I normally don’t post on weekends. But Monday’s post is likely to be a long one because I shall be reassessing the S&P technical picture. So today I am passing on what I consider an interesting insight by John Mauldin (http://www.frontlinethoughts.com/gateway.asp) See his latest post: “What Does the FED Know?”

I had assumed that with their .75% cut, Bernanke and Company had reacted to the decline in world equity markets, a decline now known to be have been precipitated by Societe Generale’s panic unwinding of its futures positions in a market that was already falling and nervous!

John posits an alternative view that is worth reading. In essence he argues that: “..the monoline insurance companies like Ambac and MBIA are in worse shape than most realize….(John believes) that the concern that there is the potential for a much worse credit crisis than we are currently experiencing is what is driving the FED”.

It seems to me that unless we see a rate cut of .75% or greater, the equity markets will tumble after Wed. The problem is one of perception. The FEDS are now perceived to be responding to rescuing equity prices so that a rate cut that fails to satisfy market expectations will result in negative prices - whatever may be the true economic picture. The scuttlebutt is the market is expecting at least a .5% cut and some pundits are calling for a 1% cut. Speaking for myself, any cut less than 0.75% will probably cause a decline in days to come.

A cut of 0.5% may cause a rally on Wednesday but I doubt the sustainability of any such rally. This is only an opinion but this thinking forms part of my context in asssessing the technical picture.

Refer this blog post to a friend or colleague…