Was it only three or four months ago that gurus were bemoaning "too much complacency" in the financial markets? All that has changed -- seemingly overnight, in another of Wall Street's familiar light-from-heaven conversions. Now everybody and his Aunt Gertrude is worried about risk again.

A good thing it is, too. The long period of abnormally low interest rates in the early part of this decade encouraged a lot of irresponsible risk taking, particularly in the housing market.

Some folks who played the game too aggressively (by taking out interest-only mortgages, say) are now facing the threat of foreclosure. Bankers and investors who loaned money on too-easy terms may have to kiss their capital good-bye.

Well, what's so great about that? A scare forces the financial markets to reassess their pricing of risk. In the long run, proper risk appraisal is good for everyone.

Investors can earn a fair return without "stretching" for yield (accepting a huge amount of extra default risk for very little extra compensation). Borrowers are spared the emotional shock of being kicked out of a house -- or a car, perhaps, or a boat -- that they really can't afford. In the final analysis, foreclosures, repossessions and bankruptcies are a waste of resources, psychological as well as financial.

Happily, there's reason to believe that the recent swing toward more realistic pricing of risk is just about complete. In fact, we're seeing some cases where the markets have probably gone too far in their reappraisal.

Yesterday, for example, Gladstone Capital (NASDAQ: GLAD) posted its results for the June quarter. The small-business lender earned 42 cents per share of net investment income, exactly enough to cover GLAD's monthly dividend.

Obviously, you aren't buying General Electric here, or IBM. But GLAD is a conservatively managed outfit, with a strong commitment to maintaining (and gradually increasing) its dividend.

Does it make sense that the stock in April was priced to yield 7%, and now yields 8.8%? Has the world really changed that much?

There's a friendly debate going on right now in the investment community. Last Friday, the Federal Reserve Board cut interest rates -- or did they? Apparently, Fed chairman Ben Bernanke wants to keep us guessing.

Yes, of course, it's a matter of public record that the nation's central bank trimmed half a point off its so-called discount rate -- the rate the Fed charges on emergency loans it makes to member banks of the Federal Reserve System. The Fed also extended the repayment period on loans made at the discount window, from the usual overnight deadline to 30 days.

However, bank borrowings at the discount window amount to a drop in the monetary ocean. According to the St. Louis branch of the Fed, which keeps tabs on such things, total borrowings from the Fed during the week of August 15 equaled a mere $271 million, compared with a monetary base (from all sources) of $861 billion.

In short, it seems to me that Dr. Ben -- in an effort to calm the financial markets -- is pretending to ease credit, when in fact what he has offered up to now is nothing more than a symbolic gesture.

I do believe, though, that the Fed will get around to issuing a real rate cut soon, probably at the regular September 18 policy meeting. That's the message from the market for Treasury securities, where traders have driven the three-month T-bill yield down to 3.4% today (it actually fell below 3% during yesterday's session). Investors wouldn't accept a 3.4% T-bill over 5.25% bank deposits unless they believed that the rate on bank paper was going to drop soon.

When the "real" rate cut comes through, it will provide strong reassurance that the Fed understands the risks to the Main Street economy from the turmoil on Wall Street. Stocks will rally, perhaps dramatically. Make sure you're on board before it happens!

Mixed market today, with the Dow off 50 points but NASDAQ up two. So is that good news, bad news or no news at all?

Most of the time, a mixed day in the stock market is of little to no significance. This time, however, "no news" is actually good news.

We've had to ride through a lot of volatility lately, much of it on the downside (painful). Quiet sessions like today show that investors are gradually regaining their composure -- an important prerequisite for the bull market to resume.

I'm not suggesting there won't be any sharp daily moves from now on. There surely will be. But my 20-day moving average of the daily percent change in the S&P 500 index, having peaked August 17, now appears to be in a major retreat.

Given enough time (weeks, not months), calmer markets nearly always seek higher ground. I continue to expect a powerful stock rally during the fourth quarter, probably spilling over into the early months of 2008.