Friday, August 17, 2007

Thanks, Uncle Ben

The markets got a shot in the arm today courtesy of the Federal Reserve's decision to lower the discount rate by .5%. Investors will rejoice today, because finally, the Fed heard their cries to open the discount window.

We are, of course, skeptical. We want the markets to go up. But we also believe that the Fed stepping in is:

A. An acknowledgement that this may get much worse before it gets better and
B. A band-aid that may stop a little of the short term pain, but will ultimately slow the process of the market working out built-in excesses.

So, today may be a good day for investors, but it's naive to believe this situation will abate because of the Fed's actions.

1 comment:

rckz3 said...

If the realization of the wretched excesses in the subprime mortgage field warranted the psychological meltdown on Wall Street, your observation would be spot on. But even with your innate pessimism, you know in your heart of hearts that the US and world economies are in relatively good shape and the PEs reasonable in comparison with past crises and bubbles. The reaction has been overdone and if the Fed action can buy some time for the markets to regain some perspective and balance, I say bully for them. The action taken was quite modest and unlikely to do any damage whatsoever.