FED Desperation!

Friday, August 10 2007

The Fed showed today what their real thoughts about this market are....disastrous! They added almost 40Billion in liquidity to the marketplace....An act of DESPERATION! There is talk of an August emergency rate cut, this has not been done in years. ( a rate move outside of a regularly scheduled meeting)
Look at this from Bloomberg:

Fed Adds $38 Bln in Funds, Most Since September 2001 (Update7)
By Ye Xie

A 'For Sale' sign hangs outside a home
Aug. 10 (Bloomberg) -- The Federal Reserve added $38 billion in temporary funds to the banking system through the purchase of securities including mortgage-backed debt to meet demand for cash amid a rout in bonds backed by home loans to riskier borrowers.
The Fed's additions totaled the most since September 2001. They came in three weekend repurchase agreements, of $19 billion, $16 billion and $3 billion. Losses in U.S. subprime mortgages have been rippling through credit markets, driving interest rates higher and sinking stocks. The Fed added $24 billion yesterday.

The Fed action is in response to the market punishing the criminals in the financial marketplace that defraud lenders through overstating income and understating debt in order to receive loans they really can't afford to pay. There are really 2 main culprits: the borrower and the loan agent.
The timing of these actions cant be worse. As in the next 2 years we have $2.28 Trillion worth of adjustable rate mortgages coming due. As well as the greatest spending force, the baby boomers, retiring- spending less and downsizing homes. Things do not look good for the stock or real estate markets for the next 3-5 years. Most likely out come: since the stock market is almost never down in the year before a U.S. presidential election year- the large institutional forces will try to support this market and insure we don't have a down year for 2007. After that things can get really rough for U.S. stock and real estate markets. Commodities will be the place to be: energy, metals and foods.
The play is to buy puts and or short futures after big run-ups in stocks and real estate and to buy futures and or calls in commodities after big breaks down. If you really have guts you can also do the opposite of both trades when they swing the other way.

DON'T TRADE AGAINST THE TREND!