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Two Ways To Play: 25 BPS Rate Cut


Strengthen your portfolio in good news and bad.

Today the Federal Reserve delivered what the markets expected: The Federal Open Market Committee lowered its overnight target rate and the discount rate by 25 basis points to 2% and 2 ¼ % respectively.

A few notable differences stood out from the text today and from its last release on March 18th. After that meeting, the Fed cut the overnight target rate by 75 basis points and indicated that economic activity had weakened further with increased inflation expectations.

Today the Fed said readings on core inflation had somewhat improved, but with the recent increase in energy and commodity prices" uncertainty about the inflation outlook remained high." It went on to note that economic activity remained weak and household and business spending had been subdued amid a softening labor market. Further, the financial markets remained under considerable stress and the Fed expects tightening conditions to weigh on economic growth for the next few quarters.

Another thing to note: After the release of the text, Pimco's Bill Gross appeared on TV stating the Fed statement was fairly neutral and that we should expect rates to stay around 2% for a long time. Here's some perspective on what the bulls and bears may be considering:

From the Bull Pen:

Mr. Gross reiterated what Professor Lance Lewis has been saying, and today it seemed as if gold stocks started to wake up. Bulls will be taking a long look at these stocks, especially considering the recent beatings they've taken. Read Professor Lewis' Gold: Rally Like It's 2009.

From the Bear Cave:

The Fed noted a slowing in household and business spending. We saw a sell-off in the retail sector in particular. To name a few, Home Depot (HD), Lowe's (LOW) and Sears (SHLD) were all victims in today's trading.

Have a good night!
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