Emergency Rate Cut Time?

After global markets were routed on Monday and Tuesday it appears as if the US markets will follow when they lead out Tuesday morning. S&P 500 futures are off almost 500 points at the time of this writing. Commodities are also down broadly led by declines in wheat, soybeans, oil, corn and copper.This is the broadest "risk asset" unraveling we have seen since 9/11 and picks up the momentum that has been building since the year started. Such tight coupling of "risk asset" declines is not good news for the equity side of endowment style portfolios, but allocations to TIPS, bonds and cash will all hold up well in this scenario. If there was ever a day that the Fed should take action to stem further declines it appears today will be that day.

In hindsight last week may mark the low point for the dollar. Believe it or not, although the US has caused the crisis it is still the truth that the US may well be in the best position to ride it out. Investors have snapped up the dollar as fears of a more general global slowdown spread.

For most investors however these headlines mean little. Warren Buffett would probably call all of this "noise." The truth of the matter is that for long term investors the share price declines represent nothing more than an opportunity to find great values. But, we do urge caution. Value traps abound, and a savvy investor will not buy companies indiscriminately just due to a share price decline.

By the way, for those of you who enjoy Nouriel Roubini's analysis his subscription website is free to all for a short period of time. Check out the RGE Monitor here.