Beware Wall Street 420 Point Rally...With Dollar Weaker, Expect OPEC To Find Excuse To Raise Prices

Although Wall Street was hoping for a full point rate cut, but only got a 3/4 point cut, looks like it was enough for the Dow Jones index to rally up 420 points for the day (closing at 12391). Better than expected earnings in the brokerage sector was a big boost, too! Overall, best UP day on the Dow since April 2001 and best day for the S&P since October 2002.

However, this Fed funds rate cut (on top of other recent rate cuts) has sent the dollar to record lows (a weaker dollar).

Well, if OPEC (Oil sheiks) get paid in dollars...how do you think they feel being paid in dollars that are becoming lower and lower in value? And they don't feel like taking a pay decrease. So look for them to figure out a way to keep the price above $100 a barrel (on the way to $110, $115, etc.) per barrel. An unexpected production disruption is always a good way to achieve this goal.

With oil at, or around $100 (plus) per barrel as it has been this year creates a major problem for many, many -- many U.S. companies who were planning on oil being $85 per barrel when they made their annual projections for investors.

Airlines for one will be hit hard. But beyond the obvious, take a company like Dow Chemical -- whose CEO said they plan on oil being $85 a barrel in '08. Any company that uses plastic will be hit with increases since oil is used for plastic. What is going to happen to these companies' profits at $100 (plus) per barrel?

And what is going to happen to food costs when farmers who grow corn and wheat when these higher fuel costs are passed on to farmers? And higher wheat and corn prices for human consumption, means higher prices to feed the cows and chickens for meat, too. Plus, the added fuel cost to deliver products. All of it will mean added inflation in the production and transportation of U.S. goods and services. (Inflation spiral up, y'all!)

Former Fed Chairman Greenspan urged the oil sheiks in Saudi Arabia to move the oil exchange off of dollars and into Euros. That would make the inflation in the Gulf region lessen substantially since Euros are now worth more than dollars. This will make matters even worse for the U.S. by de-valuating its currency by about 20% overnight if they act on his recommendation.

GOLD is down from record highs over $1000 this week (as high as $1028 this week), possibly because investors were looking for a full point rate cut; investors need to sell profitable gold positions to cover losing margin calls elsewhere; and because the Fed cut causes an initial boost of cash into the U.S. market (driving gold down) -- but the Batcomputer says with oil at $100 -- and credit spreads (derivatives market) widening -- the 3/4 point cut won't be enough to get in front of the curve.

So enjoy the rally, but this might be a good time to increase your position in gold (because the trend line says gold is only going higher in '08 as inflation worsens) -- and it'll be tough to make a buck with oil at these prices.

StrategyUpdate.com

Fed Cuts Fed Funds and Discount Rate by 3/4 point each

Fed Cuts funds rate and discount rate (rate banks borrow money at) by three quarters (3/4) of a point each. Fed funds rate is now 2.25%. Gold just dropped from $1000 (plus) to $995 on the news. Wall Street was expecting/hoping for a full point rate cut, so look for a big give back of today's 300 point rally from earlier in the day, when investors were optimistic of the full point cut they didn't get.

FMOC:

* Uncertainty over inflation outlook increases.
* Inflation should moderate over coming quarters.
* Will monitor inflation carefully. (ZD says it's worse than they can admit!)
* Markets remain under considerable stress.
* Fed Will act in timely manner to promote growth, price stability.
* Housing contratraction likely to weigh on growth. Downside risk to growth still remains.




ZumaTimes.com

GLOBAL STOCK ALERT!!!: Asia Shares Tumble, Gold Rockets to $1028 Sunday Night As Fed Steps In With UNPRECEDENTED Weekend Rate Cut

I was scanning cable TV, when I noticed CNBC cut to the Asia feed Sunday evening. I saw gold was at $1026!!! WHAT!?!? It was at around $1002 when the market closed on Friday.

Well Asia is having a huge sell off with their market down 4% (it's Monday there already) over news that JP Morgan is buying Bear Stearns for only $2.00 a share!

So Fed Chairman Ben Bernanke had to step in with a rare (VERY rare) weekend emergency discount rate cut to 3.25% on the Fed Funds rate. (Couldn't even wait until the regular meeting this Tuesday.

Dow Jones futures are down for Monday morning as of the time of this post.

