Ok.OK. We got it —the FED did not wish to anger Mr.Market so he presided over an 11-1 vote for the further Quantitative Easing by another $600 billion spread throughout the next eight months. It was interesting to see that the DOLLAR rallied at first and that GOLD and other commodities were sold off. The S&Ps and other equities tried to break but they realized that BEN BERNANKE is the greatest thing, well, since SIR ALAN GREENSPAN. It seems that the FED has totally fallen into the trap of perpetuating the wealth effect to keep the economy from falling into a deflationary spiral. No matter how we look at this, the importance of EQUITY market gains is paramount as the FED believes that this is the key to unleashing the “animal spirits” that are necessary for capitalism to thrive.
There were many critics of this FED move but as usual the models won out as the econometricians gave the critics the brushoff. Interestingly, the FED announced that it would be buying securities mostly in the 5- to 10-year time horizon, thus leading to a massive steepening in 5/30 curve. By late this afternoon, the DOLLAR began a large selloff as the markets began to comprehend that Bernanke and his board just blew up whatever agreements came out of the finance ministers meeting of the G-20. Tim Geithner may espouse a “strong dollar” mantra but the FED policy markets let the Secretary of the Treasury know that he carries no weight with this august body.
THE BERNANKE FED HAS RENDERED THE UPCOMING G-20 MEETING WORTHLESS OR AT BEST A PLATFORM FOR BASHING THE U.S. GEITHNER WILL TRY TO SAVE FACE BY TRYING TO GET THE CHINESE TO SUPPORT A NUMERICAL TARGET ON CURRENT ACCOUNT SURPLUSES AND DEFICITS. BECAUSE THE U.S. POLICY IS FOR A DOLLAR DEPRECIATION, GEITHNER”S WORDS WILL BE VOID OF CREDIBILITY. THE FED SHOULD HAVE WAITED UNTIL AFTER THE G-20 SO AS TO GIVE THE PRESIDENT AND MINIONS SOME GRAIN OF CREDIBILITY. AGAIN, IT SERIOUSLY CALLS TO QUESTION WHETHER ANYONE BOTHERS TO COORDINATE U.S. POLICY.
The FED not only BLEW UP the G-20, but also moved to change it own thresholds for DEBT purchases. It has been a matter of custom for the FED not to own more then 35 percent of any Treasury issue but today they moved to allow SOMA (SYSTEM OPEN MARKET ACCOUNT) to suspend the thresholds, which means that FED purchases will distort the market prices more than ever.
We pay homage to the movie, “Bang the Drum SLOWLY,” in that the old players would cheat the rookies in a card game called TEGWAR. It turned out that TEGWAR was an acronym for —“the exciting game without any rules.” Well, I guess we are all in the game of TEGWAR now. The only difference is the markets can hear the drums of monetary stimulus banging louder and quicker. The wealth effect is a very questionable variable for setting monetary policy,but in the effort to turn our cash to trash anything goes.Loose women or loose monetary policy, it is all about “putting “out.
Tags: Alan Greenspan, Ben Bernanke, Debt, Dollar, equity, Fed, G-20, Gold, QE, SOMA, SPS, TEGWAR, Tim Geithner
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