TFT:
It appears clear the Fed has placed inflation fighting on the back burner in order to mop up the credit crisis before it spills over into world markets. Greenspan has been criticized for leaving rates too low for too long, which lead to the asset price bubbles the market is currently grappling with.
Bernanke will surely learn from this and begin raising rates as soon as he can. If he learns from Greenspan, it is possible that Bernanke will begin raising rates to stem inflation in as early as the first quarter of next year. Remember it takes time for the lowered rates to effect the economy. However, there is little doubt in my mind that the lowered rates will cause the market and economy to come roaring back.
Here is an interesting tidbit...
The S&P peaked on 09/09/07 at 1565. On 03/10/08, the S&P hit a low of 1273. This represents a decline from peak to trough of 18%. The decline took 5 months.
I recently read a research report on the typical recovery pattern for the S&P. From 1945 - 2007, given a market decline between 15-20%, the average decline was 18%. For a decline of this magnitude, on average, it took 4.3 months from peak to trough. From trough to peak (full recovery) it took an average of 5.7 months, leading to a full recovery in 0.8 years.
Assuming we don't break down to new lows, it appears the current market characteristics closely mirror the historical average decline. The current correction is nothing new and is witnessed every four years or so. Therefore, I'd rather hold tight than sell near the bottom.
Little Fish