The selloff this week was a gross overreaction to the worries that the private equity business has ground to a halt.

Let me explain why that hurt the market. These private equity guys often buy a company with loans that come from banks, and there's often a bank syndicate involved. And they often pay off the loans by issuing high-yield bonds.

On Wednesday, two major recent acquisitions went to sell their bonds, and no one wanted to buy them. So Wall Street concluded that Merger Mania is over, private equity has dried up, and there'll be no more mergers and acquisitions. BA! That's blatantly false--and the market pounded the Blackstone Group (BX)--a publicly traded private equity firm.

The reason it's blatantly false is that those were risky private equity transactions. The safer ones will still continue, and they can be financed with quality bonds, or financed with debt from banks. Merger Mania isn't over, we just may have more quality mergers.

In the interim, there was massive flight to quality; the 10-year T-Bond is down under 4.8%; market rates have fallen, and market rates are so low that it's resuming gossip that the Fed may have to cut rates. Now, let me tell you why I think the Fed's going to have to cut rates--it actually showed up in the second-quarter GDP report, where our economy grew at a 3.4% pace.

When you look at the GDP report, most of the growth came from soaring exports. Consumer spending--and consumer contributions of second-quarter GDP--was much lower in the second quarter than it was in the first quarter. So this is renewing fears that as the housing market slows down, consumer spending is also slowing down.

The housing market is still a drag on the economy, but nowhere near as much in the second quarter as it was in the first quarter. Although this week we had very weak existing and new home sales, so I don't think the housing market is out of its little trough right now.

But the truth of the matter is that we're not in a perfect economy. It was really the weak dollar that caused economic growth to take off in the second quarter. So, it's a very interesting market we're in right now; this market's going to get much narrower.