Rate cut

If you look at the yields out there, the feds are going to drop 1/2 to 1 full point to match the yields. (yes folks contrary to what you are told, the feds are usually behind the curve).

My expectations are .75, they cant drop too fast or there wont be any more to drop. Japan went to zero and it didn't help.

What you are seeing now since the feds know their rate cuts are not getting the response they want, the rate cuts are now touchy feel good for the mom and pops to go out and buy. What we have here is the pushing on the string that we were so worried about last spring.

Instead the feds are now changing the rules (again no level playing field). They are taking the overnight loans and extending them to 28 days. They are allowing the toxic mess to be used as collateral for Solid treasury purchases.

Bear Stearns is just the beginning. This is going to take a long time to work its way through.

We should have the worst behind us come summer time. Now when I say the worst, I mean the blow ups, the write offs, etc. It does not mean we will have happy times are here again. This could be several years. Not until the average S&P p/e is around 11 (currently around 20 or so) will there be a significant equity bull market again. This could come from either stocks falling to that level or sideways until earnings reach that level. I am of the opinion that it will be the sideways action. So if this recession gets more sore, it could take even longer for the P/E's to get where we can say the bull in equities is back and buy the S&P and go away and retire.

Now just because the S&P will be bearish, does not mean there will be no opportunities.

As a trader we need to look out to see where the opportunities lie. If the sideways happens, premiums will dry up and the selling game on options will be lean. If we drop to the level fast, then we are back in the game with leaps and selling short months.

We are talking of course about the broad market, the one every ones retirements are in. Within the broad market we plan to exploit many opportunities as they come along. Such as short the dollar and long natural resources. Once this game slows, there will be another one. Who knows, maybe this time next year we can sell puts on our favorite banks and investment house stocks as they reach into the teens.