Fed Pushing Liquidity Back into the System

The Fed Open Market Operations Committee (FOMC) made a decision Wednesday, announced at 2:15pm, that has extreme ramifications. It counters a decision that was made early in 4Q2008, which at that point put the world onto a deflation track as liquidity was squeezed from the financial system. Now, liquidity is being pushed back into the system.

By the session close the DJIA (+90.88 +1.23% to 7486.58), S&P 500 (+16.23 +2.09% to 794.35), and NASDAQ Composite (+29.11 +1.99% to 1491.22) were all higher, as one might expect with the new reflationary direction of the US monetary authorities.

The Toronto Composite gained (+69.50 +0.81% to 8629.10), while the Toronto Venture Board was also up (+12.59 +1.48% to 865.71).

In NY, the equity market was led higher by Financials (XLF +10.0%), and no other sector came close. Utilities (XLU), the next strongest performer, was up +3.3%. Consumer Staples (XLP), a defensive sector, was down -0.5%, as traders are now prepared to take on greater risk, having been given the word that their banks are being reliquified.

Among the Financials, the Banks ($BKX +11.1%) lifted the most. Computer hardware ($HWI +10.0%) and Goldminers ($XAU +8.8%) were also extremely strong, which is likely to be the indication of how this equity market is going to move in the next couple months.

In the Cara 100 stocks, there were several gold and silver companies that were strong (SLW +12.7%, KGC +10.4%, GG +10.3%, and BVN +10.2%). Adobe (ADBE +11.6%), Brunswick Corp (BC +11.0%) and Whirlpool (WHR +8.6%) were also leaders. We announced yesterday before the open that we had bought WHR the previous day. We also announced in this report that we were buying the gold miners too.

The Treasury bond market was sent into chaos with the FOMC announcement. The long bond zoomed ($USB +2.89% to 129.17) as yields on the 30-, 10-, and 5-year bonds dropped to the incredibly low rates of 3.572, 2.533 and 1.515% respectively. The previous closes were: 3.804, 3.003, and 1.973.

The US Dollar collapsed under the new reflation policy announcement ($USD -2.94% to 84.35), which was the sixth loss in seven sessions as traders had pretty much figured out in advance what was about to happen.

The other major currencies closed much higher (Euro +3.79% to 135.05), Cdn Loonie (+1.92% to 80.31), Yen (+2.63% to 104.04), and Pound (+1.73% to 142.88).

Crude Oil ($WTIC) dropped -$1.14/bbl to 48.90, for now at least.

$GOLD closed down at 889.10, at 2:30pm, but soared after that, to 937 this morning.

At 7:34am ET, the spot prices for gold, palladium, platinum and silver (compared to Friday’s close) were: 935.68 (927.20), 195.5 (197), 1062 (1051.5), and 12.81 (13.19), which shows that the higher-beta silver is still lagging. However, any further move higher in the precious metals will likely be led by silver.

In Asia-Pacific and European equity markets today, there were higher prices, but some degree of confusion following the FOMC decision. At the close, Japan (-0.33% to 7946.0), Hong Kong (+0.10% to 13130.9), Shanghai (+1.89% to 2265.8), Australia (+0.90% to 3416.8), and India (+0.28% to 9001.8) were mixed.

At 7:33am ET, the French CAC (+1.42%), German DAX (+1.31%) and UK FTSE (+1.33%) were stronger, but the DJIA futures were flat to negative at 7493.

At 9:40 am, the DJIA opened a bit higher, but is now up +29.

Comments

[Prudent Man...:]

A World Wide Recession caused by unsustainable leverage being cured by unsustainable government borrowing. If one believes in Santa Claus, e.g., politicians, this may sound like a good plan. To me it is economic suicide that will lead to Socialism.

Because many in this world are so accustomed to getting their every want through little effort (credit) they now run to the government for salvation. Free Enterprise, like our Military Defense, is only for the fittest of which there are few today.

Politicians can try to redistribute the wealth all they want but it will, in time, revert to the strongest and most ruthless which may not be its rightful owner. It could be bloody!

Mar 19 12:01 PM

[Conan the B...:]

Prudent: 5 Billion people VS 300 Million.

What we do here, harms us here. The Most populous nations are not following our Lead.

Most of the People of this world are used to NOT getting even a "little" for a LOT of work.

The people in the USA are used to "their" Politicians, nothing they do will surprise anyone for very long. The Media is changing, the Internet is the Change.

Mar 19 03:31 PM