More thoughts on today's Fed cut, market action

So the early-morning whiff of panic has been replaced by a late morning whiff of hope. The Dow was off more than 450 points right after the open ... but was recently down just 50 points or so. Long bonds have given up some of their gains ... financial stocks have rallied and so on and so forth, despite more bad news from the likes of Bank of America and Wachovia (profit declines of 95% and 98%, respectively).

This is the side effect of the Fed's surprise 75-basis point cut, combined with a sense we finally got "the washout" everyone was waiting for. Meanwhile, Ambac Financial Group said it was talking to "a number of potential parties" about "strategic alternatives" -- corporate speak for some kind of M&A deal, a capital raising event, or something similar. That helped becalm some of the turmoil in the bond insurance arena.

Will it be yet another false bottom? Or are we finally done with this selling squall? Boy do I wish I knew the answer to those questions. But I would note that even after today's Fed cut, the federal funds rate is still at 3.5% ... vs., say, 2-year T-notes. They were recently yielding 2.13%. Three-month T-bills, for their art, are yielding 2.36%. In other words, certain market yields are still below the funds rate -- meaning you can make a case the Fed is still behind the curve.