Fed Cut Not the End of Story

by: Jon Heller, CFA

The markets got a shot in the arm Friday courtesy of the Federal Reserve's decision to lower the discount rate by .5%. Investors will rejoice, because finally, the Fed heard their cries to open the discount window.

We are, of course, skeptical. We want the markets to go up. But we also believe that the Fed stepping in is:

A. An acknowledgment that this may get much worse before it gets better and
B. A band-aid that may stop a little of the short term pain, but will ultimately slow the process of the market working out built-in excesses.

So, Friday may have been a good day for investors, but it's naive to believe this situation will abate because of the Fed's actions.