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A CHRISTMAS WISH came true for plenty of investors last week when the Federal Reserve Board lowered interest rates, but the move still didn't produce any easy answers to the question of where they should put their money.

Sure, lower interest rates could give a boost to a sagging economy that probably has slipped into a recession. Traditionally, lowering the discount rate, which is the rate the Fed charges its member banks, has been enough to push up stock prices.

Unfortunately, though, it's not that simple this time. There are plenty of other factors working against the Fed's effort to stimulate the economy, and that could cancel out the benefits of the decision to cut the discount rate to 6.5 percent from 7 percent, local money managers say.

"There are probably more unknowns now than we have had in the past," said William P. Ripple, vice president and portfolio manager for Elias Asset Management Inc., a Buffalo money management firm.

As a result, money managers say the best thing investors can do in response to the discount rate cut is to sit tight and wait to see if rates come down even more. If that happens, the investment choices might become clearer.

In the meantime, investors are left with turbulent stock and bond markets that are being battered by the Mideast crisis, inflation fears and huge debt loads.

"In the past, lowering interest rates during a recession was the magic button the Fed could push to turn around the economy," says Francis G. Leonard, president of Courier Capital Corp., a Buffalo investment advisory firm.

But Leonard doesn't think just lowering interest rates will do the trick this time. "It certainly doesn't alleviate the underlying problems," he says. "The problem in the economy is not that high interest rates are killing people."

What's more, fourth-quarter corporate earnings are expected to be weak, which could give the stock market even more jitters.

And cash investments, such as money-market funds and certificates of deposit, are paying much lower interest rates than they were a few months ago.

In short, there are lots of investment choices, but none of them stand out.

Long-term bond rates, which have been falling lately, have been fluctuating for much of the year. The yield on 30-year Treasury bonds, for example, is down to 8.35 after hovering between 8 percent and 9 percent for much of the year. The yield on 30-year bond funds is down to around 7.5 percent from 9.15 percent.

And short-term cash investments haven't been anything to brag about lately either. The return on money-market funds has slipped to 7.45 percent, which is down sharply from 8.75 percent in April.

As a result, financial planners say short- and medium-term government securities are gaining popularity among investors because of their safety.

"I'd watch the short-term Treasury bill rates and I would watch the discount rate," says Anthony J. Ogorek, a Williamsville certified financial planner.

If the Fed cuts the discount rate a second time, and short-term T-bill rates fall to around 6.15 percent, then Ogorek thinks the stock market could be in for a rally. At least that's what the market has done in the past.

When short-term T-bill rates drop 35 percent from their cyclical peak, the stock market historically has responded with a rally that pushed up stock prices by an average of 25 percent during the following 17 weeks, Ogorek says.

But for that scenario to play itself out anytime soon, the three-month T-bill rate would have to come down to 6.15 percent, which would be 35 percent below the 9.44 percent peak in March 1989.

The question, however, is how much lower interest rates might fall -- if at all.

"I think the trend is downward, but I think the decline is going to be incremental, rather than dramatic," Ogorek says. In fact, banks are showing some reluctance in lowering their prime rate -- the rate banks charge their best customers -- even though the lower discount rate has reduced their cost of money.

With bank earnings under pressure, holding off on a reduction in the prime rate allows the institutions to enjoy bigger margins and bolster their profits a bit, Leonard says.

For now, Ogorek recommends investors keep most of their money in short-term bonds or bond funds, along with short-term Treasuries. He recommends keeping only about 25 percent of the money in stocks.

Ripple suggests investors spread the bulk of their money between three- to seven-year Treasuries and "high-quality" stocks that seem to be in a good position within their industry. He suggests keeping 15 percent to 25 percent in cash.

Ripple also thinks interest rates will fall, but probably not by too much. "I think the balance of the move will be marginal compared to what's going on over the last 2 1/2 months," he says. "I think the bulk of the move has been made."

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