Samuri Ben

Ok, I gave 10 reasons not to cut this weekend and did Ben & Co. listen? Nope. They didn't listen to a darn thing that I wrote. I was encouraged that they did still mention that inflation was still a concern. If I say it once, I will say it a hundred times...inflation should forever and always be the Fed's main concern. Look at what treasuries did today.

Short term bonds are already starting to price in another cut. I think that may be misplaced. By cutting the rate .50 basis points here, the Fed can sit back and watch how things unfold over the next couple of months (as long as things don't get worse) and see what happens. If they had cut by only .25 basis points, that would have signaled a rate cutting campaign.

But notice that longer term treasuries sold off? Long term bonds determine long term interest rates, i.e. mortgages. It also is a clear signal that inflation is going to raise. Not a good thing.

Ultimately, I'm a little disappointed that the Fed did not make a stand here. By cutting the rate, it sets up the future to be more grim. Throwing easy money at an issue created by easy money doesn't make sense and someday in the future, maybe not this year or next, or even the year after that but someday we will all have to pay for the excesses we have seen over the last few years.

So we had a good rally today because of the Fed. Lehman Brothers posted a better than expected earnings report. Does this make everything gung-ho going forward? Not so fast my friend. Too many issues still remain and will remain no matter what the Fed does. It makes the holiday season a little brighter as credit card rates will decline. It will make businesses reinvest and start spending money again but these are short term fixes to a long term problem.