There are varying opinions as to the effect of yesterday’s ½% interest rate cut. The general view is that it is not a quick fix as MarketWatch noted:

Economists believe that the rate cut will not quickly cure the ailing economy. “Everyone wants a quick fix, but it takes time,” “said Mike Wallace, an economist with Action Economics.
…
But bringing rates lower right now might not help very much, analysts said, because the effective federal funds rate has already fallen to 1% because of a new Fed policy to pay banks interest on the excess reserves they deposit at the Fed.

“As long as there are benefits they’ve got to keep trying,” he said.
The lower fed funds rate has helped marginally to unclog credit markets and restore some confidence in markets, but credit remains tight despite the Fed’s moves.

I agree that the rate cut will not have any effect on the consumer at all. Now that the Fed has used some more ammunition by lowering the Fed Funds rate aggressively to 1%, how much lower can they go? The accompanying statement clearly signaled that further cuts are possible. Hmm, can you really see a rate of zero percent?

Wall Street generally likes lower interest rates, because they support the bullish crowd—up to a point. Too low of a rate clearly signals that there are severe economic troubles ahead, which may be an encouragement for the bears to remain in charge.

When I stepped out of the airport at LAX yesterday after a 12-hour flight from
Europe, I checked the closing market numbers and felt that Wall Street had rolled out the red carpet in honor of my return.

A 10% rebound seems impressive, although as beaten down as the market was I have to admit that I’m not surprised. Bargain hunting, short covering and exuberance about the widely anticipated interest rate cut today, gave the bulls something to cheer about.

It may very well turn into the old adage “buy the rumor, sell the fact,” since sharp rebounds during this bear market have yet to show some staying power. While I welcome this turn, I am far from convinced that this will be the end of the bear as some proclaim.

It’s good to be back in the U.S., and I hope to catch up with all emails and phone calls over the next few days.

Former Fed chairman Greenspan was grilled in Washington a few days ago and admitted that he “doesn’t fully understand why it happened” in regards to the credit crisis.

Hmm, after 19 years at the helm of the Fed, you better know why things are happening, in my opinion, especially if you were part of the cause. Take a look at this video:

I’ll be leaving Germany in a few hours and will be back at my office in Southern California by Wednesday carrying the usual jet lag with me. Because of the way my return flights are scheduled, I may not me able to post for a day or two. I hope to catch up quickly.

With the markets having severely destroyed buy-and-hold portfolios over the past four months, I have received many emails from those who stubbornly have held on to positions mainly due to ignorance or in many cases bad advice from you know who.

Many investment advice columnists are now saying that this would not be a good time to sell because of the sharp drop we have experienced. Sure, if you’ve stayed on this bucking bronco with your entire portfolio, you are probably angry and disgusted when reviewing your monthly statements. And you’re right to feel that way.

But the market is at this level whether you like it or not. While everyone is trying to figure out whether we have reached bottom, or are close to it, you probably live on the hope that all is well as soon as the trend turns. And that’s the rub. There is no way of knowing whether any rebound will be the real thing or another head fake.

So, what’s a buy-and-holder to do? First, I hope you learned your lesson but more importantly, besides the losses, it’s the lack of a plan that keeps you in this uncertain position wondering what to do next.

Be aware that there is no perfect solution. You dug yourself a hole, and the first thing you need to do is to stop digging. How? Have a plan how to deal with whatever the market throws at you. If I were in a fully invested position now, or was holding on to some losing mutual funds, here’s what I would do to stop the bleeding:

I would sell 50% of all my positions and put a 5% sell stop under the balance.

As I said, it’s not a perfect plan, but it’s a plan nonetheless. If the markets rally from here, then you will still participate with 50% of your assets. If the bottom drops out, you’ll be glad you sold 50% and only have a 5% risk factor on the balance.

Emotionally, this will give you some means of control over the circus on Wall Street. Think about it for a moment. Having a plan to deal with the vagaries of the market place no matter what happens will put you in charge, which is the way it should be.

And finally, never ever listen to anybody promoting fully diversified buy-and-hold portfolios without the use of any sell discipline. The price for ignorance is simply too high.

Bear market avoidance is something I have written about during the last disaster in 2002 and nothing has changed; except the bear has gotten more vicious this time around and losses for many have already exceeded those of the 2000-2002 period.

A few days ago, I was pondering President Bush’s announcement of setting up a summit meeting with some 20 heads of various countries to discuss the credit crisis and, I suppose, come up with ideas as to how to avoid a repetition of similar events in the future.

I tried to find some sensible reasoning as to why you would want to gather up a bunch of people who were clueless about the credit crisis, never saw it coming and, in some cases, still refused to acknowledge it until it was too obvious to ignore.

Mish at Global Economics wrote a great post titled “Bush to host summit of losers,” which I intended to write, but Mish simply beat me to it and probably did a better job than I would have. Here are some highlights:

Instead of holding a summit of losers, why not hold a summit for those who saw the mess coming and are far more likely to know what to do than those who did not see this mess coming.

Instead, I fear we are going to see a conference of losers, sponsored by a loser, with losing solutions to the problem.

There you have it. Putting together a meeting of those qualified to talk about it is one of the simpler and obvious solutions which, unfortunately, is often ignored. Just as the credit crises accelerated a few weeks ago, news reports showed that none of the 400 top economists in this country had any input, but major decisions were proposed and made by those not necessarily qualified to make them.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Sharp losses by all major indexes contributed to the further destruction of Buy-and-Hold portfolios.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -18.18% thereby confirming the current bear market trend.



The international index now remains -29.14% below its own trend line, keeping us on the sidelines.