All Eyes Are on the Fed

March 17, 2008

What a difference a week makes. Bear Stearns (BSC) blew up on Friday, losing half of its value within 30 minutes of the market's open. Fearing residual fallout to other financials, the Fed stepped in to save it. Then this morning JPMorgan Chase (JPM) made a $2 per share buyout offer, sending stocks sinking.

In addition, Fed officials held a rare weekend meeting and cut the emergency discount rate, which is the Fed's lending rate to financial institutions, by 25 basis points to 3.25%.

The Fed Funds futures market is now anticipating a 100 basis point cut at the Fed's meeting tomorrow. I suppose that now that the U.S. dollar is trashed in the wake of the Bear Stearns failure, the Fed really has nothing to lose. This is as close to a "currency devaluation" that I have ever seen.

The stock market has already breached its January 23 intraday lows, but the key is how it will finish today in the last hour, so I want you to keep a very close eye on the market this afternoon.

I expect buying pressure just before the big Fed cut tomorrow. The Fed seems to want to please the markets, so I now believe a full 1% cut is even possible tomorrow due to the fact that the 3-month Treasury is now down to 1.18%. It could break 1% soon... The Fed simply cannot fight market rates.

We're still in the third inning of the credit crisis, but this problem is really a blessing in disguise for our Blue Chip Growth Buy List. Investors will continue to leave battered value and financial investments and flock to growth stocks–like the ones on Buy List. This is a good time to remind you that our Blue Chip Growth stocks were a direct beneficiary of the credit crisis in the third quarter of last year. The mass exodus out of value and into growth helped our Buy List post 29.8% gains in 2007! I expect that our fundamentally superior stocks will continue to be the oasis against the broader market chaos.