Buy, Sell or Stand Pat? Part 1

The Fed's rate cut Wednesday played out hot and heavy on RealMoney.com's Columnist Conversation, where columnists weighed in with their view of what the action meant. Come be a fly on the wall:

Wednesday, 1/03/01 11:11 AM EST -- Dave Kansas: The market has quickly gobbled up that little bounce. There's so much pessimism out there right now that it's difficult to ascertain from where the next push higher will emerge. I think it would take a combo of a suddenly aggressive Greenspan and some surprising corporate earnings news. I think the first idea is likely, the second less so.

Aaron Task: Dave, did you just try to sneak a prediction the Fed will ease prior to Jan. 30-31 (i.e. -- "suddenly aggressive Fed")?

Or are you saying it will go 50 basis points at the meeting, which -- itself -- would be out of character for the go-slow Greenspan Fed? Just curious.

Tuesday, 1/03/01 1:16 PM EST Jim Cramer: There it is, an intrameeting cut! Why those financials made so much sense! FED EASE!

Chris Edmonds: Reports are the Fed has cut Fed funds by 50 basis points. Wow!

Jim Cramer: Why now? The Fed has probably taken a look at the employment number and knows it is weak. The Fed also loves to act on NAPM, which was weak yesterday. This could be the beginning of a further run in the bank stocks. The BKX, the bank index, has vaulted 40 points, but that is not that much -- vs. what could happen.

Gary B. Smith: Amongst all the whooping and hollering, let me take five seconds to give a word of advice to the readers: patience. Yes, the tendency is to now just buy anything and everything at whatever price is being offered. However, if you're an EOD trader like myself, I urge you to just wait and see how the rest of the day unfolds. There will be good charts, and there will be bad charts, but there will always be plenty of time. If the move persists, it sure won't be over in one hour. However, if you're buying right now, and you don't normally trade intraday, you're playing a game in which you have no preparation.

Dave Kansas: Also, have to wonder just how weak things have gotten for the Fed to jump in like this. Orchestrated nicely, though. Catching a lot of people leaning the wrong way with this one. Like a Rubin-esque currency intervention. Hats off to Alan and the gang for hitting hard.

Aaron Task: Jim Bianco of Bianco Research earlier today pointed out the Fed fund futures were pricing in a 60% chance of a rate cut before Jan. 31 and a near 100% (!) chance they'd do it before Jan. 13.

But that was "only" for a 25 basis-point cut.

Kathleen Camilli at Tucker Anthony noted the Greenspan-led Fed has been far more likely to cut rates by 50 basis points at the end of easing cycles than at the beginning. She didn't expect this and only thought they'd ease 25 basis points at the meeting.

I guess the Fed fund futures knew better.

Aaron Task: Regarding the Fed getting an advance look at the employment report -- Jim Bianco had also pointed out that the survey week for the December data came during a big snowstorm in the Midwest, and that could have heavily dampened the payroll figures.

If the storm caused the number to be weak, either the Fed ignored this or didn't care.

Or maybe there's something else out there?

Dave Kansas: I like what Gary B. is saying: While it's exciting to get surprising news, it's important to take careful care when examining your own strategies. Patience is a good word, a word for 2001, and I believe investors should digest the news carefully. It cuts both ways: Fed is on the case; but it is moving with intensity that indicates more troubles than we currently appreciate.

Jim Cramer: I hate to be a &^*&$&^ but I am adamant about this: When the Fed cuts, you can't look through it and worry about what might be causing it.

If we looked back at 1998 -- more on this to come in commentary -- we would have been petrified to buy after the first ease, things were so bad. And you made a fortune. I am urging readers to not look through and to accept this as a per se extremely bullish action.

Brian Reynolds: JJC is correct on the Fed. Back on Dec 18, I wrote a column called Following the Fed on how markets behave during tightening and easing cycles. It looks like there will be plenty of good returns to come.

Ben Holmes: Networking stocks are on fire! I'm looking at a portfolio on my screen of 50 networking-related stocks -- all of them recent IPOs -- and it's all green, save for eight or nine names. Juniper Networks (JNPR:Nasdaq - news - boards), Extreme Networks (EXTR:Nasdaq - news - boards), Brocade Communications (BRCD:Nasdaq - news - boards), Avanex (AVNX:Nasdaq - news - boards) -- are all up big.

Herb Greenberg: I still don't think the cut will cause people to rush out and buy cellular phones and PCs and anything else that uses printed circuit boards or other products that have been suffering from a slowdown. However, you wouldn't know it by the action in some of these stocks. Remarkable. You can only wonder who is selling into the strength ... and why?

Adam Lashinsky: Note that while the market is up huge, the number of beaten-down techs that aren't: Apple (AAPL:Nasdaq - news - boards) up less than a buck, Buy.com (BUYX:Nasdaq - news - boards) up 1/16, E-Loan (EELN:Nasdaq - news - boards), which should be interest-rate sensitive, up 1/32 ... so "tiering" is back for a while: Microsoft (MSFT:Nasdaq - news - boards), AOL (AOL:NYSE - news - boards), Broadcom (BRCM:Nasdaq - news - boards), Intel (INTC:Nasdaq - news - boards) get snapped up on a rate cut, the garbage of techland gets left sitting on the heap.

Herb Greenberg: I agree that you can't fight a rate cut and that low rates are good for stocks, but it doesn't mean lousy fundamentals will still drive all stocks. Don't forget about the impact of Reg. FD and SAB 101 and the impact of auditors being under pressure not to let companies get away with murder anymore.

Should investors in some of these riskiest names use this rally to get off margin, if they're still on margin? (We'll leave that one to JJC.) I just want to remind you, in all of this giddiness, to remember that fundamentals still matter ... especially going forward as companies warn. Because they will warn.

Adam Lashinsky: I agree with what I think gloomy Greenberg is saying ... this looks a lot like momentum buying. The "names" (an expression I've always hated) that are moving are the tried-and-true mo-mo names. The ones Buzz and Batch just love: Brocade, QLogic (QLGC:Nasdaq - news - boards), Juniper, JDS Uniphase (JDSU:Nasdaq - news - boards), Handspring (HAND:Nasdaq - news - boards), Cisco (CSCO:Nasdaq - news - boards) ... Did the outlook change for those companies today? I think not. Are the mo-mo days completely over? I think not.

Justin Lahart: Look how many people had been waiting for exactly this moment to change positions. The drug index is down 4%, the consumer staples spider is off 3.3%. And cyclicals are rallying.

I've got to think that one of the things that is making this so powerful is that many investors weren't ready to make this shift just yet, that they were going to cue off of the meeting at the end of the month.

Dave Kansas: Hey, kudos to Chuck Carlson for his prescient comment on the Fed this afternoon on the Trading Track. About five minutes before the Fed moved, Chuck said:

"... As if the Fed needed more reasons to lower rates, December manufacturing was at its lowest point since 1991. Look for the Fed to lower rates aggressively at its next meeting. I wouldn't be surprised if it lowered rates even sooner than the next scheduled meeting. Stay tuned."

Stay tuned indeed ... To go to the second part of our columnists debating the Fed's rate cut, click here .

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At the time this Columnist Conversation originally took place, none of the columnists had any positions in any of the securities mentioned in this column. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.