Distress, Doom, and the Discount Window

I spent 15 hours in planes yesterday, and arrived in Ft. Lauderdale late last night to find that United had sent my luggage to Denver. Maybe I’ll get it back, maybe I won’t. Anyway, here’s what the market has for us this morning.

The Federal Reserve lowered its discount rate. You can read about their reasoning here: http://tinyurl.com/34wd7r

This sent the markets on a tear. I recommended that subscribers to Red-Hot Resources close out our market hedge (QID) but I didn’t make the same recommendation to Red-Hot Canadian Small-Caps, which is in the Ultrashort Russell 2000 ProShares fund (TWM). Why one and not the other?

Simply, RHR has a shorter-term outlook than RCS. The market was oversold anyway, so I wouldn’t be surprised to see a pretty good rally (though as I write this, the market is off its highs). But we could see more trouble next week. A 50-basis point cut at the discount window probably isn’t going to solve the problems of the credit brain-freeze that is afflicting our global economic system.

That said, we can hope for the best. Watch how the market closes today – that could be very important.

I’m disappointed by how precious metals got creamed yesterday, and gold and silver mining stocks got slaughtered. As an old trader used to tell me: “When the paddy wagon comes along, the good girls get taken downtown along with the bad.”

The more important thing is what rebounds, and what rebounds hard. I think gold and silver should do very well, especially if the Fed is pumping liquidity into the system. That’s inflationary action, and gold and silver are natural hedges against inflation.

Meanwhile, oil is getting a boost as Hurricane Dean sets its eyes on Energy Ally in the Gulf of Mexico. The map I have linked below shows the official, current NHC path (the thick red line) and a few other models. The dark blue line with the squares is the U.K.’s leading model and the pinkish line with triangles is the GFDL, one of our leading U.S. models:

http://www.sfwmd.gov/org/omd/ops/weather/plots/storm_04.gif

Also, Bonddad looks at the markets. His opinion: “This is not financial Armageddon.” He’s not exactly handing out roses, though.

The World Clock that my friend Kevin sent me is very cool:

http://www.poodwaddle.com/worldclock.swf

And Jim Jubak has a good story on uranium: http://tinyurl.com/35823y

I’ll start posting some interesting photos from my trip soon.

Check out my new gold and energy blog at MoneyAndMarkets.com