Fed or Not, There Will Be Bear Markets

Includes: DIA, QQQ, SPY, UDN, UUP
by: Roger Nusbaum

So Bernanke lived up to the nickname with a 75 basis point cut before the open Tuesday.

There are plenty divergent opinions about every aspect of the cut and how effective, or not, it can be.

My own take is that the Fed is unlikely to be bigger than the market for more than a day or two.

In the last few months Greenspan's image or legacy or whatever you want to call it has taken a beating.

The market's faith in Bernanke erodes visibly by the hour. Credibility seems like it would be an important thing for a central bank and its big cheese and I'm not sure the Fed has enough.

Candidly I am not sure what the consequence really is. Fed or not there will be recessions and bear markets so does this mean it'll be a little worse? Should "a little worse" matter to most people? If the market bottoms out with a 35% drop instead of 30% before going back up will it matter three years from now?

My initial thought is that this would hurt the U.S. dollar more than anything else. A weaker dollar dominoes into other things like higher rates, slower growth and higher inflation. Maybe not much higher rates, much slower growth or much higher inflation but it could be noticeable.

Some folks believe the Fed had to cut rates and some say otherwise. When the economy starts to slow down the Fed cuts rates but the action taken Tuesday seemed more about global equity markets than economic growth rates. I don't know if that is true, but that is how it seems which is one of several things that impedes their cred.

Unfortunately there is no resolving anything with this post because there are so many variables with the Fed, in terms of the market's perception, some of the clearly reactionary actions they have taken, and the massive lack of faith in their ability to get anything right.