Another Injection, Please

To commemorate the 6th anniversary of one of America's worst man-made disasters, the Fed and friends decided to pump more capital into the strained and strangled US equity markets. How much? The NY Fed offered up $34.9 billion, but only $3.5 billions was actually accepted and put to use. $2.365 billion of that was mortgage backed.

Turned out that it was more than enough as the markets percolated higher on moderate volume - better than most of the past two weeks' sessions - and closed with healthy gains.

The Fed loves this stuff, and of course, we couldn't be seen as weak on the anniversary of the 9/11 bedlam. Chairman Bernanke gave a speech today and said nothing about lowering the key Federal Funds rate for which Wall Street has been clamoring.

With the FOMC meeting just a week away, the market expects the Fed to lower the rate from 5.25% to a flat 5 percent or even 4.75%. Market players and analysts might as well be whistling Dixie because the Fed sees no absolute reason to do so and probably won't.

Dow 13,308.39 +180.54; NASDAQ 2,597.47 +38.36; S&P 500 1,471.49 +19.79; NYSE Composite 9,597.61 +139.97

Advancing issues overleapt decliners by a 5-2 margin, though the enormous updraft in stocks failed to loosen the grip of new lows over new highs. There were 188 stocks hitting 52-week lows, as compared to just 127 new highs.

These internal figures suggest either that today's gains were mostly short-covering or illusory and that more technical damage has been done in the markets than a one-day wonder is going to erase.

Crude oil rose 74 cents to an all-time high of $78.23 after OPEC agreed to boost its crude output by half a million barrels a day. Apparently, an imminent increase in supply turns classical economy on its head in oil markets. Prices should go lower instead of higher on supply increases. This fully completes the separation from reality in the oil markets.

What was probably more important to oil traders was the further erosion of the US dollar, which hit an all-time low against the Euro. With that, gold shot up $8.90 to $721.10, with silver tagging along, up 14 cents to $12.84.

This is exactly what the Fed doesn't want. Further deterioration of the greenback, which lower rates will encourage, will send inflation through the roof.

So, the question for Ben Bernanke is, which would you prefer, inflation or recession? Most are betting that the Chairman will opt for inflation. We'll see how disciplined a man this capitalist really is in a week (Hint: he should not lower rates).