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There is a major problem on the horizon for
traders. Not investors, but traders. The Fed is poised to make an
interest rate announcement. Everyone is guessing what the Fed will
do. The consensus seems to be a drop in rates.
Here is the problem. There is only a one in
four chance that you will be right. Rates could go up, they could stay the
same, they could drop 0.25 or they could drop 0.5. How will the Feds
action be interpreted? If one of the first two options are the result you
can expect a drop in the market. Here is the tricky part. If there
is a 0.25 drop will that also be a disappointment and nothing happen. We
know that at 0.5 there should be euphoria.
If you are not a big bucks trader or if you don't
have a volatility spread or option protection it might pay to stay out of
the markets until after the news is posted. How far is the Fed
willing to go with this. Right now, from what I read, the public is
extending their credit card debt. That puts a lot more people at
risk. Lowering the fed Funds rate or the Discount Rate will not cause the
credit card companies from charging their 24+% interest and then late fees on
top of that. Who is going to lobby the Fed to once again install usury
laws? Certainly not the credit card companies. So they might
stimulate a glorious Christmas with the payment pains to follow. Euphoria
is not always a good thing.
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