Wednesday, March 18, 2009

Fed's Shocker

This is huge. This is what we wanted from Fed. Wednesday's announcement that Fed will buy more than a trillion of corporate debt and about 300 billion of Treasuries completely changes playing field.

All markets will be affected. Stocks, bonds, currencies, Treasuries, gold, commodities. Initial reaction was predictable: everything is up, dollar is down. Reality will set in the nearest future.

It might really take Great Depression 2.0 off the table. Jim Cramer said exactly that today. Well, Jim pronounced this same thing for the third time at least. Starting with rate cut in the end of 2007. There is one thing that confuses me though. Last week uncle Ben (Bernanke) said in the interview "we took Great Depression scenario off the table". If GD 2.0 was off the table already, why such drastic measures today? What pushed Fed, what information that we don't have yet? I'm waiting for FOMC meeting notes to look for the cues.

I could've been wrong in my multiple blog entries. Maybe decisive Fed action prevented GD 2.0 and we will see end of this recession in the end of this year. Maybe Mark Haines from CNBC and Doug Kass are right and we are past the global bottom. I would be happy. Little problem with Fed: it was late with the actions for the last two years. Every action was at least a month late, in most cases the lag was several months. Jim Cramer with his rant in August 2007 was well ahead of Fed. What if Fed is late again? What if this attempt to reflate is late and deflation will take hold anyway?

OK, let's leave doubts for now and enjoy the rally. And let's not forget to take some profits in the process, because you never know when this rally ends.

Random musings: Fed's action makes me wish even more to invest in CDOs. I wrote about it over the weekend (here). Why there is no specialized CDO ETF or closed end fund is beyond me.

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