Fed Cuts Rates, Bear Stearns Sells and Political Opportunities
Looks like Monday is going to be without a doubt, an interesting day in the global markets, due to an extremely troubling course of events on Sunday that will trip up investor confidence.
The first of this chain of events happened on Sunday evening when the Federal Reserve decided to cut its lending rate by .25% (from 3.50 to 3.25%) to once again help ease the “credit crunch.” This happening only a few days after the Fed already took similar action to address the same problem.
While many people think that cutting these rates is good for the economy, the reality is that these cuts make certain items more expensive for consumers. Gasoline prices for example, will rise on this news, because when these rates are cut, investment leaves the United States to go to countries where they have a higher interest rate and a stronger currency. When countries pull out, the dollar becomes weaker and gas prices need to adjust to accommodate to the change in real value of the US Dollar.
The second factor playing in on this the late evening acquisition of Bear Stearns to JPMorgan Chase & Company on Sunday evening.
For those who have been following this story, it’s not surprising that this sale was made. However, what was surprising was the fact that the final valuation from JPMorgan Chase & Co. put Bear Stearns at a measly $2 per share. It’s important to note that on Friday the stock was in the $30 range, and earlier in the week was in the $60 range.
So what does this mean for the US and Global Markets?
Well, if you’re a Gold investor, you can sit back and relax because you’ll continue making a lot of money.
However, if you have money spread out across the US markets and globally, depending on the diversification of your portfolio, you’re probably going to see things lower on Monday.
But, the reason for this post isn’t to necessarily highlight concerns for investors on Monday morning, they’ll see these without my insight. Instead, the reason I comment on this is because this is going to be a major issue in the 2008 Presidential Campaigns in the next few days.
With Barack Obama and Hillary Clinton still fighting it out, they have a unique opportunity now to go after the Republicans and blame them for the condition of the economy, the oncoming recession, the loss of jobs, etc, etc.
Furthermore, while all this was happening, John McCain was in Iraq, boosting the morale of the troops, and getting updates on the latest progress (It’s good to see one Senator still doing his day job). While I would hope that the Democrats have more class than this, I wouldn’t be surprised if one of the two Dems, or someone on their behalf made a statement suggesting that instead of focusing on what is happening at home (i.e. the economy), McCain is focusing on staying longer in Iraq.
However, this could also create a good opportunity for John McCain to show off some of the minds that he would bring into the White House if he were elected, particularly Phil Gramm, and have him discuss some of his thoughts on what needs to be done with the economy and tie those suggestions into McCain’s overall stump speech.
The Democrats have and will continue to use the economy as an attack mechanism as the election draws near, which is why I am hopeful that John McCain will select a strong running mate, someone like Mitt Romney to handle these questions and answer them using real world scenarios and applications instead theories that sound good to voters, despite their lack of practicality.
I think I better go fill my tank tonight… $3.50 p/gallon… ughhh…
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