"A pessimist is one who makes difficulties of his opportunities and an optimist is one who makes opportunities of his difficulties" Harry Truman

Today's action from the Fed was one of the rare occasions were I think Ben and Co have actually done something that has some sound and logical merit behind it... It has been clear for a while that merely cutting rates is not going to solve the mess... Problem with financial sector today is not related in any way to "excessively high" interest rates. I actually would argue they might be a bit too low already and thus need to be increased, but is rather related to a simple fundamental inability of bankers to correctly assess value of its assets and thus capital available to actually make loans...

If banks don't know how much capital cushion they have, they will in turn curtail lending activity, which in turn means lower liquidity, and thus in combination with still insanely high leverage of many market participants (think TMA, UBS's, C's and GS's hedge funds) means forced liquidation of assets when no one wants to buy them... With today's action one would expect some of the larger banks to trade some of their riskier, currently virtually illiquid assets (agency backed mortgages, CRE backed securities etc) to the Fed, receive liquid treasuries instead which should in turn allow inter bank lending to resume normal functioning again.

But once again- while today's action is clearly a good start, the true impact of it is still very much open for debate... I did not yet see any real signs of ABX or CMBX indexes making a sustained recovery. Until this happens- you can expect more write downs announcements as most banks will mark their assets down to match the declines in these indexes, which in turns feeds the vicious cycle once more...

Will see what's in store in the next few trading days...For now I would say skeptical and cautious..

If anyone is interested in some long ideas for a long run here are some of my most recent watch list additions:
SCHW, HIMX, WTI, IHG, NSC, SPN, VAR, LUFK, AKAM, MGI, TSRA

Graphs from Markit

ABX Index- AAA 2007-02- Very minor move today...Punchline- today's move did not help much yet...

This one is spreads for commercial mortgages- hence is inverted to price- the lower the better...Again no serios move yet

Anyway, that's all for now- stay safe and cheers,
skepticalcapitalist@gmail.com

P.S. By the way if you like reading my blog, please come back again as it is currently being remodeled... Soon I'll have more staff to offer, like actual watch list for picks etc...