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> All I know is that if a the market can't look at rate cuts as
> good news and
> sustain a rally after it gets them then we will start to look a lot like
> Japan in the early 90's
'Just a couple of things to remember: FED rate reductions are in answer to
its perception of economic conditions nonconducive to business growth.
These very conditions are viewed by investors as reasons not to buy stocks.
The stock market prices future earnings into the current value of stocks
(well... at least that's what we thought prior to amazon.com and friends).
Once rates are seen as low enough to stimulate future growth, stocks will
rise.
Problems arise when interest rates are low at the first hint of economic
slowdown. Without enough fire power, the FED cannot accomplish its
intentions. This is the plight of Japan. In the case of the U.S., interest
rates are high enough to create economic incentives through rate reductions.
Will stocks rally at each and every rate cut in the cycle? Yes, for a
moment or two. However, the market will not sustain any sort of long term
rally until it is perceived that such a rate cut will bring about growth.
That is why its nice to begin rate cuts from a relatively high level.
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