Breakfast with Dave

Now as far as the market reaction is concerned, it was completely in line with historical knee jerk “don’t fight the Fed” responses. The Fed cut the discount rate 50bps on August 17, 2007 — the cut was intra-meeting before the market opened. Bernanke was getting ahead of the curve and was going to save the day. I got call after call that day to not fight the Fed and indeed the S&P 500 surged 2.5% and went on to gain another 10% by the October 9th high; then reality set in.

In all honesty, when the Fed cut the discount rate repeatedly in the summer of ‘07, the widespread consensus was that the Fed was on the case and that a soft-landing lay ahead. Just like today, when so many investors are can be mesmerized by what was really an incomplete set of analysis espoused on CNBC last Friday.