Fed cuts rates by a quarter point

Ben Bernanke & Co. lower a key interest rate for the third consecutive time to help stave off recession. Markets plunge as Wall Street was hoping for a bigger cut.

NEW YORK (CNNMoney.com) -- The Federal Reserve lowered an important short-term rate by a quarter of a percentage point Tuesday, the latest in a series of rate cuts that the central bank hopes will stimulate an economy some fear is on the brink of a recession.
But stocks plunged following the Fed's announcement as Wall Street was disappointed the Fed did not act more aggressively. The Dow dropped nearly 300 points, or 2.1 percent, while the S&P and Nasdaq each fell about 2.5 percent.
"The Fed needed to cut more now in order to fend off the credit crisis that has intensified in the past month," said John Derrick, director of research at U.S. Global Investors, a money management firm in San Antonio with more than $5.5 billion in assets.
This was the third straight time that Fed Chairman Ben Bernanke and fellow policy makers decided to cut its federal funds rate, an overnight bank lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans.
The federal funds rate now stands at 4.25 percent. The central bank also cut its discount rate, which is what banks pay to borrow directly from the Fed, by a quarter-point to 4.75 percent on Tuesday.
One member of the Fed's policy making committee, Federal Reserve Bank of Boston President Eric Rosengren, voted for a half-point cut in the fed funds rate.
In fact, some investors had been holding out hope that the Fed would lower rates by a half of a percentage point as it did in September since several banks have been forced in the past few months to take massive writedowns due to exposure to bad mortgage loans.
"The market is dropping hard. I think that investors probably priced in a little more than a quarter-point cut," said Randy Carver, president of Carver Financial Services, a Mentor, Ohio-based investment firm with $680 million in assets under management.
Leading up to Tuesday's meeting, several economists indicated that the Fed may need to lower rates several more times in early 2008 in order to keep the economy from slipping into a prolonged slump.
But the Fed's statement reflected a less dire view of the economy than what many on Wall Street believe - a possible sign that the central bank might not cut rates at its next meeting in January.
The Fed acknowledged that "economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending." It also said that "strains in financial markets have increased in recent weeks."
The Fed added that "some inflation risks remain" and the Fed "will continue to monitor inflation developments carefully."
That tone disappointed investors, who had been hoping the Fed would take more decisive action to clean up the mortgage mess that's plaguing Wall Street and is starting to take its toll on Main Street.
"This was a big mistake. They should have at least cut the discount rate by 50 points. I think that was a big disappointment to Wall Street," said William Rutherford, president of Rutherford Investment Management, a money manager based in Portland, Ore. "The Fed must contain the housing problem. If it doesn't, we are definitely heading into a recession."
Another investment strategist suggested that the Fed, despite what it said Tuesday, will continue to lower rates in January and perhaps several more times in 2008.
"The good news is that the Fed is going to be more flexible. Even though the market is selling off, there has to be more to come. This is not the last rate cut," said Hank Smith, chief investment officer of Haverford Investments, a Radnor, Pa.-based money manager with $6.5 billion in assets under management.
Concerns that the impact of the subprime mortgage crisis is spreading sparked President George W. Bush and Treasury Secretary Henry Paulson to unveil a plan last week that would freeze interest rates for some subprime borrowers whose adjustable-rate mortgages are scheduled to reset in 2008.
But one market expert said investors were wrong to think that the Fed would keep cutting rates drastically just to save banks and troubled borrowers.
"The Fed is not going to bail out the market. Time will heal these wounds. People don't want to hear that but it's the real world," said Rich Berg, chief executive officer of Performance Trust Capital Partners, a Chicago-based bond trading firm.
Carver said one reason the Fed may have decided to not cut rates by a half-point is because it is still waiting to see how consumer spending holds up during the holidays. He argues that the Fed won't want to cut rates too drastically if the economy doesn't really need it.
To that end, Carver pointed out that the labor report for November, released last Friday, showed no major ill effects of the mortgage crisis since employers added more jobs than expected and the unemployment rate held steady.
"The Fed is looking two to three months out and doesn't want to cut too much if there is some decent strength in the economy," Carver said.."The Fed doesn't want to overstimulate the economy since that could cause bigger problems down the road."

Subprime crisis plan boosts Wall Street

New York (dpa) - Homebuilders and financial companies led US stocks higher Thursday after President George W Bush announced a plan aimed at reversing a tide of defaults on subprime home mortgages.
Countrywide Financial Corp, the largest US mortgage lender, surged 19 per cent for the day's biggest gain in the benchmark Standard & Poor's 500 Index. Fannie Mae, the biggest source of financing for US home loans, rose 7 per cent.
A deal the Bush administration brokered among financial lenders and investors in securities linked to subprime mortgages includes a possible five-year freeze in the interest rate paid by struggling homeowners on their loans.
Countrywide, Fannie Mae and other financial firms have been hard- hit by the subprime meltdown, which has caused billions of dollars in losses and turmoil in financial markets.
The S&P 500 rose 22.33 points, or 1.5 per cent, to 1,507.34. The blue-chip Dow Jones Industrial Average added 174.93, or 1.3 per cent, to 13,619.89. The technology-heavy Nasdaq Composite Index gained 42.67, or 1.6 per cent, to 2,709.03.
The US dollar slipped to 68.37 euro cents in New York from 68.42 on Wednesday. The dollar rose to 111.27 Japanese yen from 110.88.
Gold rose 3.40 dollars to 807.10 dollars per fine ounce.

