Monday, April 28, 2008

All the World Awaits the Fed

The Fed dance has begun once again. Stocks traded in an impossibly narrow range on Monday (80 points on the Dow, 8 points on the S&P) as investors sat back in anticipation of the Federal Open Market Committee (FOMC) of the Federal Reserve to issue a policy statement on interest rates on Wednesday at 2:15 ET in the afternoon.

By most accounts, the Committee will likely cut rates another 25 basis points, from 2.25% to 2%. And then all out problems will be over, ostensibly, until the next meeting, on June 24/25.

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This entire predilection of making investment decisions based upon minuscule, incremental increases or decreases in interest rates has taken on the air of a Samuel Becket staging, absurd and discernible to only the most hypothetical.

Surely, the Fed has impact on the macro side of the equation, but how many of us consider the ramifications of interest rates when ordering dinner at a restaurant, shopping at the mall or filling our automobiles with gas?

Maybe we should, because we'd then see the stupidity and insanity of it all. But, then again, without something as arcane as setting the rate of interest on what banks charge each other to ponder, what would these otherwise unemployable Fed governors have to do?

Maybe we should check official government statistics the next time we clock in for work, pay our taxes, buy a donut. We might, despite our rational and often necessary effort, be contributing to economic doomsday for all we know.

Let's resolve to let the Fed and the government do what they do best - impede progress with rules, regulations, statistics and taxes - and let the markets sort out the rest. If anything has been learned from the past nine months of a grueling credit crunch is that life goes on, stocks go up and down and there's more to the market than interest rates.

That's why whatever the Fed does should be viewed as a feather in the wind. Just like the tax rebates which began reaching individual bank accounts on Monday.

Dow 12,871.75 -20.11; NASDAQ 2,424.40 +1.47; S&P 500 1,396.37 -1.47; NYSE Composite 9,349.61 +5.30

If there's any more proof needed that banks, especially big ones like the Fed, don't really matter in modern markets, one need only look so far as the Mars-Wrigley merger, financed by Warren Buffett's Berkshire-Hathaway. Mars is family-owned, while Wrigley, which is being acquired, is public, as is Berkshire-Hathaway, the world's most expensive stock. No banks and no investment brokers were named nor needed. The deal is the perfect function of free-market economics, thank you very much.

Meanwhile, back on Wall Street, in very thin trade, advancing issues held sway over decliners, 3620-2703. New lows remained slightly ahead of new highs, 159-146.

Oil, after pricing near $120/barrel, settled with a gain of just 23 cents, at $118.75. Gold gained $5.80 to $895.50. Silver added 17 cents to $17.12 the ounce.

Tomorrow will likely look very much like today, though the real action will come not on Wednesday, when the Fed announces their decision, but on Friday, when the Labor Dept. releases the Non-farm payroll report prior to Friday's open.

Until then, buy fresh produce and gas. Both are cheaper now than they will be soon.

NYSE Volume 3,557,361,000
NASDAQ Volume 1,783,155,000

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