Why the Rate Cuts Didn't Matter
The Federal Reserve cut rates by 50 basis points Wednesday morning as part of a coordinated effort with central banks in Canada and Europe. Investors no doubt had been waiting for such a move, but it was too little and too late for 2008, Cramer said during today’s Mad Money.
That’s why the Dow dropped 189 points despite the “good news.” Cramer said the Fed needed to be much more aggressive. And why not? Former Fed Chairman Alan Greenspan brought rates down to 1% in 2003 when the economy and markets were in much better shape. Bernanke, despite all the hardship we’ve seen, is still holding rates at 1.5%.
Even on a worldwide scale, the coordinated cuts might not have been enough. Europe is starting to look like it’s in rougher shape than the U.S., so Cramer thinks interest rates on the Continent might be 3 percentage points too high.
Beyond interest rates, the market’s still suffering from a host of problems, at least as Cramer sees it. The Securities and Exchange Commission still hasn’t reinstated the uptick rule, mark-to-market accounting is still the standard, and the same guys at the top who steered us into this mess hold the wheel. Remember how Bernanke was constantly worried about inflation even though we were headed, as Cramer said, “into the biggest deflationary spiral since the Great Depression”?
All these rate cuts did was get us one step closer to averting a repeat of the Great Depression. Granted that’s no small task these days, but the good here won’t be seen until 2009. Main Street not Wall Street was the beneficiary here, Cramer said. Maybe the cuts were just enough to nudge potential homebuilders into making a purchase? If so, that bodes well for this market come next year, which is when Cramer thinks we could finally see a bottom.
Cramer agrees with CNBC contributor Tony Crescenzi, who pointed out it usually takes the markets about two months to stabilize after a big financial shock. So it’s no wonder that we were down today despite the rate cuts, and the passage of that $700 billion bailout plan. But this new injection of cash into the system, via those rate cuts, means that stocks will eventually see a resurgence.
But for now, Cramer wants investors preserving capital. He still recommends selling into any strength to raise any needed cash for the near term. That way people will be ready when this market finally turns up.
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