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Fed Takes Page from Greenspan Playbook


Historic slash-and-burn for interest rates.

Foreign investors currently favor short-term US investment products - which I think underscores the anxiety everyone feels right now, rather than any lack of confidence in the US in particular. Nevertheless, it's a disturbing trend.

Biggest Ticket Item

Given that there has been no change in terms of sales condition for new homes over the past month, the chief economist of the National Association of Homebuilders David Crowe said "it will take definitive government action to stop the slide in home values and turn consumer sentiment."

The Fed makes its move today, and Fed funds futures are pricing in a 64% chance for a 75-basis-point cut to 0.25% and a 36% chance for a 50-basis-point move to 0.50%. The effective rate, of course, for Wall Street veterans is hovering right above 0% (it will be 0.15 or lower today). I don't think it's a big deal on Main Street, either. Weirdly, the playbook is straight Greenspan - you know, the one currently being blamed for causing the subprime bubble.

Greenspan, for all the heat he's been taking, performed heroically after Black Monday - when Hong Kong was down 45.8%, Australia 41.8%, Spain 31.0%, the UK 26.0% - and the DJIA was thumped to the tune of 22.7%. Yes, in hindsight, he kept rates too low for too long - but that doesn't mean they should never have been so low at all. With that in mind, I'm welcoming the low rates - although the immediate impact won't look anything like it did in 1987.

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