Fed "Surprise' Cuts. More to Come.

We got our "surprise" 75 basis point cut, that should of happened 2 weeks ago.

As I've been calling for last fall, we are headed to 3% on the Fed Funds rate. It has come even faster than I anticipated - I was saying "by spring 2008" - heck it might be by next week. Only 50 basis points to go.

And as more and more contagion spreads I think it's a good assumption we are going lower than 3% eventually. At least now they've dropped all pretenses about "fighting inflation" which was a dishonest attempt at trying to jaw bone us. I've said that at every meeting since they started cutting - watch what they do, not what they say. In the long run we are going to need to increase rates, but for now oil and gold are weakening so "inflation is beat". ;)

The markets after briefly rising a bit off very negative levels in premarket, quickly spiked and then just went back down. This is probably alarming to many, because as we use each "bullet" we have one less bullet in the revolver for the future. And this was a big bullet. However, I am going to take the contrarion side to this arguement and say "we need this waterfall moment" and I am actually more bullish for the "near" term that we are going to get it. As opposed to if we rallied to start the day down 1% and then just sold off all day.

As for today's action, I only have about a 5% short exposure. I do expect Ultrashort Emerging Markets (EEV) and Ultrashort Xinghau China 25 (FXP) - both sub 1% positions unfortunately, to have monster days. I outlined this last week in 'Closing iShares Malaysia (EWM)' - unfortunately it doesn't matter if I conceptually got it right to avoid emerging markets since they were overdue for a selloff - since there is very little shelter even in US markets. Considering how massive the damage has been in the past 2 days overseas I will probably look to sell down these positions.

As for the US market, all that matters to me is the last 90 minutes. It's not how we open, but how we close. If we see a nice rally to finish off the day (even if it's to a negative close), I will be finally willing to think this is the (ever elusive) tradeable bounce. Earnings away from the financials today, thus far, actually look quite good.... and we have Apple (AAPL) out after the bell. Not that earnings matter in this environment but there is good news out there in the right companies and sectors. One day it will matter again. So let's watch the last hour to hour and a half as it should tell the story.

And yes I do expect yet another cut next week at the regular Fed meeting... the most important thing is it appears that Uncle Ben and his crew (outside of Mr Poole who is clueless) finally gets how bad things are. Again, the recession is not the issue here - that's getting priced in; it's the implosion of our entire global shadow banking system. Ask PIMCO's Bill Gross....

Long Apple, Ultrashort Xinghau China 25, Ultrashort Emerging Markets in fund; long Apple in personal account