Expect U.S. Interest Rates To Collapse
What was interesting was that although the cut did lift stock prices, considering that the actual stock market decline was much smaller than the decline in futures before the opening, it lifted it by a surprisingly small amount. And today it seems stock prices might fall again in the wake of Apple Computer's latest report and general realization of the fact that the U.S. economy is in a recession. This indicates that confidence is declining so rapidly that the Fed is losing its power to lift stock prices.
That in turn will probably create even more panic at the Fed and get them to accelerate their rate cutting pace. It seems likely that interest rates will fall below 2% this year (perhaps as low as 1%) as the Fed cuts and cuts in increasingly desperate attempts to get the economy out of the recession. In the past I thought the high level of inflation would stop them, but that was because I underestimated just the extent of their inflationary bias. It is now clear that they want more inflation so as to inflate highly indebted U.S. households, companies and governments out of their debts. Officially they wont put it that way, of course, but instead claim that they expect inflation to fall because of the recession. What is remarkable is how easily bond investors are fooled by this.
This will ensure a new wave of dollar selling once the currency markets, like the stock market, snaps out of its current Wile E. Coyote mentality and realizes that there is no solid ground supporting the dollar.