The stock market was at its nutty, kinky, entertaining, devil-may-care best yesterday as shares in the home builders exploded higher on word that the Fed intends to keep raising administered rates. "The federal funds rate appears still to be below the level that we would expect to be consistent with the maintenance of stable inflation and full employment over the medium run,' said Donald Kohn, an obvious stiff who sits on the central bank's board of governors. With the Dow up over a hundred points, Treasury yields falling and oil quotes in a state of collapse, it was one of those magical mornings when the illusion that the Federal Reserve is in control of the economy temporarily overwhelmed more acute perceptions that, in reality, the central bank is tending a credit bubble that has continued to swell unabated, like a Yellowstone lava dome. (Click on image to par-ty!) So why, some observers may be wondering, did the shares of home builders leap for joy on the news? One can only surmise that a few too many bears had become fixated on the lava dome rather than the sunny illusion, and that this caused them to short the likes of Toll Brothers, Beazer Homes and Horton to significant excess. Although the gap-up opening in these stocks on Wednesday may not have afforded bears a perfect opportunity to cover their short positions, it sure as heck provided them with the inspiration to do so, and quickly. Credit Crunch Begun? With the broad averages climbing sharply in the first half of the session, it was obvious that the wet sponge thrown by Dr. Kohn was insufficient to quell bulls' ardor for shares. But neither did the added dousing provided by news that the Fed has started telling banks to tighten their lending practices. If this is a red flag that
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