There is an old saying: "never fight the Fed." If you had been short this bond market, you probably could be wiped out in one afternoon. When the Federal Reserve made its announcement a short time ago that they were buying long term securities the futures on the long bond jumped 4.25 basis points, or more that $4000.00 on just one contract. If you were long say 10 contracts you would be sitting on a $40,000 profit this afternoon.
The Fed is buying $300 billion dollars in long term securities and another $850 billion of securities issued by Freddie Mac and Fannie Mae. Now, if that is not enough, The Fed is buying $750 billion in agency backed securities, bringing total purchases to $1,250 billion dollars.
Let's not stop there. The Fed will also buy debt from Fannie and Freddie for a total of o$100 billion.
Dramatic is not the word for this move. The goal of the Fed is to lower mortgage rates and stimulate the economy. Interest rates will remain unchanged and there is little change of inflation reigniting.
The Fed cited high job losses and household losses amounting to $11,200 billion dollars as the rationale for this bold action
What are your thoughts on these moves?
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Reader Comments (Page 1 of 1)
3-18-2009 @ 9:22PM
huangmt said...
should we start shorting bonds? surely it cannot be sustained indefinitely? and for markets to rally on such news is against any fundamentals. interesting read on the statistics of primary rallies. http://theinflationist.com/stocks/the-anatomy-of-a-rally
3-19-2009 @ 12:14AM
clikdawg said...
So ... anybody who knew the Fed was going to make this move prob'ly did OK today, huh?
Not that I would dream -- even for one little second -- that Bernanke would tip his pals off so they could make a killing; he is a Paragon of Fiscal Rectitude who would never put the short-term gain of his class above the interests of Fair Play and economic Straight-Shooting, right?
Right?
By the way -- "there is little chance of inflation reigniting" ... care to back that up with some how-comes, Ms Madon? 'Specially since other stories on this topic talk about running the gummint printing presses into a lather to pay for the thing.
The day this nation learns to stop heeding best-case-scenarios only will be the day this nation -- as opposed to Bernanke & Company -- will start to climb out of the hole these crooks have dug for us.