The Fed on Deck

First Takeaway: The sound and fury of the stock market -- signifying not much of anything -- are among the top business stories today. The Dow surged 10.9 percent on Tuesday, and Asian and European markets are up sharply today. Tokyo stocks closed up 7.7 percent, and London was up 5 percent at midday.

The catalyst for the rally is murky, but certainly expectations that the Federal Reserve will cut its benchmark interest rate by a half point, to 1 percent, are helping. The Fed will announce its rate-cut decision at about 2:15 p.m. today. Mark Gongloff of the Wall Street Journal notes that the rate cut has been priced in by the market for most of the month, and it won't have much of an impact in any case. "Until the demand for money starts to rise again in the broader economy, for example when lending picks up, rate cuts will have little lasting effect on markets, he says.

So why the surge on Tuesday?

"Circle today as one of those days that the fundamental issues trumped panic and fear," Robert J. Froehlich, vice chairman and chief investment strategist with DWS Investments, tells the New York Times.

The Financial Times points to other possible factors behind the rally. Speculation that Japan could cut interest rates cooled the red-hot yen, easing worries that unwinding the yen carry-trade could accelerate moves by hedge funds and others to dump equities. Also, the commercial paper market, now backstopped by the Federal Reserve, has steadied, buoying investors' confidence.

And "people are starting to take a long-term view," Anthony Conroy, head trader at BNY ConvergEx, a New York brokerage, tells the Wall Street Journal.

But are they really?

The most compelling read of the day is David Leonhardt's column in the New York Times. He dissects the bullish market sentiment and outlines the case for the bears:

"Stocks are truly cheap only relative to their values over the last 20 years, a period that will go down as one of the great bubbles in history. If you take a longer view, you see that the ratio of stock prices to corporate earnings is only slightly below its long-term average. And in past economic crises -- during the 1930s and 1970s -- stocks fell well below their long-run average before they turned around.

"To make matters worse, corporate earnings have now started to plunge, too. Assuming that they keep dropping, stocks would also need to fall to keep the price-earnings ratio at its current level."

Say what, Mr. Buffett?

The Financial Times fronts an article about a draft report by the International Energy Agency that finds that production from existing world oil fields is falling faster than previously thought.

"The decline will not necessarily be felt in the next few years because demand is slowing down, but with the expected slowdown in investment the eventual effect will be magnified, oil executives say," according to the FT

The report will certainly be cited by those who make the case for "peak oil."

Editors at the New York Times, meanwhile, have suddenly woken up to a development already reported by their own paper and by others: that lenders are cutting back on credit card offers and credit lines as debt-bloated consumers are pressured by falling home values and a slowing economy.

Lenders have written off $21 billion of bad credit car loans, the Times notes. Seems like a footnote, compared with the $2.8 trillion that U.S. and European banks have written down in the credit crisis.

"First came the mortgage crisis. Now comes the credit card crisis," the Times breathlessly declares.

Oh, well. It probably made for a better lead of the paper than one day's action in the stock market.

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