I guess it has taken awhile for me to respond to the news about the Fed’s 50 bps cut partially because it is hard to know what the implications of the cut will be beyond the short term pop everyone witnessed over the last week and partially because I was surprised enough to take a step back.

As I mentioned in my response to a comment here not everyone was surprised that the cut was 50 and not 25 bps, and in fact Goldman and Merrill were apparently anticipating such a cut.

I found the earnings announcements last week interesting. I was glad to see Lehman continue to stay ahead of expectations and not just for personal reasons – it is great to see a company that has risen from underdog status among the elites continue to fend off foes. It was also surprising before, but certainly not after, their announcement to see that Goldman outperformed partially by being short subprime and subprime-related credit throughout the summer. I guess it seems obvious that if someone like me can identify that trade that the dudes at GS would be all over it.

I guess part of the reason I am bit surprised that the “put” appears to be alive and kicking is that this means things are really bad out there, and the future opportunity set for our economy does not look good. For all the doomsday lingo I have tossed around here and in person with many of you, I am optimistic that our country will continue to be great – and so it saddens me to see the Fed concede the weakness of the dollar and to openly risk inflation out of what must be perceived as necessity. It seems such a move could only be motivated by a genuine concern that this was necessary to stave off more dislocation in the capital markets.

While the equity markets have flown since, we do not at all appear to be out of the woods on the credit side, and as Bloomberg noted, our neighbors are struggling with the CP market effects even with CAD/USD parity: Subprime Panic Freezes $40 Billion of Canadian Commercial Paper

And there is still a ton of buyout debt out there to be funded. I read something yesterday putting the figure at still over $340B.

Let’s hope that the credit markets are satisfied with the Fed’s liquidity boost…though I would have to guess that the negative press on this front is likely far from over.