The Fed's Medicine Is Not an Instant Remedy

Color me skeptical, but I doubt it very much. In the long run, the Fed's moves may well allow us to inflate asset prices and the stock market, but it is going to take some time. The Fed is trying to push mortgage rates down to the 4.5% level, where demand will be sufficiently stimulated to stabilize the housing markets. If it works, the Fed is probably right. This will make high-quality mortgage REITS like Hatteras (HTS - commentary - Cramer's Take) and Redwood Trust (RWT - commentary - Cramer's Take) a screaming buy at current levels, but it will take some months to push rates low enough and for the inventory overhang to go away. In the meantime, we will see lower prices in housing -- bad news for stock prices.

Main Street and Wall Street alike are still a mess. Layoffs continue to be announced on a daily basis. Less than 24 hours after the unprecedented Fed moves, Cooper Tire (CTB - commentary - Cramer's Take) reported that it was closing its plant in Albany, Ga., eliminating 1,300 jobs. Hard-drive manufacturer Western Digital (WDC - commentary - Cramer's Take) is cutting executive pay and reducing its employee count by 2,500; RF Micro Devices (RFMD - commentary - Cramer's Take) also cut jobs.

Wall Street is not in much better shape in spite of large amounts of government largesse. This week, both Goldman Sachs (GS - commentary - Cramer's Take) and Morgan Stanley (MS - commentary - Cramer's Take) reported losses in excess of $2 billion for the quarter. The massive Madoff fraud is casting a large cloud over much of Wall Street -- it is going to take months to count the casualties and losses from the largest investment fraud uncovered in the history of the financial markets.

There is another major disconnect in the markets right now that creates a tradable opportunity. The dollar trading down should be driving up the price of oil -- but it's not. Oil has remained weak and, as Jim Cramer pointed out, could not even hold a rally on the rate cut news. Demand remains weak in the face of economic news that would seem to signal demand increases. Traders seem to feel that the production cuts are priced into the market.

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At the time of publication, Melvin was long CHY and short TLT, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.