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The Fed is caught between a rock and a hard place these days. On the one hand Bernanke is now making much more direct statements about his concerns for the housing market, however with oil prices inching steadily into the $90 range there are also persistent concerns about inflation. But today when the Fed had to choose between stepping on the gas (easing rates) and putting on the brakes they chose the former, to the tune of a quarter point rate cut.
The challenges facing the economy are complex, and to a large extent they're still looming in the shadows as opposed to impacting us directly. But the pessimistic scenario has American's holding on to their spending dollars as they fret about decreasing equity in their homes, compounded by sub-prime losses trickling throughout the banking sector as blue-chip firms like Merrill Lynch who bellied up to the mortgage-backed securities trough back when times were good start to see the chickens come home to roost.
We all have our crystal balls tuned to different frequencies, but mine is telling me that now is the time to take off your speculation hat and put on your investor hat. Cashflow is king when you're confronted with a skittish market and an uncertain immediate future. And that, ladies and gentlemen, is what we're facing right now. But medium term I'm still optimistic (even though my Countrywide trade isn't doing all that well) and I'm firm in my belief that investors who make smart investments during the downturns will fare well over the long term.
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