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Ben the Bold
Maybe it was the big profile of him in the New York Times Magazine section yesterday that accused him of bumbling through his first two years on the job. But Fed Chief Ben Bernanke has certainly started this year off with a bang. The Fed lopped .75 of a percentage point off of the Federal Funds rate today in a bid to deliver a little shock treatment to the economy and stave off a recession. The S&P 500 ended the day down 1.1% but investors flocked to some of the companies most troubled by the housing crunch. Big mortgage lender Washington Mutual jumped 9%. Big builders such as KB Home jumped by a similar amount. Investment firm Gimmie Credit through a little water on that rally, predicting ugly homebuilder earnings for the next two quarters. "We believe the affordability of homes still is impaired by historically high pricing," the firm wrote in a research report. "The most recent government data show that the average price for a new home at $293,300 still is higher than prices seen in 2004 and 49% higher than the $197,200 average for the past twenty years." The firm's conclusion: "The only recipe for too much inventory is even lower prices--and more pain to come for the homebuilders."