Kass: The Fed Gets It, and a Cut Is Coming

This will be just a first step in establishing a more healthy, two-sided market, one in which investors can profit on both longs and shorts. It will not, however, be a panacea; we will likely not be off to the races again anytime soon.

Depending on the success of the near-term monetary policy decisions by the Federal Reserve and fiscal policy decisions by the Administration over the next few months, the foundation for a much more healthy (and balanced) economy and equity market could be in place by early 2008.

My advice continues to be to trade/invest with lower-than-average positions in order to take advantage of the rollercoaster ride that will continue until the market recognizes that the Fed has a clue, the credit buildup starts to unwind, and strategists, institutional and individual investors bring down their far-too-optimistic corporate profit expectations.

Don't be in hope; be opportunistic and objective. Don't listen to the dogma of the bulls, nor should investors fixate on the dogma of the ursine cabal.

Above all, err on the side of conservatism because the next few months will test even the most facile investors and traders.