Emergency Fed Rate Cut Just Another Smoke Screen

The Fed rate cut this week came from and emergency meeting when the Dow futures were down almost 500 points. The rate cut came just in the nick of time stemming a stock market crash…or so we’re told.

“Rob, did you say “stock market crash”?

Yes…at least that was how it was reported in the media… a crash as bad as Black Monday two decades ago…and we were 60 minutes away. Tick- Tock…

What a Load of Bull!

The Federal Reserve with it’s leader Ben Bernanke met in emergency session and announced a .75% discount rate cut about an hour and a half before the bell. Keep in mind this Fed rate cut is more “show than go” for consumers.This rate cut was clearly a move to help banks, trading firms, hedge funds, and foreign investors around the world, not American consumers.

In other words, this will help Citigroup, Merrill Lynch and Bear Steans…the first time buyer who’s 2/28 ARM adjusts tomorrow…no will get no help at all from the rate cut.

And the Fed rate cut announcement created a media feeding frenzy…an accident?

I think not…

Just Another Bush Administration Smoke Screen

I think this was more of a Bush administration “head fake” or a smoke screen to get eveyone zigging when they should be zagging. That way they get what they want.

First, here we are just a few days after the rate cute and the DJIA is in an intra-day trading range not much below a week ago. So this didn’t really didn’t hurt most companies, and the whipsaw rebound washed away a lot of short sellers on the financial stocks, like Citigroup who are courting Saudia sovereignty fund takeover bids. Now foreign investors can buy our financial companies at a huge discount since the adage “once bitten twice shy” comes to play.

Second, the talk of the stimulus package before the holiday created a lot of short sellers that needed to be washed away before any real offers were on the table.

Third, they needed to stimulate the economy ASAP and did so with the “appearance” of low interest rates to increase borrowing again. If they’d waited to execute the rate cut at the normal meeting, there’s less media coverage…and Joe Sixpack doesn’t refinance.

Of course, it’s not real for Joe since mortgage rates are back to where they were a week ago and they only sat on the bottom for a day. So Joe would not have enough time to apply and lock unless he was already in the process. I got 4 rate cut reversals on Wednesday the day after the emergency Fed rate cut announcement. But most who look into refinancing won’t know this, will believe the rate cut helped, and will continue with the process adding monetary liquidity to the economy.

Lastly, they need to get their stimulus package through Congress quickly and what better way to prove we have an economic “crisis” than to issue an “emergency rate cut”.

Wow!

You really gotta hand to them…they know how to pull the strings.

But you gotta be willing to turn your back on the American consumer and the dollar since the inflationary period this rate cut will cause down the road will eat at our buying power in untold ways.

That’s never really bother them before…I wrote virtually the exact same post in August of last year. Why should I be surprised it doesn’t bother them now.

I’m not…

Good Luck

PS: If you did get “hoodwinked” by this false rate cut, don’t feel bad…you were never going to get them in the first place.

But you really should find a local, informed, mortgage professional to guide you through a smoke screen rate cut like this one…I’ve done it at times for my past clients. And the best way to find such a pro, is with our mortgage shopping system..check it out.

Author: Rob K. Blake
Published January 25, 2008