Equity markets in the United States and across the world rose Thursday and this morning as the Federal Reserve and the other major central banks injected billions of dollars into the global financial system in an unprecedented move to stabilize the financial markets. The stock market soared as word spread that the government was also preparing a more long-term solution to the credit crisis. There are also restrictions on short sales and guarantees of money market funds.

The good news with the recent intervention by the Federal Reserve and the other central banks is that this is a tremendous amount of financial and monetary power being applied. Usually, true disasters like the Great Depression or 1973-74 Bear Market occur when the central banks fail to recognize the problem early or a mistake is made. The Fed clearly recognizes the problem, and Chairman Ben Bernanke, because of his obsession with Fed mistakes during the 1930's, is unlikely to repeat these errors.

There is also global coordination among central banks to resolve this. History has shown in the 1930's and 1970's that it is not wise to "Fight the Fed." Even if large stocks, such as the S&P 500, continue to lag Treasury Bills in terms of total return, small cap stocks can rally in this loose monetary environment. This occurred in both the mid 1930's and the late 1970's. This has been documented in my book, Follow the Fed to Investment Success. It also occurred in the early 1990's when we last experienced a credit crisis similar to this.

However, before you get too relaxed, there is some bad news. It sometimes takes time for the government to resolve a crisis like this. Although we are dealing successfully with each financial land mine as it arises, there is no mechanism in place that removes this uncertainty. Thus, we alternate between euphoria and panic as well with each new land mine. Until we get a new regulatory environment that can deal with this, we are likely to continue with extreme volatility with very little upward general market recovery. We may be seeing this with discussion of the government creating an entity like the Resolution Trust Corporation (RTC) to deal with this toxic debt. However, at the moment, this is really just talk. The devil is in the details.

In addition, this crisis requires global coordination among central banks and their governments to deal with this. Unlike the financial crisis of the late 1980's and early 1990's, this is a global problem, not just a domestic one. This cooperation is currently working quite well. However, this is a new phenomenon and quite a fragile arrangement. There has been substantial rhetoric about renegotiating "Free Trade." If this is translated into actual action, this could derail the fragile balance.

In other words, this crisis will take much longer to resolve than most are anticipating with additional panic along the way.

Update 11 AM: tktktktk

Secretary of the Treasury Henry Paulson held a news conference to discuss the plan to absorb the toxic debt and to establish a mechanism to resolve this problem on a long-term basis. There were no details. Secretary Paulson said that the details will be worked out later. The market appears to be holding onto substantial gains.

However, before we declare victory and problem solved, we need to answer the following questions:

• What are the assets involved? Can the local bank participate? We need to know how extensive this is.
  
• How are we going to pay for this? I mean someone has to pay the bill.
  
• What about the international banks and financial players? This is not just a domestic problem. Are we going to extend this to the international financial players, or are the other central banks and foreign governments going to create a similar agency?
  
• How long will this take to resolve?
  

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices, and is the author of Follow the Fed® to Investment Success: The Effortless Strategy for Beating Wall Street (www.FollowtheFedtheBook.com ). He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.