[spider]

Well, I really have no opinion in terms of pro/con, you are getting into some pretty hairy stuff. But I would mention a couple of things to keep in mind wrt the Fed:

1) Bernanke establishing reputation as inflation fighter -- You always hear that the new guy at the Fed needs to prove to the markets that he is serious about inflation early on so he'll be credible down the road. To the extent this is true, the Fed might exhibit a short term bias for a higher fed funds rate than otherwise. I think this is pretty plausible although I'm not sure if there is any real evidence of this. Also, Bernanke came into the job w/ a strong reputation as an inflation fighter so he probably has less need to establish the reputation than, say, Greenspan when he first took over.

2) Liquidity -- I don't really know what is going on wrt to these SIVs, CDOs, etc. Which is not surprising or significant. But I'm also not sure ANYONE knows what is going on here and that is a little scary. Wrt the Fed, it makes it harder to predict how they will act in the future since they might be considering a lot more than the usual inflation/growth tradeoff. For example, some have said the Fed needs to cut not so much to stimulate growth, but to increase liquidity.


Bottom line: Good chance to kill or be killed if making financial bets in the near term.