AP
Fed Cuts Rates by 3/4 Percentage Point
Tuesday March 18, 2:36 pm ET
By Martin Crutsinger, AP Economics Writer

Fed Cuts Rates by 3/4 Percentage Point; Dow Industrials Falls 100 Points After Announcement

WASHINGTON (AP) -- The Federal Reserve on Tuesday slashed a key interest rate by three-fourths of a percentage point, moving aggressively to contain a credit crisis threatening to push the country into a severe recession.

The latest action brought the federal funds rate -- the interest that banks charge each other -- down to 2.25 percent, the lowest point since late 2004. It marked the second back-to-back cuts of three-fourths of a percentage point.

Fed Chairman Ben Bernanke and his colleages have now cut the funds rate six times since last September, with the reductions becoming more aggressive since January as the central bank has faced growing turmoil in global financial markets.

In Jacksonville, Fla., Tuesday, President Bush said the government will take further action -- if necessary -- to help the sagging economy.

The rate cut Tuesday caps an unprecedented period of Fed actions aimed at trying to stabilize financial markets and ward off a recession or at least keep it from being too severe.

While the cut was larger than the Fed's normal quarter-point moves, markets dropped sharply in the moments after the announcement, with investors disappointed that the central bank did not cut rates by a full percentage point.

The Dow Jones industrial average fell 100 points within two minutes of the Fed's mid-afternoon announcement. It had been up 286 points just before the annoucenment as stocks had posted a strong rally after Lehman Brothers and Goldman Sachs reported better-than-expected results for the first quarter. That came as welcome news following the collapse over the weekend of Bear Stearns, which was forced into a fire-sale to JP Morgan Chase & Co.

The reduction in the funds rate was designed to lower borrowing costs and boost spending by consumers and businesses and thus increase economic activity. Economic growth slowed to a near standstill in the final three months of this year as the economy was hit by a series of blows including the credit crunch, a prolonged housing slump, rising unemployment and surging energy prices.

The funds rate cut quickly triggered announcements from commercial banks that they were cutting their prime lending rate to 5.25 percent from 6 percent, where it was before the Fed meeting. This rate is the benchmark for millions of business and consumer loans.

What a week, and it's only Tuesday.

It's not everyday an 85 year old institution like Bear Stearns goes out of business, but this was the week when it happened.

So let's start this week's email with a little humor from one of my favorite comedians. DA, DA, I am of course talking about former hedge fund manager, and now investing show guru host, Jim Cramer. You might know Jim from CNBC's TV show Mad Money.

On Monday, we received this video featuring Jim Cramer imploring everyone "NOT TO GET OUT OF BEAR STEARNS". I am afraid we may have witnessed Cramer going over to the dark side and losing his marbles on this one.

Take a look at this short Jim Cramer clip dated March 12th. Bear Stearns (NYSE_BSC) was trading over $60 dollars a share at the time!

You have to thank the Internet for clips like this. Jim Cramer is a great comedian, but yesterday we saw a lot of market action that was no laughing matter for the longs.

Cramer was 100% wrong on Bear Stearns. He wasn't even close, but I understand why people watch him. He is a financial joker.

When you trade with a sound "game plan" you win. When you listen to the talking heads like Cramer, you lose. The talking heads never tell you when to get out of a bad trade! It's just that simple.

Watch Cramer first - like I said he is very entertaining -

Now take a logical approach to Bear Stearns and the market in this video.

Only then can you make a logical well informed decision on who you would rather follow in the market ... Cramer or MarketClub.

I think you will logically know which decision make sense for you.

Let's enjoy a great year together.

Adam Hewison
President, INO.com

P.S. If you missed any of the "Traders Whiteboard" educational trading series watch them here.

Day 2, now what?

Did the FED manage to change the perception of the markets?

It's too early to tell, but here is what we do know...

Gold dropped below $1,000

Oil dropped over 4%.

So did the FED win in the mind's of traders? We don't know, but what we do know is that Jamie Dimon, CEO of JP Morgan (that's him on the left), may have made the DEAL OF THE CENTURY.

How would you like to buy a major asset like CEO Jamie Dimon did and have it guaranteed by the FED, for pennies on the dollar? Now that is what we call smart, very smart. Heck, the Bear Stearns building alone is worth over one billion dollars!!!

If the FED is willing to save Bear Stearns, do you think they will let JP Morgan go under? NO WAY is that going to happen. A collapse of JPMC would be a collapse of western civilization as we know it.

The only way we can look at the markets is with market action. This monster is not going to turn around in a day, but this week is going to tell us a great deal about the inner mindset of the market.

This maybe the most important week of the year ... it might even be the most important week in a generation of traders.

There is only one thing to do, and that is stay tuned to the market and this blog.

I expect that we will see some once in a lifetime trading opportunities this year. These opportunities will only be available to the disciplined and courageous.

We are here.

We are in this together.

Together we will succeed.

Adam Hewison
President, INO.com

P.S. If you missed any of the "Traders Whiteboard" series watch them here.

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