Transcripts

Two Ways to Play - Fed Rate Cut

SUSIE GHARIB: It's said there are two sides to every story, two ways to play every trade. So tonight, we're looking at the Fed's latest rate cut from both sides of the issue. In tonight's "Two Ways to Play" here's Minyanville's Kevin Depew and Kevin Depew of Minyanville.

KEVIN DEPEW, MINYANVILLE: This week the Federal Reserve cut its overnight lending rate, the Fed funds rate 75 basis points to a range of 0 percent to a quarter of a percent. This is an historic step, marking the first time ever the Fed funds rate has been reduced to as low as zero. In doing so, the Fed has finally acknowledged the tough economic conditions we've been experiencing on Main Street for quite some time. But more importantly, this move marks the beginning of the end for this bear market. With stocks down nearly 40 percent year-to-date and incredible as this may seem, down 5 percent over the past 10 years, now is not the time to be turning bearish. That time has long passed. Your optimism is relentless, but if there is one thing we've learned this year it's that not even the bears have been bearish enough. The hope among the bulls is that the Fed's zero interest rate policy will mark the end of this deflationary debt unwind, effectively punishing savers. But hope is not a viable investment strategy. Instead, what the Fed has done is push all their chips into the pot, gambling everything on one final card. Stocks are no longer being priced according to fundamentals, because they are now simply pawns in the Fed's giant credit market gamble. Unfortunately, this reckless gesture sets the stage for a more likely negative outcome and that's full-blown crisis of confidence in the dollar and the central bank itself.