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Two Ways To Play: Interest Rates Get Cut Off at Knees?


Strengthen your portfolio in good times and bad.

The Fed released the minutes of its October 29th meeting today. According to Bloomberg, policy-makers predicted the US economy would falter through the middle of 2009; in response, some were prepared to cut interest rates further.

Fed officials lowered their forecasts for economic growth as well as for inflation. The committee estimated core CPI, less food and energy, would increase slightly from 2.2%-2.4% to 2.3%-2.5%. Members were thus concerned about deflation - which would be inconsistent with the Fed's dual mandate of price stability and maximum employment.

Nevertheless, the committee said it agreed to take whatever steps necessary to support the recovery. Traders are now positioning themselves for a potential rate cut. As shown by federal funds futures, traders now believe there's an 84% chance that the Fed will cut its benchmark overnight target rate 50 basis points, to 0.50%.

From the Bull Pen: Much of the gloom is old news, and equities could still see a rally into year's end. Consider Disney (DIS), which is one of the best-in-breed media plays. A sell stop can be set below the recent low, near $20.

From the Bear Cave: Longer term, the picture remains challenging. Bears can consider a play mentioned by Professor David Dispennette today on the Buzz. International Speedway (ISCA), which depends on a lot of beaten up companies for its business. He's playing this in bits with a buy stop above $32.50.
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