December 16th Edition

Good Morning All,

The Federal Reserve will make yet another attempt to stimulate the U.S. economy this afternoon through cutting rates to their lowest level on record. This is not bad news, but it has been, and is being, positively discounted in markets as we write. The more important good news in our view is the recent decline in the LIBOR and TED Spread numbers, an indicator of loosening credit markets. Meanwhile the reverberations of one man's scam continue to echo around the worlds of both banking and private investing, much to the devastation of some and to the amazement of many.

Futures and European markets are once again rising in the face of other not so good news, and later today GE will give guidance, news that will catch the momentary interest of mavens far and near. In the end, what will really matter in the post tax loss selling period will be the perception of where the economic numbers will be in quarter three of 2009, this, and the need for money managers to earn their keep is what will drive markets higher over the near term. These guys can only get paid for conserving capital if markets are going down, not when they are rising 10% per month. The herd will once again begin to move and at the first whiff of water they will start a stampede.

Paul Krugman, the recent Nobel recipient, wrote yesterday of Angela Merkel's intransigence in the face of a failing German economy. This is something we have also been concerned with for some time as well, due to the lack of cohesiveness of the European Community in this time of crisis. There are a number of things we don't need to see happen at this juncture and political posturing in front of an election is surely one of them. This is yet another situation that bears watching, as the tipping point is still evident.