Financial Market Update-Fed Cuts Rates

The Fed came through with an expected interest rate cut today, anticipation of which seems to have inspired yesterday’s 890-point advance of the Dow Jones index. Despite the slashing of the federal funds rate–from 1.5 percent to 1.0 percent–stocks remained relatively unchanged in the immediate wake of the announcement. Investors may have been cowed by the Fed’s accompanying statement, which acknowledged a drastic decrease in consumer spending. Or maybe the increasingly bi-polar market’s reserves of optimism have simply become tapped out for now. Yesterday’s gain was the largest point gain in the history of the index, and in ordinary times would have been remarkable. In these times of panic, however, such a number might just be one more swing of the yo-yo, albeit a large swing.Is China immune to the global slowdown? The Bank of China isn’t so sure. Effective tomorrow, the bank is cutting its one-year lending rate to 6.66 percent, down from 6.93 percent. This is the third cut since mid-September. Before that, rates had been stable for six years. Somebody’s worried about lagging worldwide demand for Chinese goods. Unexpectedly, U.S. orders for durable goods were up in September by 0.8 percent to $207.81 billion, according to the Department of Commerce. That’s a meager gain, but better than the predicted 1.1 percent decline. Aircraft orders were a key factor in taking the number into positive territory. Orders for nondefense capital goods (durables,) excluding aircraft, were down by 1.4 percent, however. An essential ingredient of the Panic of 2008, namely the sub-panic in the money-market sector, has come home to roost for Legg Mason Inc., which posted a net loss of $103.8 million, or 74 cents a share, for the second quarter of 2008. During 2Q07, the money manager boasted net income of $177.5 million, or $1.23 a share. The 2Q08 results included $191.1 million ($1.35 a share) in charges to support the company’s money-market funds. Speaking of chickens coming home to roost: Is a credit-card bust the next big implosion already under way? According to Eric Dash at the New York Times, it could well be. Credit card lenders have been offering seemingly cheap credit on easy terms for years, which is no secret, and now that the economy is in a bad way, all that credit isn’t so cheap or easy any more, and borrowers are defaulting–which sounds something like what happened to a certain other lending business lately.”Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments,” Dash wrote. “With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say.”In any case, by the end of the day, the equities markets seem to have shrugged off the rate-cut. The DJIA ended down at the last minute, losing 74.16 points, or a scant 0.82 percent. The S&P 500 lost a little more — 1.11 percent — but the Nasdaq climbed slightly, up 0.47 percent.