100 Basis Point = 100 Basis Point.

Today stock market in Asia shock me. Nikkei surges 6.41% in last minute bargain hunting and Hang Seng Surge 14.35%. FSSTI currently gain 1.65% but remember FSSTI closed yesterday so they missed the sell off yesterday.

last Friday s/p 500 dropped 31.34 point or 3.45% and yesterday dropped 27.85 point, so it had a two day drop of around 60 point. Mathematically and logically, FSSTI of Singapore should follow closely to that figure but instead market rally 1.65%.

What make FSSTI surges today? and what make Hang Seng, Nikkei, South Korea and pretty much all asia stock markets rally?

The answer is very simple: FOMC rate cut decision.

Everybody thinks 50 basis point cut or above. Some even say 100 basis point. However if Fed cut 50 basis point, the key rate will be at 100 basis point or 1.00%.

Let me walk you to the history of modern US economic and see how many times fed fund rate at 1.00% and what's the implication to the economics.

Fed fund rate or interest rate of US started in July of 1954 as a benchmark rate that Central bank lend money to banks. Since then, the lowest nominal fed fund rate was 100 basis point and it only happened once which was at June 25, 2003. The rate lasted around one year before a 25 basis point hike on June 30, 2004.

IF FED CUT THE KEY RATE TO 100 BP, WE WILL HAVE EXACTLY THE SAME SITUATION AS 2003. IN BOTH SITUATIONS, FED TRY TO PREVENT THE RECESSION AS A RESULT OF A BURST BUBBLE AND FED LOWER THE KEY RATE ALL THE WAY TO 100 BP TO PREVENT THE RECESSION FROM BURST BUBBLE.

HOWEVER WE ALL KNOW IT DID NOT PREVENT THE PROBLEM, IT JUST MAKE THE PROBLEM BIGGER AND HARDER TO SOLVE(EVEN GREENSPAN KNOW THAT). WHY IS FED LED BY BERNANKE DOING THE EXACT SAME THING JUST LIKE 2003 WHEN WE ALL KNOW IT IS WRONG AND WE ARE SUFFERING FROM IT NOW.

WHAT CAN FED DO NEXT? CUT THE KEY RATE ALL THE WAY TO ZERO? PRINT MORE MONEY AND BUY ALL THE TOXIC PAPER? LEND TRILLION OF DOLLAR TO BANKS AND CAR COMPANIES?

REMEMBER, 100 BASIS POINT THAT CAUSE THE CREDIT BUBBLE NOW IS EXACTLY THE SAME AS 100 BASIS POINT THAT WE WILL HAVE TOMORROW. ONLY THIS TIME WE MAY NOT HAVE SOME PROSPEROUS ERA LIKE WE HAD IN 2003 TO 2007.