Are the Cuts Really Done?

I had worried a bit that the rate cut would be just the .25% that was expected and the market would be disappointed that the Fed didn't add more fuel to the flame. Initial action after the cut and remarks was negative and I thought to myself, "Boy am I smart or what? The market is upset that the cut wasn't more." Then we had a rally...and I knew that I am not nearly as smart as I like to think I am.

And yesterday's rally? It was wiped away, by about three times as much, today. News out of the financial sector continues to disappoint. Of all banks, Citi's liquidity was called into question today. Rumors that Merrill and many other banks may have to write down the value of their assets in the coming quarters should keep investors on edge for the near future.

Oil is continuing to soar. It looks like hitting $100 per barrel will happen within the next couple of weeks if current pressures continue.

And in the face of all this stands the Fed. The .25% cut was not unanimous. It was only called for by six of the regional banks. I think the Fed is starting to have a conscious. What a time to have one? Hello folks....you have already cut by .75%. Inflation in energy and food continues to rise, almost on a daily rate. The dollar buys less and less each day, which on exacerbates the prices for energy and food more.

What a mess. I have been saying for a while now, this is going to end badly. We are going to find ourselves in a situation where the only answer to the inflation issue, is to raise the rates to a point where no one will want to borrow any money. You think banks are felling the pinch now? Wait until you hear the wail from that sector when that day comes to fruition. How long can it be pushed off? Three years? Five years? We will all just wait and see. I hope I am not nearly as smart as I think I am.