At least the Fed was clear

The Fed's 50 basis point rate cut was thankfully clear. 25 basis points would have been muddled while no cut would have also have been clear, a line in the sand. The Fed chose to rescue short term market liquidity, the long term be damned. That may be the right thing to do, we'll see, and the equity markets certainly welcomed it. Indexes broadly, from the S&P to mid cap to small cap to international were up between 2.8% and 3.1%. Who can not like that. The dollar, however, did fall further and is certainly on the way to $1.40 per Euro and the bond market reacted modestly with the major investment grade U.S. bond indexes up around 18 basis points.

Whether the Fed move is of any lasting consequence or not is uncertain. The equity markets will likely continue to rise short term as concerns about commercial paper rollovers and other short term liquidity issues have been allayed. The dollar and the bond market will tell the story over the next few months.

The Bank of England this morning reversed their strongly stated opposition to emergency bank lending and began three month auctions to fund bank needs for liquidity. That's interesting as it was reported last week, just as an interesting sidebar, that Bernanke and Bank of England Governor Mervyn King had adjacent offices at MIT many years ago. That they moved together should perhaps not be a surprise.