With the rout in international markets today, including Canada's TSX index down 605 points to 12132, and futures showing the Dow down over 500 points and the S&P down 60 to 1265, we may see a surprise interest rate cut before the market opens tomorrow.
Unless overnight markets calm down, tomorrow could start with another rout, which is the last thing the economy, consumer sentiment, and our pension funds need.
On the other hand, a rate cut could be seen as blatant intervention in the market.....
For an overview of the worldwide carnage see here
Stocks plunged in Germany, Hong Kong, India and Brazil, and U.S. index futures dropped on mounting speculation that the global economy is slowing and company defaults will rise.
Europe's Dow Jones Stoxx 600 Index fell the most since the Sept. 11 terrorist attacks and sank into a bear market, as Allianz SE and BNP Paribas SA slid. Hong Kong's Hang Seng Index had its biggest drop in six years after BNP Paribas said Bank of China Ltd. may write down overseas securities by $4.8 billion because of losses from U.S. subprime mortgages
Here is one view on tomorrow from Jim Sinclair. Sinclair has been a huge gold bull for some time and has been on record predicting that gold will soon reach $1650 an ounce. His site is an excellent source for articles on the ongoing financial tsunami.
Dear CIGAs,
This is it.
The DJII futures are down over 500 points.
If the Federal Reserve fails to take emergency action before the US opening tomorrow, you will see the DJII open down 1000 points as the public joins this professional panic.
Everything you see happening is contained in the Formula, which will be the catalyst that takes gold again above $887.50 and to $1650.
It is a better wager that the Fed will immediately drop rates by 1 full percentage point.
It is a slam dunk that all Western central banks will cut loose and flood the world with more liquidity than ever seen before.
If central banks fail to cause a torrent of liquidity from their unending check books then $450 trillion of derivatives will take us to the world of Mad Max.
Monetary inflation ALWAYS causes PRICE inflation even without strong business conditions.
Prices of hard and transportable assets rise regardless of business conditions.
All currencies fall and the stronger currency is the laggard in the race to the bottom of the tank.
Is a rate cut in the cards:
The short answer is yes. The remaining questions are when and how much. The Fed has a meeting next week and had been expected to cut 1/2 point at that time.
The ongoing mess in financial markets, covered very nicely in Jerome a Paris's Financial Crash: the Next Domino, may now force the Fed's hand.
The Problem:
So far, the moves made have been unable to stabilize the market. Bush's "stimulus" package actually caused the market to fall further and faster. This is a mark of how bad sentiment is at the moment.
If the Fed cuts tomorrow it is basically using the last of its short term ammunition, so it had better shoot accurately. There is the possibility that a 1/2 point cut will have the same impact as Bush's stimulus package, that being a negative one. It may take a full 1 point cut to actually stem the bloodbath.
But a 1 point cut may also smack of desperation (not a good thing) and would leave even less room for further cuts. In addition it could lead to a run on the dollar (also not a good thing).
Basically Bernanke and the Fed are now caught between a rock, a hard place, and more hard places. This is payback time for the failure to take the punch bowl away a long long time ago.
Finally:
Finally I would be remiss if I did not put another plug in for my favorite video on this whole sad mess. It is by a British duo, it is fun (British dry humor), and it is devastatingly accurate. If you have a few minutes, please take a look. I guarantee you will laugh, and possibly cry too. Here it is