Before anyone gets hysterical about looming interest rate increases, take a breath, and keep reading. While the news writers made something more than it as (as usual) in the case of yesterday's increase in the Fed's discount rate, the media really made some errant suggestions about what this is apt to mean for the more consumer-oriented Fed Funds rate. First though, let's take a quick look some of this week's best comments from the community. On the radar today are Pacific Sunwear of California (PSUN), China Biologic Products (CBPO), Great Basin Gold Ltd. (GBG), Ethan Allen Interiors (ETH), and Lionbridge Technologies (LIOX).  Stocks In Focus Three Charts that are Amazing: CBPO, LFUS, MSSR China Biologic Products Inc. (NASDAQ:CBPO) caught the attention of Dennis Askew, who suggested stepping into the stock after short-term pullbacks. The stock took a hit after some negative exposure materialized in early January, but it's starting look like that was more smoke than fire for China Biologic Products.  Too Hot To Handle? Home Furnishing Small Caps Want to know why Ethan Allen Interiors Inc. (NYSE:ETH) shares have been struggling the last three days? Here's part of the answer. Aside from a valuation problem in relation to its peers/competition, the whole home furnishing group got ahead of itself, and is now paying the price.  Technical Reviews: INVC, TOVC, PSUN Pacific Sunwear of California, Inc. (NASDAQ:PSUN) made its way above a major line in the sand for a moment today, but James Brumley's make-or-break level for PSUN is still in place. The potential is there, but so are the pitfalls. Check it out.  Three That Won't Be Denied: LIOX, NEWS, HGRD What's so great about Lionbridge Technologies Inc., (NASDAQ:LIOX) that this analyst rates it an outright 'buy'? Lots, including a significant revenue increase last quarter, which is expected to translate into a swing to a profit. That's a stunning turnaround, and a surprise within the industry (which has been plagued).  AON, FBP, and GBG Cross Major Milestones  Though Great Basin Gold Ltd. (USA) (AMEX:GBG) has yet to fall under a key support line, the recent tumble under key moving averages still leaves GBG on the verge. The write-up suggests exactly how and where Great Basin Gold could go from bad to worse.    Interest Rate Reality Check Well, it wasn't the interest rate that actually matters the most to investors and consumers, but the pro-active decision to raise any interest rate at this point should be a major red flag..... or should it? Some perspective on yesterday's Fed's decision is needed, as it may not be an omen after all.  Back to Normal  I'm not going to belabor what most you probably already know. Just to catch everyone up though, Ben Bernanke raised the discount rate (the rate the Fed charges banks for short-term loans) from 0.5% to 0.75%. Consumers shouldn't feel a direct impact, however, as the more familiar Fed Funds rate didn't budge from 0.25%, which is currently 'effective' at 012%.  The Fed Funds rate is the basis for consumer loan rates; the discount rate tweaks the ease with which banks can acquire money to lend.  According to most of the media, the move was a little unusual in that the Fed typically moves the two in tandem. As a result, the fact that it didn't happen this time prompted strong speculations that a hike in the Fed Funds rate is just around the corner.  It's a logical assumption, but based on a flawed premise.  Reality Check  Many journalists commented that the discount rate has historically hovered about a full percentage point above the Fed Funds rate. But, many journalists were wrong. That trend didn't begin until 2003. Prior to 2003, the Fed Funds rate was typically a tad higher than the discount rate.  Many of those same journalists also said the two tend to move in tandem. Not that these journalists were outright wrong about that, but they were far from exactly right. Their assumption was that the two are supposed to move in tandem. The reality is, it's a coincidental correlation, and not a terribly strong one at that. The nearby chart tells the tale. (Click here for a full-screen chart.)  But if the Fed Funds rate is 'supposed to be' above the discount rate, doesn't this suggest the Fed Funds rate is being especially pressured higher right now? No - that's the point.... there is no 'supposed to', no 'historical norm', and no 'cause/effect'. We're in uncharted waters here, and need to be careful about coming to conclusions.  Just for perspective, as we were coming out of the 2000/2002 recession, the discount rate was pushed higher while the Fed Funds rate continued to move lower. The Fed Funds rate didn't start to move higher until late 2004... almost two years into the recovery.  If any history is to hold relevance, then it would be 2004's playbook. And in that instance, the Fed Funds rate didn't follow the discount rate upward until almost a year later! What makes now any different?  The point I'm trying to make is simple - there's no real basis for the media's assumption that a Fed Funds rate increase is just around the corner.  More Lip Service Than Conviction  The good news is, the market may well be hesitant to buy into the rate-hike hype anyway. While the murmurs of rate increase worries spread fast, when it came to putting real dollars on the line, investors weren't really as worried as they acted/talked.  After yesterday's announcement was made, interest rate futures (essentially a bet about where interest rates will be at a certain point in time) suggested a 70% chance of a Fed Funds rate increase by September. That's not a small number, but the prior odds of a rate hike by September were already 54%. So, yesterday's news didn't really shake things up in a way we weren't already expecting.  Moreover, rate futures are often just a hedge rather than an actual bet.  Said another way, the market wasn't significantly putting its money where its mouth is. Perhaps investors weren't ignoring Bernake's comment that "It does not indicate anything one way or the other about what we might eventually do with the federal funds rate."  Bottom Line  Don't freak out. Though the discount rate moved higher, we do NOT believe it's inherently a sign of a Fed Funds rate increase in the near future. Barring rampant inflation, rates may not move significantly, if at all, until mid-2011 (partially using 2004 as a guidepost.)  And inflation is the x-factor, isn't it?  Though it 'feels' wrong to see it, the fact is, we haven't seen inflation (or reflation in this case) reach unhealthy levels yet. Some inflation would actually be beneficial at this point. That's the tightrope Ben Bernanke is walking now. Considering the need for stimulation is still far greater than the need for containment though, we feel the Fed Funds rate should remain low - perhaps stagnant at 0.25% - at least through the end of 2010 and into 2011 as the economy finds firmer footing.    We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Email the Editor If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC  4653 Carmel Mtn Rd  Suite 308 #402  San Diego, CA 92130   Share the SCN Newsletter If you find the Small Cap Network Newsletter informative and profitable, please forward our newsletter alert service to like-minded friends and associates who share similar market interests.   Ensure Newsletter Delivery To ensure newsletter delivery, you can add any additional email addresses you may have to the Small Cap Network Member List. 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