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It seems the Santa Claus rally is around the corner. Despite the sub-prime mess, the credit crunch, and the potential slow down in the economy, Christmas is still Christmas. However, investors do have a big test tomorrow – the last Fed meeting of 2007. Right now the market is expecting 25bps cut in the Fed fund rate and 50bps cut in the discount rate. In addition, the market is looking for the Fed indicating in its statement that there will be further rate cuts coming. Do investors ask too much? Not really. The fourth quarter GDP is currently on track to be flat, down sharply from the previous quarter’s almost 5% growth. The job market is expected to slow further entering into 2008 and the probability of a recession is still quite high despite joint effects by the Treasury Department and the Fed to avoid such a scenario. But for now, I guess if the market wants to save those worries for 2008, why shouldn’t we? |
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