Thursday, February 18, 2010

Fed Shocker!!! Will Ponzi Be Able to Stand on Its Own??

WOW. Surprise move from the Fed after the bell. Futures down 1%. Euro and the Pound getting pummelled and the dollar surging. Financials whacked getting sold off as well. Gold getting sold. Copper coming down.

What did the Fed do? Raised the discount rate by .25%. From Bloomberg:

The Federal Reserve Board raised the discount rate charged to banks for direct loans to 0.75 percent from 0.50 percent and said the move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs.


The Fed Board said the outlook for policy remains “about as it was at the January meeting of the Federal Open Market Committee.”

This is a jaw dropper. Creates scores of question. Why now? Why today? Why not during the Fed meeting or on a Friday after the bell? Option expiration is tomorrow. This is sure to catch many banks off guard. PPI was hot today. CPI comes out tomorrow morning. Is that number going to have a surprise? Politically what is going on to cause this? The 10 year and the 30 year have been moving up. Is this in any way related to the funding needs for the country and they need the curve to flatten to sell more government bonds? It goes on and on and on.

In actuality this does not mean all that much intrinsically but the game has been to manipulate investor sentiment. This could be a big game changer for sentiment. Though this does not mean much intrinsically, it could be a massive game changer for the ponzi scheme. I do not believe the market can stand on its own. Financial institutions have to lean on the government.

Like I said, this alone does not really mean that much. The chain reaction is what will need to be watched. This could have profound contagion ramifications!!

1 comment:

themog said...

Will be interesting to see how market takes this tomorrow.