HeloBen

Well .... good ole Wall Streeter Ben Bernanke blinked today. He lowered interest rates a whooping 1/2 percent. What does that mean?

Despite recent economic data that hasn't been great, but not terrible either, the Fed is spooked and working to bail out Wall Street. In short, he's throwing money at the housing/subprime/credit problems. And Wall Streeters, ever the money hungry types, are now pricing in another rate cut in October.

Just like Big Al Greenspan did.

What's that mean to you and me? It means a further stoking of inflation, cheaper dollar (don't be planning any overseas trips soon), rising exports with less foreign cash coming into the U.S. The last one means that ultimately interest rates will rise, particularly on the long end, requiring even more Fed stimulus to keep the house of cards in place.

As for all those risky hedge funds that are imploding due to excessive risk taking? Fogetaboutit. Keep leveraging your money and going for broke. If anything goes wrong, the big money boys will always have the Fed to add more printing presses. The stock market responded with a big rally today. But interestingly, the rally was not as big as expected and occurred on less than stellar trading volume .... both tepid indicators of strength. I still think we're in for a big drop and retest of the recent lows before Thanksgiving. But now HeloBen has shot his bullets ... at least the easiest ones to fire.

The key question to ask is, will the rate cut forstall a recession if it's coming? No one knows. My guess is that it won't. The housing/credit problems are due to suspicion and fear that bonds based on outstanding loans are suspect, not due to money being necessarily expensive. No one will know the outcome of that mess until sometime mid-2008. Until then, I think we'll continue to see troubled mortgage lenders and headline stories about bank runs. Oh. And lower housing prices which means less HomeATM money to be blown on SUV's.