I had to wake up the WALL STREET WIRE and have it post an emergency alert:

Zuma Dogg spent all December-February warning Wall Street investors about market conditions that lead to today. See StrategyUpdate.com for all the blog posts that called every move before it happened. At the time they were outrageous predictions. Wanna know what will happen next...stick with Zuma Dogg. Maybe I'll post future predictions if I feel like it. And everyone who criticized my predictions can kiss my ass, losers. (Especially the Mega-losers who told me gold hit it's peak at $850, then at $900 they were sure it had peaked...then at $920 it was going back down to $850. Then at $1000 it was too late. But people make these proclamations based on "guesses", not fundamentals. And to those people...I'm sure the market has hit it's bottom and your stock portfolio is going to skyrocket. DO NOT BE FOOLED BY FALLING HOME VALUES, FINANCIAL INSTITUTION CRISIS, OIL AT $110, WEAK DOLLAR, LOWER PAYING JOBS, WHEAT/CORN/SOY BEANS AT RECORD HIGHS...THE MARKET IS GOING TO 14,000!!!

See Friday's Wall Street Alert here.

VIDEO: Bernanke Speaks on Fed's Mortgage Plan

Federal Reserve Chairman Ben Bernanke details the Fed's efforts to protect mortgage borrowers.


Video Part 1
Video Part 2



Fed Tries To Stem Crisis, But It May Not Be Enough

Fed Chairman Ben Benrnake is throwing all he’s got at the economy, but it may not be enough to combat both a recession and credit crunch.

Having won praise for their latest two measures to spur lending, Bernanke and company had little time to rest on their laurels. On Friday, the central bank was forced to provide emergency funding to Bear Stearns

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[ Loading... (%) ] , which has been struggling with its large portfolio of mortgage-backed securities.

Sure enough, the latest flare up triggered new speculation about another inter-meeting rate cut, just days before the Fed’s FOMC convenes for its March meeting, where it was already widely expected to slash rates for the third time this year.

And along with the usual question of how big of a cut--one-half, three-quarters, or even a full point, as some clamored for Friday amid the hysteria--there’s another question: Will all the Fed’s moves do any good?

full article

Oil Breaks Record $104 Level Today and Gold Moves Back Up To Record Highs

Time to check out LA Daily Blog.com's companion website StrategyUpdate.com because oil has hit a record price of $104 a barrel. So that will cause the price of gas at the pump to rise, as well. (So that means consumers will have less money to spend on other goods and services -- and the higher gas prices will cause inflation to creep into the manufacturing and delivery of food and almost all products.)

And, further evidence of a weakening dollar, and inflation expectations (sucky economy) is the fact that gold is back at record levels ($985 at 1:51 PM 3/5/08) after a profit-taking sell off drove the price down yesterday. I think you will continue to see profit-taking that will keep driving it back down. But the sell-offs will be shorter, and it will keep rising back up to higher levels than before.

Some people feel that although Fed Chairman Ben Bernanke said the Fed prefers to make rate adjustments during regularly scheduled meetings, another emergency rate cut may be in the works before the next meeting. But I think that is overly optimistic, unless some bad news comes out regarding the bond crisis.

With gold and oil futures rising, even though inflation fears would lead one to believe the Fed will not be able to make the continued "big" half point rate cuts...Wall Street appears to be betting that the Fed will be forced to deal with the "growth/recession" problem, and hope that stimulation brings down inflation...and if not (if inflation becomes more of a problem), the Fed will be much more likely to step in with an emergency rate INCREASE at any time. But for now...more cuts to help stimulate growth, during an election season.

What made the price of oil break new record levels today? Well with the U.S. dollar so weak, and expected to be weaker, they had to come up with a way to get more bang for the buck (more dollars per barrel, now that the dollars are worth less); so a story came out today that there is a "supply problem". (Yeah, right!)




24 hour LIVE gold and metal charts, CNBC/Bloomberg/WSJ/Barron's/etc news wires, analysis and more investors resource links at StrategyUpdate.com.

Read Bernanke's Speech on Reducing Preventable Mortage Foreclosures and Watch Video (3/4/08)

The following is the text of a speech by Federal Reserve Chairman Ben Bernanke on Reducing Preventable Mortgage Foreclosures given on March 4, 2008 in Orlando, Florida:

Over the past year and a half, mortgage delinquencies have increased sharply, especially among riskier loans. This development has triggered a substantial and broad-based reassessment of risk in financial markets, and it has exacerbated the contraction in the housing sector. In my remarks today, I will discuss the causes of the distress in the mortgage sector and then turn to the key question of what can be done in this environment to reduce preventable foreclosures.


Click here for entire speech transcript, video and CNBC analysis.

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