crack to keep the party high.

Keep an eye on the CME numbers this next week; the closer they get to the date, the more you can be assured of the up-coming FF results. Of course I'll be jumping up and down about it all week, especially if that 1/4 point probability remains this strong. Who gives a shit about the discount rate anyway? We don't need no stinkin' discount rate.

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