So far, the Federal Reserve’s decision to pump more liquidity into the system has renewed investor confidence. A gnawing question remains: Will the Fed’s cut in the discount rate, plus a widely expected follow-up decrease in the federal funds rate on or before the September 18 meeting of the Federal Open Market Committee, provide enough fuel to end the recent decay in stock prices and reinvigorate the bull market?

While many say yes, skepticism, confusion, and uncertainty are widespread. One worrywart, veteranstockbrokerMalcolmLowenthal of Kern, Suslow Securities, may well have captured this mood best. He says he feels a little more optimistic because of what the Fed did, but still worries that the market’s sudden buying surge may have been too excessive. “There are just too many unknowns to go from panic selling to euphoria.” He pointed to questions such as:

• The extent of the subprime mortgage mess
• How quickly the credit crunch will be resolved
• How many more companies and hedge funds will be battered by mortgage problems
• The overseas impact from our credit tightening and mortgage problems. For example, Australia’s largest lender, Rams, was unable to refinance $5 billion of short-term debt when Mitsubishi shares dropped to their lowest level in two years, while Japan’s largest bank reported losses related to the American mortgage crises.
• The risks from political crises around the world and the everpresent threat of another attack on American shores.

While many investors have scurried to snap up supposed stock bargains following the discount rate cut, Mr. Lowenthal was not among them. “Let someone else go skydiving, not me,” he said. He added that he was leery of buying anything for clients, but he has done some short covering.

Investment adviser and money manager Charles Allmon says he thinks the renewed demand for stocks following the discount rate cut is largely from buyers living in a fools’ paradise. He reasons that the cut and even a follow-up decrease in the federal funds rate will not make much of a difference in resolving the current financial crisis. Why? Because, he said, of the huge amount of debt at all levels, which at some point has to be liquidated or paid off; the surging use of derivatives, which he describes as “financial hydrogen bombs,” and excessive leverage all over the place. He notes, too, that America, which has 6% of the world’s population, has more debt than the rest of the world put together. “Americans currently are in hock for a record $850 billion of debt,” he said. At some point, Mr. Allmon said, “it will all come home to roost. All the Fed is doing is slowing down the process.”

On housing, the veteran adviser says he believes “we’re just at the beginning of a real estate collapse that will produce a buyer’s market for the next 10 years.” He views the resultant economic implications as ominous because 25% of the gross domestic product is from home and general construction and everything allied to it.

One of housing’s big problems, as he sees it, is that everyone is trying to keep up with the Joneses and, in the process, is being saddled with enormous debt. What they seem to forget is that housing prices do not go up forever, and that financial crises can change the situation quickly. He notes, for example, that between 1880 and 1930, homes in Greenwich, Conn. — which houses one of the country’s highest income groups — rose 50 times to an average price of about $1 million. By 1935, after the effects of the Great Depression set in, the average price fell to about $35,000 and there were no takers.

In 1929, everyone was playing the stock market on 10% margin, he says. Today, it’s the same game in real estate — buying a house on lots of leverage. Mr. Allmon, editor of the 43-year-old Growth Stock Outlook newsletter in Bethesda, Md., predicts: “We’re going to see a Greenwich happening replay throughout this country.”

How does he relate all this to the stock market? Mr. Allmon contends we’re now in “a long-term bear market and we shouldn’t see the bottom of it until 2010 or 2012.” A good benchmark for the Dow in 2010, he said, based on prospective 2009 earnings and a p/e ratio of 12, would be 8,500 to 9,000, which he says is on the way. “At this time, I wouldn’t hold anything at 25 or 30 times earnings,” he says.

His final thoughts: “Debt is a killer and tell your readers something they already know: there’s no such thing as a free lunch.”

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