My friend Peter Bookvaar of Miller Tabak comments on the recent pop in stocks off of today’s low:
"Stocks have bounced on a rumor that the Fed all of a sudden is going to cut the discount rate. Anyone who spread that rumor should go to jail as there is NO WAY the Fed will do anything one week before their next meeting.
Secondly, the Fed uses the discount rate to unclog the financial markets. Right now, the financial markets are in much better shape than 2 months ago. LIBOR spreads are tighter, commercial paper rates are down and swap spreads have come in alot. The economy and the housing/mortgage mkt on the other hand has its own issues which the Fed is trying to address with the fed funds.
Lastly, the discount rate only 50 bps above the fed funds is barely being used anyway."