Double Journey

I learned from Ben Bernanke. He was the head of the Economics department while I was at Princeton University. I in many ways should come to the same logical economic conclusion that he does. But for the life of me, I can’t understand what the heck he is doing these days.

Today, in case you missed it, the Fed cut the fed funds rate another 50 basis points. This along with the emergency 75 basis point cut they just did, means the rate has plummeted 125 basis points over the last week. Most of this is being done to avert a recession. Of course that implies we are not already in one.

The fed is being reactionary here. Plain and simple. They are seeing the turmoil in the stock market, and they are trying to do something about it. Why, is beyond me. This problem was created by too much easy money. The Fed dropped the fed funds rate to 1.0% several years ago. This caused a flood of cheap money to enter the market. This in turn made it very easy to get loans. This then lead to housing prices going through the roof because money was so easy to come by. Of course, the music stopped playing, and the chairs were pulled out.

To now fix this problem, the Fed proposes to do the same thing all over again? How is that going to help the situation? It isn’t. All it does is delay the inevitable. Debt must be repaid. You can continue to get more and more of it, but some day the bill comes due. It reminds me of people who use credit cards to pay off the other credit cards, compounding the problem, just trying to avoid the day they will eventually declare bankruptcy.

Almost time to re-enter the market. The market opened sharply down and recovered after the Fed announced a 3/4 point rate cut.  One quick comment on that.  Not sure what type of house that my former professor is running.  I would prefer to see the fed leading the way rather than reacting to every little thing (OK a 500 point drop isn’t little) that happens.

I still think that the market is flat to down over the next few weeks if not month.  But it is impossible to pick the bottom of a market.  If you can take the long term pain, you should start thinking about putting your money back into the market.  Financial stocks are going to be the first to recover, but they might still be pretty scary here.  I still like my MO and I really want to by Home Depot, but I’m holding off for now.  Bottoms take a long time to form.  In 2000, it took months before we actually reached bottom even though there were several sharp drops.

There is still weakness however.  Apple is touching the 130’s in after hour trading.  They had a good quarter, but their outlook was grim.  That is going to be the theme for a lot of companies.  Good earnings, grim outlooks.  Thank god I passed on it at 195.  Tech is going to be a hard place to be.