The Federal Reserve cut key short-term interest rates by one half of one percent today. This is another step in the direction of turning markets around and restoring confidence. There still is some downside risk to the economy. But we have confirmation that the Fed will do whatever it takes to restore confidence in the financial markets.

While doing research for the November issue of my newsletter, I found a chart showing total commercial bank credit in the United States. I was intrigued and dug deeper to look at the underlying data base. Credit is the basic fuel for every economy. Total commercial bank credit grew even during the deep recession of 1982. Keeping total bank credit growing is the #1 objective of all the actions being taken by the Treasury and the Federal Reserve. When I looked at the data for this year, I saw why there has been so much intense and aggressive action taken by Washington. In March, total bank credit declined and then stopped growing for six months. The decline was small, not a disastrous plunge. However it doesn't take a plunge in credit to stop economic growth in its tracks all it takes is for credit to stop growing. That is precisely what happened last March and that is why Treasury Secretary Paulson asked Congress for the rescue package and why the Federal Reserve stepped up its efforts and began buying commercial paper.

It has taken time to get credit growing again, but the data says that is exactly what has happened. In the five weeks ending October 15, total bank credit surged $520.8 billion to a new record high near the $10 trillion level. This is more than a simple resumption of the growth trend. This looks like a catch-up move. Total bank credit is back where it would have been if the growth had not stopped last March. This is a sure sign that the healing process has begun in the credit markets. Ironically, stocks around the world kept falling as bank credit began to surge. I have seen this before. In 1987, stocks plunged as a new strong growth trend in corporate profits began. Stocks don't keep falling when economic fundamentals are improving. They do what we saw yesterday - they move higher, sometimes sharply higher in a hurry.

There are also signs of recovery in housing. Sales of new homes rose 2.7% in September. Sales of existing homes were up 5.5%. Here in Florida, one of the troubled real estate markets, sales of existing homes rose 24% in September. Slowly but surely the housing challenge and the credit market crisis are being resolved. Our best strategy is to stay fully invested in good stocks.