Why are we still moving down? In other words, why can't the Fed just fix this thing like it has so many times in the past? We need to understand the Fed's action through the prism of the dollar. For the first time in the postwar era, our central bankers are fighting a two-front war. On the one hand, they must cut interest rates to a level at which home mortgages become so affordable that the depressed residential construction market can get back on its feet and where small businesses can borrow cheaply and expand their operations and do more hiring. On the other hand, central bankers must not cut rates so low as to do more damage to the dollar, as that has the effect of pushing commodity prices higher and also hurting the economies of our global trading partners.

In that context, the Fed did the right thing yesterday by keeping rates at 2%. With inflation at around 4%, the real cost of money today is virtually zero. So the bankers' renewed focus on trying to get commodity inflation to simmer down is the correct call. I was encouraged that the vote was 9-1 because that shows that the Fed is united in its decision, and will give some comfort to the markets by informing them that a strong hand is guiding the way. At a time when the financial markets are still dysfunctional, we need a sense that the folks in charge have a plan. The Fed didn't raise rates to defend the dollar, but they didn't cut rates to just pander to Congress either. That's a big positive.

Ultimately, I think the Fed is going to have to swallow its pride on inflation and cut rates to 1.5%. That's what it will take to really revive housing by pushing long-term mortgages to around 5%. That will also be the level at which financial institutions will have a large enough spread between the cost of money and their lending rates to create a "carry trade" that provides the big profits necessary to offset all their mortgage losses.

In the meantime, I'm still advising my Trader's Advantage subscribers to remain skeptical of financials and homebuilders, while recommending to them several stocks to short in order to profit from this downturn market. If you're interested in learning more about my advice for surviving today's market I'd be happy to have you stop by for a visit. Every Wednesday I post a weekly issue filled with market news, as well as my stock recommendations and advice. You'll also find that I'm a fan of flash alerts for those over-the-top days, where you just need a little extra advice to get you through.