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The bulls have plenty reasons to celebrate. Not only did they get a 300+ rally in Dow, they also had the best 2-day gain for 2007. More important, the rally is as broad as it can be with more than 90% volume on the advance side. The trigger of today’s huge rally is Fed Vice Chairman Kohn’s comments that “the Fed must be flexible and pragmatic in policy” and this suggests he may favour a rate cut in Fed’s next meeting scheduled on Dec 11th. Tomorrow we are going to get comments from the Fed chairman Bernanke. Although I don’t think he will mention anything specifically about the Fed’s next action, it should be quite clear by now that we are indeed going to get at least another Fed rate cut. But the question is whether one more rate cut will be enough to reverse the tight condition in the credit market and the worsening US economy. The economic news this morning is mostly negative. Durable orders dropped for a third month and this was the longest stretch of weakness in nearly four years. Existing home sales also came lighter than expected. Worse yet, the inventory of unsold homes kept increasing. Tomorrow we are going to get revised numbers on third quarter GDP/GDP Deflator and new home sales data. Currently the market is expecting a sharp upward revise to the GDP number. |
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