Skip to main content

Fed goes for "shock and awe"

The FOMC met this week and released their statement today. As expected, they held rates steady between 0 and 1/4 percent. The interesting and unexpected part of the statement is as follows:
"To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months."
The Fed has alluded to buying Treasuries in the past but this is the first time they have come out and said it was something that was definitely going to happen. The market was also completely unprepared for the commitment to buy billions more mortgage-backed securities and agency debt.

The new TALF program was also mentioned:
"The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets."
The phrase "likely to be expanded" seems to confirm the story reported on Bloomberg today that the TALF would be used to help clean up bank balance sheets. Apparently, the TALF would provide loans to investors and agree to take frozen, illiquid (toxic) debt as collateral.

Two comments on the Fed action today:
  1. These actions imply the Fed is more worried about the state of the economy than all the recent "happy talk" would suggest. Otherwise, why come out with three major announcements totaling over a trillion dollars plus the expansion of the TALF which has not even gotten off the ground yet.
  2. Now that they have announced all these actions, it begs the question of whether the Fed is running out of ammunition.
In any case, it's clear market participants liked this announcement. Let's hope these actions actually work and we don't need any further drastic measures. After all, if a trillion dollars can't buy some prosperity we're really in trouble.
Labels:

Comments

Post a Comment

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation
4 comments
Read more

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.
Post a Comment
Read more

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional
2 comments
Read more