The Fed’s decision last Tuesday to cut both the Fed Funds Rate and the Discount Rate by only 0.25% disappointed many investors who expected a more aggressive cut of 0.5%. The rate cut announcement caused the market to sell off sharply. The Fed believes that inflation is still a threat, and as a result chose to be more conservative with rate cuts. Without a doubt, there’s strong inflationary pressure in the U.S.—we found out last week that wholesale inflation increased by the largest amount in more than three decades.
After the rate cut disappointment, the Fed revealed a plan to team up with other central banks around the world to supply a coordinated liquidity injection that will provide a $40 billion swap line to U.S. banks. Given the severity of the credit problems we’re experiencing right now, I believe that a liquidity injection alone won’t enable banks to make the money they need to get back on a growth track. I think the Fed’s conservative stance has halted the chance of a further year-end rally. The market is looking murky at the moment, and in the next two weeks it could go either up or down.
Are You Prepared for Year-End?
Although many major U.S. companies outside of financial services and homebuilding are still doing well, most of their gains have been coming from fast-growing markets like China, which is exactly why we focus our attention there. However, if the damage to major lenders continues, all business sectors will be negatively impacted. U.S. corporate earnings could go down significantly if the Fed isn’t aggressive enough.
Given the current unpredictability of the market, you should consider selling some of your holdings and raising some cash. A 25% cash position seems like a good balance in the current market environment. Do you want more guidance on how to reallocate your portfolio so that you can prepare for what’s ahead? Click here to learn how you can get specific buy and sell advice each week.
New data over the past few weeks from leading financial institutions—such as UBS, Citicorp and Bank of America—reveals just how much damage the housing and subprime credit crisis is doing to the banking system. With the exception of Goldman Sachs, almost every major U.S. commercial and investment bank has suffered big blows from the ongoing credit crisis. While I’m confident that our China Strategy stocks will continue to deliver strong earnings and performance, it’s important to recognize that the overall stock market risk has increased.
So if you find yourself overexposed to the banking sector or have some positions that have gained significantly, you may want to consider selling a few shares to decrease your risk of being caught up in further market sell-offs. If you want more market analysis or if you just don’t want to navigate the current volatility alone, join China Strategy today! You’ll get complete access to our entire portfolio of winning stocks, specific buy advice each week, my general market commentary, details on my trips to China, and much more!
I’ve only been home in California for three weeks, but I’m already heading back to China! I’ll be leaving for Taiwan and the Mainland next week. Don’t miss the opportunity to get my latest insights on the growth that’s happening in China right now. Become a member of China Strategy risk-free and get my firsthand research on China’s booming economy.
Fight the current market volatility by investing in companies that provide the products that China wants and needs. Every single China Strategy recommendation fits that criteria—and I want you to get in on the action. For example: China wants consumer electronics; our gadgets play is up 172%. China wants education, our training school is up 201%. China needs medical devices; our medical company is up 125%. Experience these gains for yourself by becoming a China Strategy member risk-free! If you’re not satisfied in the first three months, I’ll refund your money. What do you have to lose?
