Savvy investors know how to exploit rate cuts

0 Comments | USA TODAY, January, 2008 | by John Waggoner

When your doctor gives you medicine, you probably have a few questions. You might wonder, for example, how long it will be before the pills take effect. You might also ask whether the medicine has any untoward side effects, such as hair loss, barking or spontaneous combustion. It's always best to ask.

This week, Dr. Fed gave the economy a big shot of monetary stimulus, in hopes of preventing a nasty case of recession. Whenever the Fed takes out its little black bag, it's worth asking a few questions: How long will it be before the economy is up and dancing again? Will there be side effects? And how will this cash infusion affect the stock market?

Let's start with a few basics. The Federal Reserve cuts short-term rates when it wants to boost the economy....