The Fed's Trillion Dollar Wager

Boring!

Watching the tape today was like watching paint dry. Stocks pretty much flat lined for most of the day. We closed just a tad higher.

I wanted to talk a little bit about where I think we are in this mess. The way I see it the market is being seen in three different ways by investor's:

- Some believe that we are in the midst of a new bull market as the economy continues to recover.

- Others think that we may be in a new bull market, but believe stocks have gotten ahead of themselves after a huge 35+% move on the S&P.

- The rest(including myself) believe that this recovery is a sham and, as a result, the market will eventually roll over and make new lows before this bear market is history.

When you add this all up, you get a market that appears to be lost. We continue to trade in a pretty tight range. The market continues to repeatedly fail once the S&P gets up to around the 950 level.

What I find strange is the fact that we haven't seen one decent correction since this bounce began in March. The markets rarely(if ever) trade like this. Zero Hedge posted a pretty frightening rumor around the Fed potentially buying stocks and providing liquidity via State Street. Folks, if that ever turns out to be true it will go down as one of the greatest frauds in history.

The way the market is acting you gotta wonder if there is some truth behind it. I mean look at the recent market action: Every sell off that has started has been bought into by the end of the day. As a result, the sell offs often turn into green rallies by late afternoon. If the market does stay in the red its losses have usually been cut in half by the close.

How does this happen every time? We have seen headlines since March that have been god awful and stocks have completely ignored it and continued to march higher.

I mean think about it. How do stocks rise when jobless claims continue to stay over 600,000, unemployment continues to rise, and treasuries yields have practically doubled in the past month from 2% up to 4% despite the Fed's QE?

Almost every financial news headline has been spun positive(even if the news is negative) since the rally started. Yesterday's Beige book announcement was a perfect example. Look at the headline of the article:

"WASHINGTON (MarketWatch) -- Five of the Federal Reserve's 12 district banks reported that the downward trend in the economy is showing signs of moderating, according to the central bank's Beige Book report on recent economic activity released Wednesday."

Hey bubble heads: Perhaps a better more accurate headline would be "7 of the 12 Federal Reserve's banks saw ZERO signs that the economy is recovering". Wouldn't that be a more accurate summary? You should lead with what the majority of the banks are seeing not the minority!

If these bubble heads were sports reporters and the Red Wings win the Stanley Cup in game 7 tonight, tomorrow's headline would be: "The Pittsburgh Penguins win 3 out of 7 games in the Stanley Cup!". Back here in reality on earth, this would be called getting the story WRONG! Yet we see it everyday in the financial news. This is how asinine this whole sham has gotten.

The spin from CNBC is totally out of control. I must have heard the words "green shoots" a million times in the past 5 weeks.

Bottom Line

The Fed/government has made a multi trillion dollar wager in my view. They have bet "the house" that they can use their balance sheet to replace our spending and psychologically make the people of this country believe that happy times are here again and that the economy has recovered.

The Fed believes that if they can successfully do this, people will start spending again and the economy actually will recover.

What's frightening here is the lengths in which they will go in order to create this mirage of a "miracle" recovery.

I mean think about what "they"(the Fed, Treasury, and the government) have done:

"They" have bailed out practically everyone.
"They" have bought treasuries and MBS's.
"They" have strong armed banks into taking over insolvent banks that have wiped out the shareholders of the good banks like BofA.
"They" have broken the rule of law and crammed a shitty deal down the throat of the Chrysler bondholders.
"They" created a "backdoor bailout" in the form of AIG that allowed the Treasury to pay tens of billions of dollars to the banks in order to make them whole on bad CDS bets that AIG made.
"They" have changed the accounting standards in order to make insolvent companies lookprofitable.
"They" have manipulated every economic report.

Finally, today they are now accused of buying stocks and manipulating the market higher. Is their anything left for these scumbags to do?

The problem with their wager is we are all sitting here and rotting as the government plays these ridiculous games. Unemployment continues to rise, housing prices continue to fall, and most Americans have lost half of their retirement savings as a result of this economic crisis.

I would love to ask "They" a couple questions:

How can we have a jobless recovery? Why aren't "they" addressing the real problem here? The elites in this country are being made whole at the expense of the damn public!

There will be no recovery until the real problems are addressed. We need jobs and we need a more affordable standard of living. What we don't need are propped up assets that no one can afford. This sham can only be propped up for so long folks.

The market may very well meander along here as long as the Fed relentlessly pursues the reflation of the bubble. The downside risk far outweighs the upside the longer we sit here and flat line the way I see it. Many of the buyers of this market have moved to the sidelines. Even the bulls believe we need a correction here before we move to new highs.

If we continue to see no correction's as more inevitable bad news hits the markets, I am going to start to believe that Zero Hedge may be seriously onto something. The Fed/Treasury has already proved to us that they don't respect the rule of law in this nation.

As a result, no one should be surprised if they are eventually caught buying stocks through State Street.

The message from Washington has been clear throughout this crisis: They will do "whatever it takes" to win their trillion $$$ wager.

The Fed will lose this bet in the long run because the "skeleton's in the closet" will eventually become impossible to ignore.