Tuesday, March 11, 2008

Fed sets up 200 billion dollar Treasury Security Lending Facility

Hey guys. Been a busy week but wanted to quickly comment on this. The FED has setup this facility in a move to try and loosen up the credit markets especially in the mortgage markets by allowing institutions to be able to dump some of their AAA and other bad paper onto the Fed for 28 days.

My take:

The FED is buying bad paper short term in a desperate move in order to shore up the credit markets. The dollar is strengthening today because it might signal that the Fed may stop cutting(since it wasn't working anyway) and start looking at other ways to cure the crisis.

This 200 billion dollar band-aid will just delay the inevitable blowup of the banks. This is a TRILLION dollar problem. This move is nothing more then trying to shore up a leak in a dam that is about to burst. The marked cheered the move but I can't understand why. I guess they cheered all of these other bogus plans like HOPE NOW so I should have expected this reaction.

I don't expect the stock market early morning rally to hold because once the market digests this, they will realize it will be just another idea that doesn't cure the bigger problem. Just like the HOPE NOW inititive, 5 year freezes on subprime teaser rates, and the FED rate cuts haven't worked.

What I find interesting is the strengthening of the dollar in reaction to this news. Maybe $108.00 oil made them realize they are looking over the edge of a cliff if they continue to cut rates and the dollar weakens anymore.

DOW is up 200. It will be interesting to see where we end the day. Nothing has changed folks. The FED and market will try everything to keep this bull market going. Until houses become affordable again these moves are nothing but "window dressing". 70% of this economy is the consumer.

Until the consumer has money in their pockets to spend, this market isn't going anywhere long term. Unaffordable housing, inflation hitting all foods and goods like $108.00 oil will continue to paralyze the consumer and thus the market. Until this changes, stay defensive and realize that nothing has changed fundamentally in the markets. We are still in real bad shape.

Link below:

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