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US Interest Rate Cut Bombs! Fed Trapped Between Rock and a Hard Place!

Stock-Markets / Stocks Bear Market Jan 31, 2008 - 01:09 AM GMT

By: Money_and_Markets

Stock-Markets

Best Financial Markets Analysis ArticleMartin Weiss writes: Bernanke's half-point rate cut this afternoon initially gave the stock market a quick shot in the arm.

But then the Dow turned right around, gave back every penny of its gains, and ended the day DOWN 37 points!


Why? Because most investors aren't dumb. They know what's going on in their own neighborhoods. They see the handwriting on the wall in the headlines. And they realize Bernanke's caught between a rock and a hard place ...

The Rock:
A Sinking Economy That's Showing No Sign of Responding to Lower Interest Rates

Just this morning, the government shocked Wall Street with the news that ...

  • Home construction plunged 24% in the fourth quarter, the worst since 1981.
  • The economy sputtered to a virtual standstill in the fourth quarter, crawling at the anemic pace of just 0.6% per year.
  • For the entire year, GDP growth was the worst since 2002, when the economy was suffering from the aftermath of 9-11, a tech wreck, and a wave of scandal-ridden corporate bankruptcies — all at the same time.

The Hard Place:
Resurging Inflation That Only Gets Worse As The Fed Cuts Rates and Pumps More Money

The facts ...

  • Gold is on fire, surging another $7 just today.
  • The U.S. Dollar Index got killed today — down 75 basis points on today's Fed rate cut alone.
  • In November, we saw the most dramatic surge in wholesale prices in 22 years!
  • Import prices surged by a staggering 10.9%, signaling much, much higher inflation ahead.
  • And just this morning, we learned the Fed's favorite inflation gauge jumped more quickly in the fourth quarter than virtually anyone expected.

This is serious. It means that long before the Fed's rate cuts begin to have the desired impact on the economy, they're already beginning to backfire with more inflation.

Smart investors see this. That's why they sold into today's stock market rally.

I suggest you do the same.

Good luck and God bless!

Martin

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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