Interest rates slashed to help economy

[exigent]

Fed's dramatic action lowers target on key short-term rate for the first time in 4 years - to 4.75% - and signals more cuts could be coming.


NEW YORK (CNNMoney.com) -- The Federal Reserve cut the target on a key short-term interest rate by half of a percentage point Tuesday to 4.75% in a bold acknowledgement that the central bank is concerned the mortgage meltdown plaguing Wall Street and Main Street could hurt the economy.

The Fed also indicated that more rate cuts could be on the way, news that investors cheered.

The Dow Jones Industrial Average surged more than 200 points immediately following the news of the Fed's half-point rate cut and wound up finishing the day with a more than 335 point gain.

'Egregious subprime lending'
Fortune's Andy Serwer talks with former Fed Chairman Alan Greenspan about the credit crunch and what it means for the housing market.
Play video

Stocks surged following the announcement, with the Dow finishing the day up more than 330 points, or 2.5 percent. The Nasdaq shot up 2.7 percent while the S&P 500 closed nearly 3 percent higher. Bonds fell, sending the yield on the benchmark 10-year U.S. Treasury up to 4.5 percent. (Bond prices and yields move in opposite directions.)

http://money.cnn.com/2007/09/18/news/economy/fed_rates/index.htm?postversion=2007091814


Could this also help the slouching housing market do an about-face?

It's always hard to tell here in SoCal, because there are more variables than just interest rate...but it helps, for sure.

And it's nice to see some of my stocks making money again...I almost got to the point where I feared logging into eTrade.

[Marley]

The trick is whether people are smart enough to refi out of ARMs with this opportunity.

Not just Cali, everywhere has cyclical real estate markets.

IMO it was the tech stock crash that fueled the real estate rush. People were looking for something TANGIBLE -- dirt and abodes -- to invest in and the last rate cuts only fueled it more. But like every stampeding herd, it got out of control.

Counterintuitively, the recent correction was a golden opportunity for retirement savers (under certain income limits) to make Roth conversions. More shares could be converted if the market price was low.

Properly timed corrections are also positive events for investors in "DRIPs" (dividend reinvestment plans) The cash dividends can buy more shares.

IT is also interesting along these terms that those on the cusp of retirement are compelled to stay in equities instead of allocating into fixed income securities like bonds.

[exigent]

Nice post, emale, thanks!

Dont get me started on ARMS either...it's because of stupid exotic loans like this that hurled the price of housing in San Diego to unrealistic prices in the first place.

[Marley]

What people must understand is real estate requires regular cash in-flows.

Taxes, insurance, and usually debt service.

Shares of Exxonmobile don't.

It's the trade off against being tangible.

SOCAL has ALWAYS been extremely cyclical.

[jafar00]

Get ready for Recession and Hyper Inflation.

[Truth_and_Power]

Stocks have been on a tear since the FOMC announcement. I did not expect this much of a positive response, but I ditched my ultrashorts as soon as I saw it happening, so I still made a bundle on it.

[jafar00]

I made a bunch shorting gbp/nzd and gbp/cad. Why you ask? No USD there.
A little tip, gbp/nzd is the only way to trade nzd since it is high volatile. When nzd/usd moved up, gpd/nzd shot down 300 pips straight away. CAD also strengthened against the USD bringing my gbp/cad down 100 pips.

The only thing that really sux about the cut for me is the fact I have to take the US$ I earned out of the ATM in the form of € and I don't get as many now. :(

[exigent]

I did that a lot when I was living in Japan...The yen fluctuated from 150 to 80 back up to 100 something while there.