Wall Street and its scoreboard stock exchanges are jubilant with the 0.5% cut in the prime rate. But all is not well. As expected, gold and oil hit record highs on the news yesterday and the sky's the limit. The dollar will be losing value and foreign investors will be buying increasing amounts of our equities, including land, buildings, public and private companies. Expect American ownership to decrease.
The fact that the Federal Reserve sought to pacify investment bankers and individuals who made bad deals in an effort to shore up what was starting to look like big trouble in the "heartland" is not, I think, worthy of celebration. Yes, we should be grateful that Ben Bernanke and crew are keeping a watchful eye on the pulse of the economy and did not wait until we drowned to throw in a lifeline. But for this conservative group to make the cut they had to think things were bad, and that is not exactly heartening news.
Transportation stocks are not doing well this morning, and neither are delivery companies. FedEx Corp (NYSE: FDX) and United Parcel Service (NYSE: UPS) are showing losses or treading water, even though the overall market is notably up. Why? Fuel costs.
While many people will benefit from the rate cut, EVERYONE will be hurt by higher energy costs. And, since everything moves by truck at some point, food prices and everything else will be affected. Perhaps the one silver lining is that there will be more conservation and continued stimulation of alternative sources of energy.
I think Big Ben has grown into the job nicely but I am very unhappy about what I see and hear in the marketplace. I fear that instead of people using this occasion to clean their houses, both investment-wise and residential-wise, they are instead dancing in the street, gleefully forgetting that only 24 hours ago they were sweating bullets. This feeling of relief and excitement will be very short lived if the government does not cut spending (no Fed control there) faster than it cuts interest rates and the consumer does not moderate theirs.
To find potential opportunities and verify my track record read Chasing Value or Serious Money.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He is on the advisory board of Internet start-up CircleBuilder.com.
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Reader Comments (Page 1 of 1)
9-19-2007 @ 6:20PM
TED said...
If the consumer is 2/3 of commerce in the USA, as
I have been informed, then the Fed has damaged the middle class consumer by lowering the rate, and reducing the income expectation of people who purchase timed deposits and CDs in the nation's banks. The Fed opened the door for the Isurance companies and their annuities.
The institutional investors are the only beneficiaries of the Fed interest lowering strategy.
9-19-2007 @ 10:08PM
Mr. noitall said...
The rate cut by the Fed could cause real interest rates to increase. Aren't lenders going to want to be compensated more now, knowing that the dollar and all other currencies (except gold) will be devalued? I think so. It might take alittle time but look for credit to get tighter no matter what the Fed does. I agree, fuel, food, & gold prices willl increase.