Special Market Update

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The long awaited Fed decision arrived with a bang! The Fed surprised many economists and traders with a half percent cut in both the Fed Funds and Discount Rates. Stocks soared higher and enjoyed their largest gain since 2003.

What does the Fed cut mean? Rates on consumer debt, car loans, and Home Equity lines will all benefit. But because Home Loan rates are tied more closely to inflation, it is not uncommon to see less of a reaction…or even an opposite reaction in mortgage rates.

The Fed cut also hurts rates of return on investments, which gives foreign investors less incentive to invest in US securities. This has sent the Dollar much lower against the currency of most major foreign countries. This makes foreign goods more expensive for us to buy, which adds to inflation pressures.

Overall, the Fed cut is good news for the economy, but may nudge inflation a bit higher.

Breakdown, Takedown

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That classic 80′s lyric aptly describes the market last week, as the Stock market suffered a breakdown, analysts got a takedown, and many investors felt they were busted as Stocks sold off hard on Friday. Why? The result of a super lousy Jobs Report number on Friday morning. US job growth in August was actually negative for the first time in four years, with a loss of 4,000 jobs. And the shocker was that analysts had expected somewhere close to 110,000 new jobs to be created !

But while Stocks suffered on the news, Bonds benefited, meaning that home loan rates on conforming loans improved by .125% to .25%. Additionally, the dismal Report also means the Fed is almost guaranteed to make a cut to the Fed Funds Rate at their upcoming meeting on September 18th, to help stimulate a sagging economy. And in fact, their cut now may be a .50% cut, rather than the .25% that has been speculated.

This action would help stimulate business at large, with less expensive costs to borrow – and also help consumers as well. The Fed Funds Rate impacts many other borrowing rates, such as Home Equity Lines, credit cards, car loans and the like.

Labor Day Market Update

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This morning, a tame inflation reading via the Personal Consumption Expenditure Report, or PCE, was released by the Commerce Department’s Bureau of Economic Analysis. The important Core Personal Consumption Expenditure for July was reported at 0.1%, which was less than expectations of 0.2%.

The closely watched year-over-year Core PCE remained at 1.9%, which is still within the Fed’s target zone of 1 – 2%.

With President Bush set to speak about proposals to aid borrowers hardest hit by mortgage problems and Fed Chairman Ben Bernanke speaking this morning, we are waiting to gauge the market reaction.

Happy Labor Day!

“Labor Day differs in every essential way from the other holidays of the year in any country,” said Samuel Gompers, founder and longtime president of the American Federation of Labor. “All other holidays are in a more or less degree connected with conflicts and battles of man’s prowess over man, of strife and discord for greed and power, of glories achieved by one nation over another. Labor Day…is devoted to no man, living or dead, to no sect, race, or nation.”

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country. – U.S. Dept of Labor

In observation of Labor Day, I would like to applaud you for your achievements and efforts to make America a better place to live. Have a safe and wonderful Labor Day Weekend!!

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