Fed May Have Cut, But the Punchbowl is Gone

The Fed has cut interest rates again. This is the second cut in two meetings. The first cut initiated a massive rally in the global markets. Anticipation of the second one allowed the markets to expand still further in October.

Unlike the first cut, the second cut wasn't a surprise. What should have surprised investors was that the language of the Fed clearly indicates that this is the end of the economic stimulus and that Bernanke is going to return to his principles. Also, surprising was that the decision was not unanimous.

There is no longer the ability to rely on further cuts, the deterioration in the housing industry is still in its early stages, and banks have yet to come to terms with the deterioration in the value of their CDOs and other derivatives. We will undoubtedly see more hiccups.

While much of technology will outperform and certain companies that can leverage the collapsing dollar will do well for some time, this is clearly time to exercise some caution.