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Minyan Mailbag: The "Surprise" FOMC Rate Cut

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The key will be not to get swept up in the euphoria or or drowned in the negativity.

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Toddo,

Props to all the Minyan Professors on a great job and keeping everyone up to date on what you're seeing. One question, If the Fed does cut rates, are there any certain sectors you will play for a quick bounce? Or do you think most anything would bounce?

Thanks,
Minyan JD

MJD,

The financials come to mind as they've been the sector most beaten by the ugly stick but, truth be told, the bounce would likely be monolithic. In other words, the world is massively correlated with asset classes trading as a whole versus the dollar. That's what we've been discussing for years - and that's why the risk is so great. Asset class deflation versus dollar devaluation, with a lil' nationalism sprinkled in for flava.

I do think the knee jerk reaction to a rate cut is higher. But I also think it'll prove fleeting for two reasons. The first is past history, which supports the notion that Minyans should ask "why" the Fed is cutting rates rather than just react. Just look at what happened the last time they tried to surprise the Street.

The second, which is really just an extension of the first, was solidified by Willy Poole last night when he said the Fed wouldn't cut before the next meeting unless there was a calamity. That, in plain-Jane English, pretty much puts the bow on the Box that the Fed finds themselves in. Now they can't cut without implicitly admitting to financial crisis.

Taking a step back, I will offer that we're witnessing the most amazing financial experience in the history of mankind. A grand experiment on the back of the tech bubble that has seemingly gone awry. Perhaps the most bullish element of this entire dynamic is the very desperation that got us to this point in the first place.

As a firm believer that nobody is bigger than the market--not even those who believe they are the market--I continue to be cautious for the big picture. But that doesn't mean we can't (or won't) see sharp rallies and other opportunities. The key will be not to get swept up in the euphoria or or drowned in the negativity.

It's about understanding that capital preservation is the first step towards capital accumulation. It's about surrounding yourself with people you trust that have skill-sets that complement your own. It's about maintaining perspective and remembering the important stuff. It is, in many ways, about everything we strive and thrive for in Minyanville.

Thank you for being a part of our journey.

R.P.

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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