Enterprising Investor Forum

Fed Acknowledges Troubles… Wednesday, September 19, 2007

We have all followed Mr. Bernanke’s stance and the fact that both the funds rate AND the discount rate were slashed by a half point should raise some questions; especially why has the Fed accommodated the demands of mortgage lenders, brokerages and home builders?

These cuts are extremely unusual and seeing that – in general – the Fed hesitates to side with requests, as they are usually already factored into financial markets, this decision should highlight that we are indeed facing a severe crisis and that things are probably going to get worse before they get better.

US markets responded extremely well and Europe has followed but are we sure that with this cut, the Fed has managed to put everything right? We would love for this to be the case but unfortunately, we fail to see how the rate cut will address the underlying liquidity crisis, credit crunch, mortgage defaults and so on…

Again, we encourage investors to remain focused on their investment strategy and long-term goals… do not try and participate or guess this volatility which does not discriminate between well run and poorly manage companies. Furthermore, a closer look at the rally both in US and Europe shows that the bulk of the rise has been pushed by shorts scrambling to covering their positions.

Stay tuned for more….