Yesterday's surprise Fed move to lower the federal funds rate target to between zero and 25 basis points underscored the lengths the Open Market Committee, i.e., Ben Bernanke, is willing to take to stave off a major recession -- or perhaps the risk of a potential depression.
I suspect the big buying we witnessed in stocks immediately following yesterday's historic Fed announcement will likely taper off -- as it has somewhat today. Still, the market finally got some short-term good news in the midst of an otherwise dismal deluge of disappointing data.
I say short term, because remember it was former Fed Chairman Greenspan's reduction of interest rates to nearly zero that opened up the easy money spigots, and which eventually led to the housing market boom and bust (interestingly, Greenspan still denies his decisions were the chief reason for the housing market boom-to-bust cycle).
The answer, of course, remains to be seen. We are sailing in uncharted water right now with respect to the economy and this market. And while I think we are going to see what I've been calling the Obama bounce as 2009 kicks off, this bounce is by no means guaranteed to be more than just another in a series of bear market rallies.
Whatever happens, the one sure bet you can make is that we'll be here to cover all of the action, and to make sense of it all as best we can.
Sincerely,
Doug Fabian
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