Fed Moves to Float All Asset Boats

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Includes: UDN, UUP
by: The LFB
Long oil, long equities, long interest rates, long silver, long gold, and against the three year norm, traders are also seeing long dollars. The Federal Reserve has created an environment that back-stops risk with their quantitative easing program which is repeating the August-December 2009 patterns.

Equity values were pushed higher on the strength of synthetic trade that eliminated risk and allowed all asset values the chance to drift higher in low-participation rallies that few investors seemed to enjoy as commodity inflation increased out of dollar hedging rather than global demand.

The net result of the current market manipulation is best seen in intra-day trading patterns that reverse hours of movement in seconds with volatility spikes hitting at each regional market open and close. Inter-bank liquidity is tight and the high cost of doing commercial business is out of line with mediocre global growth and rising asset prices.

The house of cards will stay in place just as long as equity values hold S&P 500 futures above 1225, but any moves lower may well draw in the speculative volume that is missing from the current market environment.

Currency valuations have not moved too far from the November price ranges, with very few indicators at the moment pointing to anything other than a continued crawl sideways that runs into the year-end.

The Fed's Treasury holdings have surpassed $1 trillion and by the end of December the difference between the Fed and the second largest holder of US debt will have surpassed $100 billion.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: TheLFB runs an automated trading program that is constantly one side of the dollar or the other, in-line with the detail posted in the article.