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D Fry Market Outlook 22 03 2007

Smart money -- or just money? It's an interesting thought, but probably just a waste of time to ponder.

I saw this article, and I thought maybe market insiders are going through some clinical trial for this new drug that helps you forget painful events from the past. Sort of like the last three weeks. Whatever problems existed recently [subprime mortgage contagion, recession, a Chinese inflation crackdown, etc.], have been overwhelmed by a wave of money.

What the Fed said yesterday amounted to little. I read their statement a few times and couldn't find anything that was significant other than a "clue" that talk of "additional policy firming" [higher interest rates] was replaced by "future policy adjustments." Investors with cash to spend are a dangerous herd, and they believe they found the magic words to start a bullish stampede.

It would be misleading to say that volume was just average, since most of the volume came in the last two hours:

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The theme Wednesday was "Money Talks," and a lot of it is still being added to the primary dealers by both the Fed and the Treasury. With expiring issues, the total with just the Fed is $29.5 billion outstanding.

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The Treasury has been issuing short-term loans to the primary dealers in addition to the Fed's activities. And, they've been doing so in heavy doses that as of Wednesday exceed $33.5 billion. If they did nothing today [a big "if"], $5.5 billion will expire and on Friday $17 billion will also expire. Even if that were the case, the total of $63 billion between the Treasury and Fed seemed to have greased the primary dealers well. Mission Accomplished? [Yeah, I gotta admit to becoming more suspicious about all this.]

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I'm not going to list all the sectors today, since they all did about the same thing. More importantly let's focus on the sectors that were either forgotten today, or could make a difference down the road.

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Money talks? You bet. Just a week or so ago all investors had one theme on their minds -- avoid risk. Yesterday, as far as risk was concerned -- game on. And we had a 90% day, which means 90% of volume was higher. This is bullish.

We don't want to spend time on conspiracies we can't prove. Let's just point out the money injections and the results.

These past few weeks have been trying for all but the nimblest day-trader. That's where trading action has been most profitable. For typical trading systems there has been little success. But today is another day.

Disclaimer: Among other issues, the ETF Digest maintains positions in: CurrencyShares Japanese Yen Trust (NYSEARCA:FXY), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares DB Precious Metals Fund (NYSEARCA:DBP), PowerShares DB Energy Fund (NYSEARCA:DBE), iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), iShares MSCI Japan Index ETF (NYSEARCA:EWJ) and iShares MSCI Australia Index Fund (NYSEARCA:EWA).

Source: David Fry's Daily Market Outlook for Thursday