Right after the JPMorgan / Bear Stearns deal, the Fed has cut the discount rate, the rate it lends to banks normally overnight, from 3.5% to 3.25%, now bringing it within 25 basis points of the funds rate, currently at 3%. Remember that the FOMC meets this Tuesday as well with the markets potentially pricing in a cut from 50 basis points to up to 75 basis points. If you’ve forgotten how to calculate the odds of a rate cut, check out this quick tutorial I wrote up a few weeks ago.
JPM purchases BSC for $2 / share and the Fed cuts the discount rate a quarter point? Perhaps the Fed now knows that banks may actually fail and are doing something about it? And now what happens tomorrow? Do we rally on the news that the Fed is willing to cut even on a weekend or do we pull back due to the, what I think is, uncertainty in the other financials? And will the Fed still cut 75 basis points off the funds rate Tuesday? Too many questions right now I think before the markets can attempt a solid rally.
I’ll keep you updated if anything else happens this evening.
it certainly is one of the most active (in terms of drastic news) Sundays I can remember
Comment by thewild1 — Sunday, March 16, 2008 @ 4:36 pm
What I find odd is right after the JPM/BSC deal, the Fed cuts the rate on the discount window. They had to have known what was going on. I’m just surprised they didn’t come to the rescue sooner.
My prediction for tomorrow is that we’ll open down about 200 points. I don’t know why, but I really think this throws even more uncertainty in the markets right now. I’m so glad I liquidate my portfolio around FOMC / expiry week!
Comment by Jorge — Sunday, March 16, 2008 @ 4:41 pm
Right now the ES is trading around flat but world markets are hurting. Can’t wait till tomorrow morning
Comment by Bubs — Sunday, March 16, 2008 @ 4:52 pm
Bubs, I wish I knew what futures numbers you were looking at. Folks could only hope they’re around flat. I have the ES down 34, the YMs down 76 and the NQ down about 50. The YMs were up about 150 when the BSC news came out. I knew that was somewhat fishy though but I’m past that now hah!
Comment by Jorge — Sunday, March 16, 2008 @ 4:57 pm
My futures are acting all crazy plus my data is delayed. I think its best to wait till tomorrow morning to see what happens
Comment by Bubs — Sunday, March 16, 2008 @ 4:59 pm
Ahh. I recall you using TradeStation. Guess you’re forced to pay for everything with them. thinkorswim has up to date futures right now and it’s not pretty. Dollar against the Yen is free falling too. It’s hell out there right now. We may be witnessing history in the making to be honest. Would be interesting to be a part of a stock market crash if it comes to that.
Comment by Jorge — Sunday, March 16, 2008 @ 5:12 pm
Rate cut two days before meeting, how can I interpret that as anything but PANIC?
Comment by Options Strategery — Sunday, March 16, 2008 @ 5:30 pm
Oh it is a panic. Dollar v. Yen is down to near 96.70, lowest levels in 12+ years. This is what everyone’s been waiting for. We’ll see capitulation tomorrow. The XLF is going to be crushed I bet. I’d love to see the VIX near 40 tomorrow but that’s hoping hah!
Comment by Jorge — Sunday, March 16, 2008 @ 5:36 pm
I’m sitting here right now looking at positive territory in the Dow trading action off of starting nearly 200 points negative. Definitely a good sign here. I don’t know if it was the Fed cuts that made this possible, but definitely they helped ease things a bit
Comment by Jim — Monday, March 17, 2008 @ 7:29 am
Jim,
I’ve given up trying to figure the markets out. I’m actually thinking of sitting the week out but some items (DBA for example) look ripe for some nibbling. Sigh.
Comment by Jorge — Monday, March 17, 2008 @ 9:22 am