Tuesday, September 21, 2010

The Fed Takes One Step Closer to the QE2 Cliff

I think this best describes the Fed's policy after today:

The Fed today came within and hair of announcing a QE2 as they predicted a serious drop off in economic activity.

Bonds soared on the news as the market prepares for another Treasuries spending binge by the Fed.  Take a look at the 10 year on the news:

Gold soared on the news as the dollar plunged following the Fed's statement.  Here is a chart of the gold ETF GLD:

Folks, these moves are VIOLENT.  Look at the volume on the GLD move.  Gold moved almost $20 in a matter of minutes as the market digested the news.

I wanted to put up the US dollar chart but I can't get TOS to download it.  Perhaps since it's so ugly they decided to take it down...Just joking BTW...No tin allowed in here!

Fed Statement

Here is the FOMC statement in case you missed it.

The Bottom Line

Unfortunately I don't have much time today so I need to keep it fairly short. 

Folks, the Fed basically all but said they plan on doing a QE2.  This is why you saw the dollar plunge to 80.45 at the moment.

The stock market is even for the day but who really cares what the market does at this point.  I am serious when I say that.  Right now stocks are the worst leading indicator out there.  It's been taken over by trading robots and their various algo's.

When you need to read how the economy is doing you MUST look at the credit markets now instead of stocks.  Look at the dollar.  Look at gold.  Look at bonds.  Stocks tell you absolutely nothing at this point.

When the Fed pulls the QE2 button be prepared folks.  The "unintended consequences" of such actions will be violent.  Just look at how the market reacted when they simply hinted towards heading down the QE2 route this afternoon.

The Fed is rapidly heading down the QE2 path and they appear to not have the discipline to stop themselves from destroying the dollar.

If you haven't yet diversified into hard assets I suggest that you do so because if the fed pulls the QE2 button you may wake up one morning and learn that your 30 years of savings that are priced in US dollars are worthless.

I am not suggesting you turn into a gold bug and go "all in" on the metals.   All I am saying is that you might want to put some of your portfolio into items diversifies you out of the dollar.  There are many options:  Gold, silver, commodities, and other world currencies(CHF or CAD work for me). 

Let me be clear:  This is not investment advice.  It's just something that you need to consider.

If the Fed decides to blow it's brains out via a QE2 then you must be prepared for the consequences.

Disclosure:  Now new positions taken at the time of publication.

1 comment:

Jeff said...

Larry Summers just resigned.

Geithner only thug left on Obama's economic team. God help us..lol