Surprise Fed Move

The Fed raised the discount rate 1/4%. This is probably the first of several moves. My guess is that there will be two more, until the discount rate is 1.00% above the Fed Funds rate. At that point, the Fed will halt, signalling that any further move would mean actual tightening. Ironically, while I think that the Fed is doing the right thing, I also believe they may be underestimating the underlying weakness of the economy. First of all, they have over-stimulated the "economy" (really just the financial sector. Much of the "real" economy is still in the doldrums, at best.) The financial sector has been so highly leveraged and is still grossly over-leveraged that even this modest move could have disproportionally negative consequences. I believe that the old dictum "Three Steps and a Stumble" applies. So while I would expect two more moves and then a market breakdown, I don't plan on hanging around as if that were guaranteed. It may be possible that the market is more fragile than even an uber-bear like me believes. It may not take much to knock stocks off their lofty pedestal.