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Two Ways To Play: Fed "Tightening" Starts


Strengthen your portfolio in good times and bad.

Fed Starts to "Tighten"

If you ran out before the stock market close yesterday, you probably didn't catch the Fed's decision to raise the discount rate. Effective today, borrowers at the Fed's discount window will now be charged 0.75% instead of the previous 0.50% rate, a sign to many that the Fed is pulling easy money out of financial system. The Fed governors also decided to raise the minimum bid rate for the Term Auction Facility (TAF) by 25 basis points to 0.5% which is still scheduled to end on March 8, 2010. Gold futures were hit after the announcement dropping approximately $25 to below $1100. The US dollar also rallied with the dollar index (DXY) reaching an overnight high of 81.43 and EURUSD falling to 1.3444, its lowest level since about last May. See also Reaction to Fed: Dollar Soaring, Equity Futures Sinking.

From the Bull Pen: About $14 billion is done at the Fed's discount window, less than the size of Goldman Sachs' (GS) bonus pool. The only takeaway from the Fed's actions last night is that expiration games are back, but somewhat in reverse. Consider IBM (IBM); a sell stop can be set below yesterday's low (near $126).

From the Bear Cave: In the case that China does revalue the yuan, consider allocating a portion of your portfolio to the Wisdomtree Chinese yuan fund (CYB). There's minimal downside but remember to set a sell stop.

For more ways to play and other trading ideas from more than 30 top market pros, take a free trial to our Buzz & Banter.

A Quick Check Around the World

Asian trading closed with the Nikkei -2.05%, India -0.83, Hang Seng -2.59%, Shanghai (Closed), and Taiwan (Closed), Australia's ASX 200 -0.42%.

Across the pond, we see the FTSE -0.19%, CAC -0.34%, DAX -0.22%

As of 8:20 AM EST, S&P Futures are trading -7.00 to 1098.50. Nasdaq futures are -7.25 to 1813.25.

A Look at Commodities

Over in commodities, crude oil is -0.68 to 78.74 while gold is -09.80 to 1108.80 this morning. Silver is -0.065 to 15.995 and copper -0.0245 to 3.2610.

The dollar Index is +0.6850 to 81.1500.

On the Radar


08:30 Core CPI
08:30 CPI

Happy Fat Friday! Good luck and have a great weekend!
No positions in stocks mentioned.

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