terça-feira, 18 de setembro de 2007

THE FED'S DECISIVE DAY

I'm writing this post in English (not Portuguese as usual) because today is a very important day for investors all around the world.

Globalization is increasing its importance in the financial markets and so are troubles. Depending of the kind of crisis, some has affected badly the global stock markets (remember the Great Depression in 1929, the Energy Embargo of 1973, the 1987 crash, the Russian financial crisis in 1998 and the Internet bubble burst in 2000).

Today we have the real estate bubble burst in the US - and its related sub-prime mortgages problems - that may be spreading around the world.

Now, the important question is:

Will the FED be able to do something that will make the difference?

I think they will try at least but I don't know (nobody knows) if they will succeed...

The only antidote that may work is to cut rates. Between 50 and 100 basis points. The markets today seems to believe that they will cut the rates: the US 3-Mo Treasury Yield closed at 4.15% yesterday, a 15% drop since the beginning of the crisis. So, the market is already discounting a 75 basis points rate cut! See the chart Here. If they do so, the stock market will soar like in precedent interventions like in 1998!