The Fed Goes All In

Well, I'd say it's about time. The Fed has finally put all its cards on the table for everyone to see. What they did on Tuesday was a gamechanger for all involved, but I have to wonder why it came so late in the game. After all, if you're losing by five touchdowns at the two minute warning, is that when you insert your quick strike offense from the playbook? It's quite obvious that the Fed is trying to get the game into overtime and has been changing the rules of the game to suit their needs by using more players and more footballs!

Bonds Are Incredibly Expensive, But How About Stocks?

Bonds soared after the Fed meeting convened as the long bond yields plunged to levels not seen in decades. This is astonishing to say the least, and there is not much more they can go before yields are ridiculous (maybe they are now?).

Looking out on the curve, you can see that even out to 1 year bonds are close to zero. Good for the Fed for raising capital as cheaply as possible, but we can study Japan from the 1990s and see this was not the most effective stimulative policy. Our Fed Funds rate is the lowest in the developed world!

Certainly the one difference between the US and Japan is the consumer and reliance on spending. The government is happy to finance all their spending with cheap lending...and if foreign demand stays strong, why not? Corporates are not of interest, spreads on distressed debt are at extreme levels (showing a lack of interest) and treasuries are hot. Have you seen the dollar of late? It's been crushed and is heading lower.

As for bonds, relative to stocks they are expensive and not likely to keep up this ripping pace. Eventually, risk will come back into the picture as stock earnings multiples will be considered too cheap to pass up. The metric may be approaching that level. That's not to say that stocks are not a landmine, but they may provide a better return. The statement provides the most bullish argument for stocks than I have ever seen!

Money Talks, But In This Case...

We've all heard about the helicopter money bag drops that Chairman Bernanke referenced some years ago to in order to fight off Depression-type conditions. What happened on Tuesday? The Chairman coordinated money drops from about 50 helicopters that will last for awhile. The impact of this loose policy will be felt sooner rather than later, too. Eventually, this will lead to some substantial inflation, and gold and silver reflect this. Perhaps the zero rate will be the wake up call for banks to start lending again, given that 'Santa Fed' has nothing left to pass out in its bag of goodies. Oh, I'm sure buying of MBS and ABS will be another shot in the arm, but again it goes back to priming the banks...but this is not a firestarter.

'Tis The Season

As we put a bow on 2008 and kick this can to the side of the road, one of the most miserable stock market experiences in history has taught us many lessons. The trust placed in our fiduciaries has been breached (examples are too numerous), but that tells us to be more aware and active in our investments. Ignorance is not bliss. I think our eyes are opened to the ineffectiveness of our government and its policies. The reactionary nature of the bureaucracy is slow and cumbersome and often finds itself unable to come to a consensus. The financial bailout, Bear Stearns and the recent auto bailout are good examples of ineptitude. We know how to change this, don't we? I'm hoping we'll see brighter days ahead with a new Administration.

Finally, in the spirit of the holidays...the gift that keeps on giving....the printing press....don't forget to add more ink, Mr. Chairman!

Disclosure: no positions