The Big Picture (apologies to Barry Ritholtz)

The stock markets went up substantially today and yesterday because the Fed cut interest rates to 1%. Interest rate cuts usually cheapen a country's currency, lower the available interest rates for CDs and regular savings accounts, and make commodities, like oil, more expensive. Thus, the joy of seeing your stock market gains should be tempered by the fact that in real terms, if you are a saver, your chances of losing to inflation have increased dramatically. One valuable lesson I've learned from the recent turmoil is to increase exposure to commodities if I know the Fed is going to cut interest rates. I had done so indirectly by investing in a Brazilian fund and it is now paying off handsomely--at least today. Who knows what tomorrow will bring? I had also recently invested a small amount in TIP, which may help as a hedge against core inflation.

As for directly saving, I had hoped to buy an ING 4.25% CD, but apparently Washington Mutual (now JP Morgan) places a five day hold on any transfers. The 4.25% offer still exists, and I am hoping ING maintains it, at least until tomorrow, when my transfer money is available.

Call me a young curmudgeon, but all of this strikes me as folly. The reason we got into this mess is because Greenspan lowered interest rates to 1% and held it there for too long, and now, to correct the problem caused by the lower interest rates, we are going to lower interest rates to 1%--the exact same action that got us in trouble in the first place. I can't help but think of the old saying that insanity is doing the same thing over and over again and expecting different results. We better pray Bernanke is good at timing the economy and will raise interest rates as soon as possible. Otherwise, we might be in for another pop in a new bubble five years from now.