10 Year Treasury Note at 4.64%

So the market had a rally on Friday, as shorts covered and options expired and the Fed guaranteed we'd all have something to discuss this past weekend. The discount rate cut, while aiding liquidity and giving the market a moral boost by increasing expectations of a Fed Funds cut, should not sway you into a pleasant slumber just yet. Look at the 10 Year Treasury, now in a world that is awash in liquidity it is understandable that when risk aversion hits people will run to US Gov't backed securities but the underlying issues of the economy are now spurring this rise in the 10yr in addition to simple risk aversion flight to safety psychology. I still think we are headed for at least a year of choppiness tending lower for the major averages. Despite the Fed aided return to liquidity for CDO's and CLO's we are still experiencing an environment where the sub-prime mess will intensify with defaults continuing to rise as the lower and lower middle class consumers' cash flow is constricted by heavier interest payments. Furthermore, this recent bout of volatility should have reeked continued havoc on the Quant Funds and the Risk Arb funds who are seeing a stampede away from their favorite Private Equity deals. Life is getting interesting and I should hope the Fed doesn't bail out too many of these risk blind hedge funds by cutting the overnight rate on 9/18.