Hatrack River Forum: Fed slashes rates in shock move

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Posted by Phanto (Member # 5897) on :

Huge drop in DOW prompts emergency action.

Posted by Jhai (Member # 5633) on :

If you've got the money, now's the time to buy!

Posted by pooka (Member # 5003) on :

I'm pretty certain the market will recover after the uncertainty over the primaries resolves (if it does... hopefully!) Then we can take another wild ride during the general election. [Smile]

Posted by aspectre (Member # 2222) on :

And the Fed rate slash does nothing. Such large marketwide drops in prices represent calls on futures contracts forcing holders to sell other stocks they own to come up with the money to pay off their losing bets.
Since on any given trading day, there are only a certain number of buyers, any drop in prices is amplified by the futures system when large numbers of futures contracts are called at the same time. The holders must sell to make their contracts, and thus have no choice about going along with price drops. With no choice but to sell, the contagion spreads to other futures contracts based upon those stocks being sold to cover the bets until the market as a whole crashes: ie most of the stocks are being bought&sold at prices below the underlying value of the companies represented by those stocks.
As long as such HIGHLY leveraged gambling upon stock prices is allowed by regulators, such crises are inevitable.

[ January 22, 2008, 04:31 PM: Message edited by: aspectre ]

Posted by Reshpeckobiggle (Member # 8947) on :

Welfare for the rich...

Posted by fugu13 (Member # 2859) on :

Wow, this was a shortsighted move. As a member of the fed (who voted against it) pointed out, this does little to lessen the immediate drop, and is going to be a source of future and more long term problems.

Posted by Primal Curve (Member # 3587) on :

Did you crib the thread title from the CNN ticker or something?

Posted by Noemon (Member # 1115) on :

It's the title of the BBC News article he linked to. I sometimes do the same thing when I'm creating a news thread.

Posted by Marek (Member # 5404) on :

we're all doomed [Angst]

Posted by littlemissattitude (Member # 4514) on :

quote:
Originally posted by pooka:
I'm pretty certain the market will recover after the uncertainty over the primaries resolves (if it does... hopefully!) Then we can take another wild ride during the general election.

It doesn't really have anything to do with the primaries. The markets have been volatile for awhile, since the subprime mortgage mess hit the fan. With more banks having to take more writedowns due to losses connected to the subprime crisis, with subprime problems leaking out into the wider economy, and with oil prices soaring (which has a lot to do with uncertainty about what will happen in the Middle East), among other factors, investors are becoming extremely worried about a recession here in the US.

It's a very complex problem and I don't think there is going to be any quick fix. Especially not with moves like the Fed's today, which just reeks of panic. This is, after all, the first time the Fed has made a rate move outside of a regularly scheduled meeting since right after 9/11. Already some analysts are predicting that the Fed will cut rates again at its scheduled meeting on 29 - 30 January and that the rate will be down to 3 percent by the end of March.

I hate to see this happening. On the other hand, it makes my work interesting.

Posted by fugu13 (Member # 2859) on :

Yeah, this is completely unrelated to the primaries.