CHESSNOID

The federal reserve has made mistakes in identifying the problems created by its fiscal policy of artificially low rates from 6 years ago.  This gave birth to the housing boom.  Last year many economists, analysts, and other financial professionals saw warning signs that the housing boom was turning to a housing bust.  The federal reserve and white house ignored all the signs and said it was just a mild slow down.  In the last 5 months, the federal reserve has made 5 interest rate cuts and increased liquidity by offering larger auctions.   I don’t understand why they are making the repeating the mistakes from a few years ago.  Yesterday, they stepped in as Bear Stearns collapsed from its bad decisions based on greed and speculation.  The federal reserve stepped in and exercised moral hazard in hopes to protect the stock market.  Tomorrow, investors expect the biggest rate cut yet to come. The stock market futures are up on anticipation.  However, the long term problem is still not solved and the federal reserve is running out of room to maneuver.

Once the initial euphoria leaves the market upon recognition of more sub prime fallout becomes visible through more bank losses, the federal reserve will not be sunk.  I am very worried about the reckless decisions the federal reserve has made in this administration just to help the white house advance its political agenda of war and oil in the Middle East.

Gold is now over a $1,000 and crude oil has now surpassed the $110 barrel mark.  All other commodities are rising as our dollar falls against other currencies.  These are all the domino effects of the federal reserve mucking up the economy through needless rate cuts.  The business cycle was simply squeezing the excess out of our housing market through foreclosures and slower sales.  The inflationary effects were not necessary.  During our last housing recession, the economy corrected itself over time.

This time the federal reserve is trying to show confidence with quick but bad decisions.  They are not thinking about the repercussions beyond today.  Our domestic recession has sparked a global one.  The federal reserve seems to be on a mission to make it a severe recession.  Even though the housing market has come down, it is still full of excess that is being prolonged.

I sold all my stock last year and it is all in cash right now.  That was just my paranoia paying off after 6 up years in the stock market since the dot com bust.   My returns in money markets may only be 2% as I sit on the sidelines, but I have avoided about a 20-25 % decline in my portfolio and have avoided a lot of stress and nervousness in the market today.  The technicals are indicating the stock market is still trending down and due for some more long term declines.  Remember, it was just 5 months ago last October when the Dow hit its all time high of 14,198, the Nasdaq was at 2,861, and the S&P was at 1,576. 

I believe the white house and the federal reserve should concentrate on helping people stay in their homes vs trying to avoid a normal stock market correction.  The moves they make will continue to  cause one of the major products we use called gas to escalate pass the $5-$6 gallon mark which will affect more consumers spending that will in turn hurt the economy they are trying to fix.