Monday, August 20, 2007

Did Bernanke See His Shadow?

The elusive Federal Reserve chair saw the shadow cast by the current lack of money in the economy. Eight hours later he saw markets finish sharply up, and it cut at the heart of what he wanted to happen.

Market movers immediately took into account the discount rate cut as a lower cost of doing business over the foreseeable future. Financial sector leaders jumped not because of better market conditions, but because of lower expenses.

To analyze the condition of the economy don't look at how the market moved; look at the why it moved. It moved because negative elements (expenses & interest) won't be as bad. Negative elements affect the economy no longer than the memory of the previous rates by the market movers.

Gains from Friday will be wiped out by Labor Day.

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