They Know Nothing!

I think that Cramer was statesmen-like about the Fed on CNBC in August with his infamous "they know nothing!"rant. My goodness is this Fed tone def.

The rate cut was not the issue. As described in my last post, the wording was everything and it is clear that they have no idea how to manage monetary policy during a possible recession. The argument was that the Fed has been behind the curve on the credit issue and a slowing economy. Their statement does not provide anyone with any confidence that they are catching up.

Here is what the Fed said:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent.

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.

OK. The guidance paragraph in the statement highlighted in red says it all to me. It basically says that the economy and inflation are negatives and that we are not sure what to do about it because we can't predict the future. Right now the "prudent thing" is not what the market wants to hear and, if this is an honest statement, then we ought to be scared to death (or at least out of our long positions).

I normally don't get too worked up about Fed statements, but this is the worst I have seen in 15 years.

I sold GS as soon as I possibly could after the announcement, but held everything else (and added some PCP calls near the close). I am hoping for a bounce back tomorrow, but I am not counting on hope. We broke down technically and this could be the beginning of the end.

I have not been this negative since 2001.