David White

“A Whiff of Panic...”

We now get back to the FDR saying in the depression, "We have nothing to fear, but fear itself." The Asian markets, etc. all believed that the U.S. was going to fall apart. Therefore they have just tanked substantially. Of course, some bad news from the Bank of China and a major French bank probably had something to do with it. These problems seemed to be triggered by the U.S. subprime problems. No doubt the Fed action was partially due to a desire to prevent a further spread of the problem.
Now should the U.S. then tank in response to the other markets tanking? The reason would of course be that the multi-national corp.'s would do worse than expected. I'm sure you can think of other reasons too. The bottom line is though, stocks are only mispriced if the global economy is going to seriously underperform the current estimates. Apparently those other markets only believe that will happen if the U.S. tanks (and the subprime situation worsens considerably). If the Fed and the President/Congress can manage to right the ship for the U.S., the other economies will likely follow suit for the most part. Europe is already talking of following the Fed. If we stop spending, no one in the U.S. will have a job because no one will be buying anything. Don't let the panic become a self-fulfilling prophecy.
The last news item I saw agreed with you that the Fed would lower interest rates again next week, adding to the already deep cut. It, and I, disagree that it will be a 0.75 basis point cut though. I think the idea may have been to stabilize the markets first. Then the second cut would reaffirm that the Fed was very serious about helping the U.S. markets (and by doing so the world markets). I and the news blurb both think this second cut will be a lesser cut (perhaps 0.5 basis points) because the markets should no longer be in free fall. There is also the stimulus package to come. Don't be so negative! This cut, and further cuts, should do a lot to help the home owner, the banks, etc. The cuts should buoy house prices by making them effectively cheaper (as most people buy them with loans). It may take a while for all of this to take hold, but this all sounds good to me. There seem to be a lot of U.S. industries that have been doing reasonably well. If the Fed, etc. can right the ship for housing, banking, and retail, the other industries should thrive. I think today's action was a great step toward alleviating the short term problems.