Indecision

          The FOMC had its meeting today and they fulfilled expectations.  This is evidenced in the 100 pip move shortly following the decision.  The market then stabilized and has been flat ever since.  What does this reflect?  Indecision, it reflects the fact that traders feel the Fed is still ambiguous as to whether they will fight inflation or try to avoid recession.  Funny, that one of if not the most important market moving event, barely moved the market.  

            Bernanke is focused on averting recession.  He’s trying to save a sinking ship with a pail and it’s not working.  Long term yields have not moved and they are not decreasing in the near future.  The 325 basis point cut pumped a lot of liquidity into the banking system.  These emergency measures taken in August, did there job.  Bank runs were averted and Bear Sterns was the only calamity.  So far Banks have rushed to fortify their balance sheet by liquidity injections; UBS is now the United Bank of Singapore.  If banks are perceived to be safe then the Fed would have increased interest rates in order to fight inflation.  The fact of the matter is by not fighting inflation the Fed has signaled that the banks are not safe.  Another shot gun wedding between banks is out of the picture, augmenting the probability that a bank failure could occur.  All bank stocks have been crushed due to the uncertainty of the market.  No one knows how toxic or how exposed the big banks are to the Sub-prime crisis.  The market for Structures Investment Vehicles has dried up and banks are stuck with billions if not trillions of worthless assets.  This scares the Fed because bank runs exacerbated the pain of the Great Depression.  By the Fed not raising they forced me to sell every bank stock I own.  The inflationary pressures are not going away and the Fed will address the problem soon.  Hopefully the banks will miraculously strengthen their balance sheets.  However that outcome does not seem likely.  The near term is going to be very range bound evidencing the fact that no one knows the direction of the market or the depth of the crisis.