Two things.

First, in my post yesterday on the Fed statement, I may have left the impression that I thought the next move was up.  That is not the case.  I actually think the next move is probably down, but would assign a probability of 50%-55% for a rate cut.  However, six months ago, I believed that there was an 80%-85% chance the next move would be down because I figured the housing debacle would weigh on the economy and inflation would no longer be the issue.  I'm still pretty sure that housing will weigh on the economy, but inflation has been stickier than I thought. 

I am also very unsure of the timing.  Six months ago, I thought the Fed would start cutting by Spring.  Now, if the next move is down, it may not happen until next year.  Frankly, I have no idea, but I do believe equity markets, given the market's reaction yesterday, think the next move is down, and soon.  That, I believe, is overly-optimistic.  Unless the housing market is in real trouble, which, if that is the case, you want to be far, far away from stocks. 

But perhaps I'm wrong.  I thought Helicopter Ben would, as new central bank head-honchos usually do, establish himself as an inflation fighter first.  I mean, six months ago you couldn't turn around without bumping into a Fed governor making a speech on how vigilant the Fed would be fighting inflation.  But perhaps Bernanke is as much of a liquidity-pusher to the financial markets as was Easy Al.  The bond market certainly wasn't enamored with the change in The Chopper's statement given that the inflation hawks were in full control today.

Second, in response to a question in the comments section of my Market Action post yesterday, I responded that I was net short.  Technically, that is incorrect in that I am actually net flat stocks.  I own several stocks that I have hedged by buying puts on the SPDRs, though, frustratingly, I have both purchased stocks poorly this year and my shares have underperformed the market.  However, I am outright short REITs, owning out of the money puts on a REIT ETF, ticker IYR. 

REITs are ridiculously overvalued in my opinion, dividends are around a historic low of 3%, market participants are demonstrating manic behavior, supply is rising, expectations are too high, FFO only grew 5-10% last year though the group was up something like 35%, REITs have more than doubled the past few years.  Its silly.  Plus, Sam Zell sold his company.  However, the chart is not yet broken.  It held in the downdraft.  But the uptrend may be at an end.  I have a partial position, and plan to get more aggressive in the future.