I just finished writing my last post 3 hours ago and sat down to start the day only to find the Fed has cut the discount rate by 1/2 percent. If only they had cut the Fed Funds Rate! This move helps to reassure the market that we don’t have a major liquidity crisis or bank system failure.
We have been advocating this all along. However, it does not inject liquidity to the consumer directly, who are responsible for two-thirds of the economy. The Fed must still see an extremely hot economy with embedded inflation. Bernanke does not seem to want to cut the Fed Funds Rate until the proof is on the table.
In short, the move should cause the financials to really move. We are excited, as we had been purchasing a lot of (NYSE:BAC). We are not excited to be sitting on excess cash at this point. Obviously, we will be glued to the desk all day, as the market action could be quite gripping.