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Wednesday, January 30, 2008

Definition of Crazy: Doing it again and expecting a different result

Bernanke and friends did it again today and dropped the funds rate by another 50 basis point (on top of the 75 they did last week). As I mentioned last week, nothing happened - in fact the stock market fell last week in the days after the announcement for the most part both here and globally.

So what happened this time? Well, the Dow is, according to my stock checker on my phone, down 37 points on the day. The S&P is down 7 points. Yet again, this is a big slap in the face to the Fed bankers and to me it is quite scary actually because it shows me that this market really has no confidence that the Fed or fiscal policy can reverse the downward trend. To me, the market sees negative underlying conditions and inflation as much more problematic than the Fed does. In fact, the Fed thinks inflation will moderate in 2008. And I agree with my friend Mike Moffatt - I don't know why they think that.

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