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Two Ways To Play: The Fed's Magical Mystery Rate Cut


Strengthen your portfolio in good times and bad.


Sneaky Rate Cut?

Bloomberg reports the Federal Reserve may have cut borrowing costs yesterday without actually saying so. It used new powers granted by last week's financial legislation of paying interest on bank reserves while it flooded the financial markets with liquidity.

This effectively set a floor under its main interest rate - and brought down the overnight lending rate to 1.25%. That's 75 basis points below the 2 percent target set by policymakers last month. The move, however, doesn't preclude a further reduction in the target rate by the FOMC. For context, see Professor Kevin Depew's Five Things You Need To Know.

From the Bull Pen: Could this be the reason for gold's move higher today? Bulls can consider the gold ETF (GLD); near term sell stops can be set in the $80-83 range.

From the Bear Cave: The bear case against long bonds continues to build. Minyans can consider the Ultrashort Lehman 20 Plus Treasuries (TBT). A sell stop can be placed around $55.

AMD Spins Off Plants

Bloomberg reports Advanced Micro Devices (AMD) will spin off its manufacturing plants as part of an investment from the Abu Dhabi government. Abu Dhabi will pay Advanced Micro $700 million for a stake in a new company that will own plants in Germany and build another in New York.

The new company will assume $1.2 billion of AMD's debt and will receive as much as $6 billion for expanding the factories and $1.4 billion for its operations. Advanced Micro also said Abu Dhabi will pay $314 million to double its stake in the company to 19 percent. In all, the investment is valued at approximately $8.4 billion. For other tech plays, see Professor Sean Udall's Watch Citrix, F5 for Early Turnaround.

From the Bull Pen: In tech land, sentiment is as bad as it's ever been. But Professor Adam Katz reminds us that gems can be found in stocks where a lot of the negativity has been priced in. Microsoft (MSFT) may be an option; sell stops can be set below $24.

From the Bear Cave: One downside play bears can consider is Qualcomm (QCOM), provided the stock can rally to $45 resistance. Buy stops can be set above that level.

For more ideas in real time throughout the trading day, check out Minyanville's Buzz & Banter.

Quick Check Around the World

Asian trading closed with the Nikkei -3.03%, Sensex -0.15%, Taiwan +0.34% and Shanghai -0.73%.

A quick check across the pond finds the CAC +1.28%, DAX -0.29%, FTSE +1.19%

As of 8:30 a.m. EST, S&P Futures are trading +2.7 to 1056, and Nasdaq futures are +2.75 to 1409.

A Look At Commodities

Commodities are higher. Crude oil is +3.05 to 90.90. Gold is +21 to 887. Silver is +0.295 to 11.580. and copper is +1.85 to 252.25.

The dollar index is lower -0.572 to 81.093.

On the Radar


2:00 FOMC Minutes (From September 16th).
3:00 Consumer Credit: $5.5 B Cons

Turnaround Tuesday again? Good luck!

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No positions in stocks mentioned.

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