Tuesday, March 8, 2011

Don't Fight the Fed

Today's overgrown gains on the US stock indices stand as an object lesson of how Fed monetization of US debt trumps everything.

While oil took a brief respite, thanks, without doubt to pressure on traders to "cool it", the Fed flipped back to the Primary Dealers some $7.657 billion, more than half of it in the form of repurchasing notes just auctioned off two weeks ago.

That money went straight into stocks, which, by the way, were already overpriced.

Dow 12,214.38, +124.35 (1.03%)
NASDAQ 2,765.77, +20.14 (0.73%)
S&P 500 1,321.82, +11.69 (0.89%)
NYSE Composite 8,394.04, +57.02 (0.68%)

Advancers took the high road over declining issues, 4225-1491. There were 95 new highs and 34 new lows on the NASDAQ, while on the NYSE, 149 new highs to a mere 10 new lows. Volume, as expected, was very light. The move was not liquid.

NASDAQ Volume 1,869,438,750
NYSE Volume 4,451,904,000

NYMEX crude oil front-month futures eased 52 cents, to $105.02. Gold shed $7.30, to $1,427.20. Silver lost 21 cents, to close in NY at $35.66. The small downside in the precious metals and oil should be examined more closely, as they are just profit-taking and natural rotation on a "risk on" day for the casino gamblers.

The trend remains in place for commodities over the short, medium and long term along with significant downside risk for equities short term and longer. The major indices are treading water carelessly on seas of free money. With QE2 due to expire by the end of June, expect a pullback in equities unless the Fed announces further quantitative easing and the indices remain below their February 18 highs.

In the meantime, it's a good moment to snatch up precious metals.

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