I received an interesting Email tonight from a friend about...

I received an interesting Email tonight from a friend about punishing dollar holders. Here goes, from Conor: BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? I sat at my desk 30 minutes before the FOMC release wondering what the Fed would do. And then they cut 50bps. So that's how it's going to be, eh Ben? What followed was what you'd expect. Stocks were up strongly, with the S&P up 2.9%, homebuilders up 6%, bank and brokerage stocks up huge, gold up $15 to a new 27-year high, gold equities up 4%, crude up again to close over $82, and the dollar weaker, finishing at a new 15-year low. I don't suspect that today will get a chapter in the eventual tome on the fall of the dollar, but it certainly merits a footnote. When gold and crude are making near-record highs and the dollar is making near-record lows, I think prudence dictates rate hikes, not rate cuts -- as Marc Faber and Jim Rogers pointed out today -- but cutting rates 50bps instead strikes me as insanity. Nonetheless, these are the cards we have been dealt, and now we must bet accordingly. The conclusion is obvious: the Fed is telling us that it will punish dollar holders. And like the oldest adage in the book goes, 'Don't fight the Fed.' By holding dollars in cash/savings, you will be earning less and less on your money, and be losing as the dollar declines in value relative to other currencies, paper assets, and commodities. Was this a 'one and done' cut? Hardly. GDP growth is likely to remain sluggish for several quarters, dragged down by housing and probably employment as well. These excesses don't go away with a snap of the fingers and a 50bps rate cut. That's what's so perplexing -- odds are the economic data will be no better, and probably at least a bit worse when the Fed meets at the end of October. They're going to have to cut again. And where will already-trending gold, oil, and the dollar go with more rate cuts? The bottom line is the Fed's mandate has shifted from price stability and filling the needs of business to full employment and low inflation to its current form, which is preventing asset deflation/credit contraction and recessions. If we think we can use the Fed to foster booms and at the same time prevent the after-effects of those booms we are sadly mistaken. I am actually surprised given all the PPT theories floating about that no one has commented on this. But I have been watching FOMC announcements every meeting for years. A general rule of thumb is that the first move on the announcement is the fake move. Not always but usually. But in years of watching, this is the first meeting I have ever seen the fake move begin before the announcement. Because of the magnitude of the reaction, the scale masks the preceding move. But anyone trading or watching futures has to know what I am talking about. Roughly 30 seconds to 1 minute before the announcement, the fake move came. At the time I actually thought the announcement came and Bloomberg was late in reporting it. But a sudden spike in price and volume 30 seconds before the announcement is just not normal. Perhaps many are thinking that I am complaining because I was short. That's not the case. I was long gold headed into this announcement and I was short nothing. In addition, I am in a mortgage that will benefit from this rate cut immediately even though I was not in favor of it. Thus I benefited twice from this cut with no negative consequences. To the numerous people who have been Emailing me recently telling me to 'Please give Bernanke the benefit of the doubt'. What say ye now? My call was that Bernanke would make a 50 basis point cut on the basis of the recent jobs report. (For more about jobs, please see And even though I was on the sidelines, I have to say I was surprised by the strength of this move. But here we are in yet another options expiration week and I am quite confident the Fed was aware of it. They pulled a surprise move in the August expiry as outlined in The Fed's move was not so much a surprise as the market's reaction to it. For those on the sidelines it was no big deal. For those looking the wrong way, it was. Still others are no doubt cheering like the CEO of Toll Brothers who proclaimed ' . Yes, there is a limit. But no, we do not know in advance what that limit is. What we do know is that once the limit is reached, the result will look like the housing debacle only orders of magnitude worse. What's really amazing in all of this is everyone cheering Fed intervention in the free markets, when Fed intervention in the free markets is the root of the problem. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.