Tuesday, December 16, 2008

Next stop 10400 Dow and 1040 S&P

The Fed finally got it, and slashing rates to Zero, will do it. It gives the bulls life, and it will make the bears sweat. You just can't concoct the doomsday scenario, when the Fed is scared, and will throw fiat money at everything.

Those sitting on the fence who want to buy a house at half price will move. It will be the same for stocks, but this time you can get them on clearance at 80 or 90% off of their highs. And we have help with a depreciating currency. Even Trichet in Euro land will have to wake up.

Look at the Fed's statement today:

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.

Quantitatative easing, coupled with ZIRP (Zero interest rate policy) will force investors to invest. A week ago, I said that this is a "priced in" market.

Now it is evident as we had capitulation by all the sacred cows. We had proffers everywhere!Goldman Sachs finally came somewhat clean today. Our Federal Reserve finally capitulated, and the morons at the Fed who were talking about inflation just two months ago, are now finally silenced. We had the biggest dummie of all, SEC Chairman Christopher Cox, who never met a shortseller he didn't like, admit that the SEC made mistakes on Madoff, and that the case was "deeply troubling."

These bankers on Wall Street thought that Main Street didn't see them stuffing their balance sheets with taxpayer money trying to cover up all their losses that they pretended they didn't have. Now they should get on with doing business, instead of trying to cover up their past sins.

Some of the public servants at the Fed and Treasury, were more interested in protecting their image in their empty suits, instead of addressing the issues and the problems we faced with sound policy. Just yesterday, Arthur Levitt said the SEC didn't fail in their oversight of Madoff. Chris Cox made amends for it today, so let's get on with life. Arthur Levitt reminded me of the formerly distinguished ex Treasury Secretary, and Citigroup director, Bob Rubin, who defended himself in a fluff piece by the NY Times. His explanation of his failures at Citigroup was he could of gotten $15 million a year working elsewhere. Isn't that the problem? It wasn't the losses that shareholders took, the jobs employees lost, or the damage it did to the reputation of Citigroup. Rubin was more interested in himself. Has anybody hear from Rubin since? At least today, Cox did more to salvage his reputation by being man enough to admit his failings, than Rubin did proclaiming his innocence.

Bernanke, admitted in the New Yorker magazine that he wasn't pre-emptive enough. So he made up for it today. But Bernanke's failings brought many benefits. We got rid of 1/3 of the hedge fund industry, in this market meltdown and we saw that the emperor had no clothes. Markets will be far better with the disappearance of these hedge funds, and the "Masters of the Universe" that came along with it. Who knows, maybe they will find who the Master of the Universe is.

And for those that want to play, we have bargains galore, and we have the blessings of the Fed to let the "animal spirits" come out of hiding.

It's time to get busy, and to get long!

This bear market has exacted enough of a price!

1 comment:

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