Last week Wall Street was calling for a cut of 50 basis points in the Fed Funds rate. And just to get the Fed’s attention international markets tanked over the MLK holiday weekend.
So what did the Fed do? Well we all know now. It topped Wall Street and made a 75 basis point cut, reducing the Fed Funds rate to 3.5 percent. A “panic” cut, according to the British media.
Well, yes, but if you look at other short term rates, not out of line.
But we ordinary mortals must wonder: Is this 1929 all over again, or what? The simple answer is that nobody knows.
But there are a couple of good signs amidst the gloom and doom. First of all, the Libor rate has come down from being about 50 to 75 basis points above the Fed Funds rate. A month ago the 3-month Libor was at 4.86 percent. Today Bloomberg has the 3-month Libor at 3.33 percent. That means that the banks are lending to each other again. Maybe the credit crunch is over.
And the housing construction stocks are up sharply since Tuesday. Why would that be? Well how about the 15-year mortgage rate coming down below 5 percent. Six months ago it was at 6 percent; now it’s at 4.8 percent.
No doubt we still have a leg or two to go in the bear market, and maybe a full-blooded recession. But maybe there is light at the end of the tunnel.
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