Wednesday, October 29, 2008
(Cont'd from above)...

Frankly, really... That's my only explanation, alright... I don't have another explanation for why anyone would think rate cuts don't matter, and yet that's all I heard today...

This rate cut matters. But not just the cut, but the fact that the Fed finally gave us the "no more worries about inflation, just recession" statement that we were looking for a year ago. And, frankly, it is better late than never...

So, as of here, right now, at this moment... ("they know nothing" sound)... I'm smashing this button...

Today's sweet half-point cut by our central bank... and it was sweet, okay... should make the Europeans and the Chinese willing to ease their own rates, which are substantially higher than ours.

China's rates are actually absurdly high, at 6.66%... Where do they get those numbers?... What is it, like "the sign of the devil rate" they've got going over there?... It should be half of that...

And both the Bank of England, the European Central Bank... they should cut their rates in half too...

Why would it matter? How would it help us?

The American companies that have been really mutilated lately... the ones with stocks that have just been put through the meat grinder... they're the ones with the most international business. If the Fed can get foreign central banks to cut more, they will give foreign economies some juice... and bring back the end markets for our exporters.

Honestly, anything that makes the Europeans to get off the dime and allow the Chinese to slash rates completely justifies yesterday's rally as something more than an ephemeral, one-day swing.

Plus, we need a weaker dollar to get companies more competitive... the dollar's been soaring. Unless you have gone overseas, you probably didn't realize that.

The people that say rate cuts don't matter... they have no sense of history... or they don't even know how the markets work.

How could they not remember when rate cuts supercharged the economy in 2003... Maybe some people think it was too supercharged... frankly, I could use a little supercharging...

Right now, our economy's in much worse shape than then... and, as I've repeated endlessly, we need to anything and everything to avoid a second Great Depression...

That's what these cuts are about...

Oh, people say, well, hold it... how can I make money in the stock market off of it?... We'll give you those things but, remember, what we're really trying to do is just avoid the Great Depression 2... When the Fed cuts rates, it doesn't just declare, by the way, that the fund rate is now 1%... It pours money into the system!... And, until the supply of money is great enough that the rate can be kept at 1%... which is hard. It's kind of like holding down a monster... It's like holding down a bear...

The Fed is unequivocally on board at last... printing money like mad to keep rates down... And, don't forget, lots of households and business debts are linked to the prime rate. This is never talked about. It drives me crazy!

The Prime Rate is linked to the Fed Funds Rate, basically lots of loans are priced off this rate, and it should make it much cheaper and easier for people and businesses to borrow money...

Isn't that what we want?...

Why don't the rates matter to this kabal?... I keep thinking, maybe you know, let's see... homeowners... people with home equity loans... they benefit. Maybe the critics are renters.

While we are assessing positives, let me say that the possibility, talked about today on our network, that the government might guarantee the mortgages on 3 million homes... That's brilliant. Now they're just stealing every page from my playbook... which, of course, makes it... brilliant!

That alone would make housing stabilize by the middle of next year, which matters, why?... Because we only have 245 more days (that Jim has projected) before we stabilize. It would be the most bullish thing imaginable, and actually make me look like someone who knows something...

We had 7 million people buy homes with too little money down, between 2005 and 2007... Actually 8 million if you include the first quarter of 2007... We could keep 3 million of those people in their homes.

The end of house price depreciation could, at last, be upon us...

This is a great plan, and anybody who stands in its way is going to have to answer to me...

What else does this rate cut do?...

The Fed is also making it so that cash is no longer king as it was... We're not going to be able to make as much money in cash with short rates lower. It's going to force money back into the stock market. That's especially good for all those stocks with high, stable dividend yields that I've been recommending endlessly... and some of you say, in a boring fashion, and that's okay... Believe me, I don't mind boring if it makes us money. Our dividend strategy looks better than ever after today. And you're not going to get that return from sitting in cash. You're going to have to go get a stock that has a really good dividend...

We're going to tell you in a moment how to tell one with a good dividend from a bad dividend.

No matter what the naysayers tell you, the rate cut matters. The banks need to be able to make more money on loans. That helps. It's worth the risk of lending if they can make more money. The rate cut does that, because their cost of money goes down. They'll make more loans, if they know they're going to make more money... even if they have to have some bad ones.

By cutting rates, the Fed has made it cheaper for banks to borrow from you, in the form of interest from your deposits, and from each other, and that's going to make more loans. We need these loans, because the balance sheets of corporate America as well as individual Americans... well, the corporate American ones... they were supposed to be so stellar, remember?... I mean, they're supposed to be great... we kept hearing, oh listen, one thing that's so good this time that's different, is that we'll have a lot of cash on the balance sheets of companies... Well, I've got to tell you, I'm going through all the quarters, and the balance sheets don't seem so healthy now... thanks to some monumental and, in some cases, monumentally-idiotic buybacks...

The banks need to lend to these companies so they can make the payroll, so they can expand... and so they can take each other over if they have to...

And, hey listen, if it takes a little inflation... I heard guys today saying, oh well, it's inflationary... Would you give me a break?... We have not had this level of deflation since 1932. Hey, I could use a little inflation...

The alternative? If we don't get more cuts in Europe and China... let's understand... if we don't get banks making loans... is that yesterday's move will be strictly temporary, and it will be repealed. All of it, and then some...


Here's the bottom line on this rate cut nonsense that I heard all day...


The bottom line!:     Rate cuts do work. If they didn't, we would have been down huge today. And, if we get cuts in China and Europe, we will have more than just a one-day wonder like yesterday. If the government guarantees 3 million mortgages, the banks can feel like they can make money lending, because the Fed funds rate is at 1%... and yesterday's rally is justified, and we will be in a position to go higher. So, yes... once again, we will be in a position to sell some stocks, raise some cash, and stay in the game through the next big selloff. That's the promised land... to be able to raise cash for the next big selloff.

[verbatim recap]

Read Jim's next Segment here