Wednesday, November 03, 2010

Fed Reserve: "We'll buy $600 billion in Treasuries", Mr. Market: "Meh."

It's a convoluted statement from the Fed, but the bottom line is that this was roughly what the market expected and much of this has been baked into the market in recent months as the dollar has collapsed and the market has risen. There were some thoughts that the Fed might do something extraordinary but didn't materialize.

My observation is that we don't have a supply problem, we have a demand problem. There is plenty of liquidity in the market from what I've seen, but there is little demand for money and I'm not sure pumping more money into the system will achieve their goal.

The stock market has reacted with a collective yawn to this announcement as it is basically unchanged with 15 minutes to go in the trading day (however, it could ramp or fall 2% in 15 minutes if history is any guide). I mentioned earlier that expectations were so high that this event would cause huge volatility this week. When everyone seems to have the same opinion the opposite outcome usually occurs and that appears to be the case here.


Update: The US markets definitely had a muted reaction to the Fed announcement, but the Asian markets have roared higher overnight - opening about 2% higher. We'll have to watch for carry over into the US markets tomorrow morning.

There was some relatively positive data out today on the jobs market from ADP (but they've become so unreliable, it's hard to decide how valuable this data is) and the ISM service data beat expectations.

Perhaps the most surprising news today is that some of the world's most influential money managers have already claimed QE2 is destined to fail and we'll need QE3 soon. We're on a slippery slope but stocks will probably higher tomorrow so Yippee!


Anonymous said...

I believe the Fed is playing with dynamite and the fuse is lit. A collapsing dollar will result in higher energy prices as investors hedge using commodities.

If recent history is any guide, nothing spins the country into an economic contraction downturn faster than escalating energy costs. If a barrow crosses the $100 dollar mark we are in real trouble, at least in my estimation.

The Hermit said...

If you actually believe that unemployment is 9.6%, that there is no inflation, that we NEED inflation and all the other lies from the government, then I have a nice bridge that crosses the St. Lawrence that I would like to sell you. Imagine the profit !!!
The Chinaman that bought our debt, he "aint too happy either".