<---------- Finally he has decided to do something about it

华侨银行李彩莲： 目前投资股市 石油或抗跌股可作首选

次贷阴影仍然笼罩市场，加上已经步入年底，股市未来几个星期将继续出现短期波动。华侨银行投资研究部主管李彩莲认为，投资者如果要在这个时候进场，应该谨慎选择股项，优先考虑石油股或抗跌股。
各地股市今年来频频创高峰，虽然经过11月的调整后，股价从高处下滑，但仍然取得可观的增长，表现最出色的是石油相关股，例如Swiber控股今年来便上升了245％，而种植股也因为油价上升而间接受惠，金光农业资源(Golden Agri)起了217％。
此外，龙筹股今年来的表现也不错，中远投资(Cosco)领先群雄，今年起了161％。
李彩莲看好石油类股与龙筹股的强劲势头将延续到新的一年。
李彩莲昨天在该银行主办的一个小型讨论会上表示，过去三年她都一直在推荐石油股，当时的油价介于每桶40美元到70美元，如今已经涨至90美元，她相信在需求的带动下，油价将继续保持在高水平。
她指出，石油公司自2004年当油价还在每桶40美元的时候便已经开始投资，目前的油价意味盈利率越来越高，而即使油价下调20％或30％，石油公司还是有利可图。
全球各地的岸外钻油设施目前都几乎全面投产，而大多数的升降式钻油台(jackup rig)的年龄已超过25年，在这个大前提下，李彩莲认为受惠最大的将是吉宝企业(KepCorp)、胜科海事(SembCorp)、中远投资、以斯拉控股(Ezra Holdings)。
至于龙筹股方面，她建议基建股、消费股、房地产股，以及石油股。
李彩莲透露，她与一些获得合格境内机构投资者(QDII)资格的基金经理会面时，他们都表示如果在香港以外的股市投资，他们将选择新加坡，因此本地股市未来将不缺资金。然而，许多QDII的基金经理对于新加坡市场还不是很熟悉，因此她预期要真正看到QDII资金流入，恐怕还需要一年的时间。
当第一波的QDII资金流入时，由于对本地股市不熟悉，基金经理相信会选择市值与知名度较高的股票，或是他们所熟悉的龙筹股。
跟区域股市比较，本地股市的股价与账面价值比率(Price-to-Book)相对低，少于2倍，而本益比也比许多市场具吸引力，除了石油股和龙筹股之外，李彩莲认为投资者也可考虑新加坡报业控股(SPH)、新科工程(ST Engineering)、SMRT企业、新航(SIA)等抗跌股。

Wall Street Eyes Jobs, Retail Sales Data

Wall Street Eyes Data on Jobs and Retail Sales, Which Could Make or Break Santa Claus Rally

NEW YORK (AP) -- Wall Street's newfound confidence that interest rates are headed lower may not be enough to fuel a December rally if the economy looks like it's weakening.
This week's reports on the job market and retail sales, along with readings on the manufacturing and service sectors, will be key in determining how well the economy is weathering a housing market that most experts predict will keep deteriorating well into the new year.
The stock market heads into the final lap of 2007 having posted a 3.01 percent rise in the Dow Jones industrial average last week, a 2.81 percent gain in the Standard & Poor's 500 index, and a 2.48 percent advance in the Nasdaq composite index.
It was the best weekly point gain for the Dow -- the blue chips rose nearly 391 -- in more than four years. The advance was driven by hints of an upcoming rate cut from Federal Reserve officials and news that Citigroup Inc., Freddie Mac and E-Trade Financial Corp. were able to raise cash to offset some of their debt.
But the positive week nonetheless capped off the blue-chip index's most negative month in five years. Financial companies still face billions of dollars in write-downs in the fourth quarter. And though oil prices have retreated from record highs, the dollar remains weak against rivals including the euro, the pound and the Canadian dollar -- a trend some argue shows that rates should stay put.
Moreover, even if the Fed does loosen its policy at its Dec. 11 meeting, rate cuts can only go so far in boosting a flagging economy. Last week, Goldman Sachs upped the chances of a recession to between 40 percent and 45 percent, while current and former government officials offered some of the year's most dreary economic outlooks.
Fed Chairman Ben Bernanke said in a speech Thursday at the Charlotte Chamber of Commerce that gross domestic product is slowing "significantly" in the fourth quarter, despite having grown 4.9 percent in the third quarter.
A day earlier, Fed Vice Chairman Donald Kohn said housing is deteriorating at a "very, very rapid" rate, and that "I don't think we have seen the bottom."
And former Treasury Secretary Lawrence Summers, in a somber speech Thursday to bankers at an American Banker/SourceMedia event, said it would be unprecedented, considering the size of the headwinds the economy faces, for expansion to continue.
"It is quite clear that the substantial majority of foreclosures that will take place in this wave have not yet taken place," he said.
Though current Treasury Secretary Henry Paulson has been meeting with mortgage industry officials and regulators about possibly keeping low introductory loan rates from resetting at much higher levels, signs point to a very shaky economy in 2008.
For stocks to rally this month, investors will want evidence that consumers are still spending.
Major retailers, including Wal-Mart Stores Inc. and Target Corp., release November sales figures Thursday, which should shine more light on how strong holiday shopping will be this year.
Data so far have suggested respectable post-Thanksgiving sales, but investors are concerned that shoppers will be hesitant due to still-lofty gas prices and sinking home prices. Wall Street's also worried that sales have been decent so far only because prices have been sharply discounted, which is good for consumers but bad for companies' profits.
Consumer spending relies heavily on employment, so Wall Street will also be closely eyeing, as always, the Labor Department's monthly report on the job market. On Friday, economists surveyed by Thomson/IFR expect the report to show November payrolls rose solidly, but by a smaller amount than in October, and that the unemployment rate ticked up to 4.8 percent from 4.7 percent.
Also this week, the Institute for Supply Management releases its indexes on manufacturing and service sector activity. Economists anticipate that growth in both areas in November was slower than in October.