Wednesday, August 24, 2011

Just How Sneaky Is The Fed?

  The answer?  Very sneaky.  There's an old and very sage saying, "Don't fight the Fed".  But what if you don't know what the Fed is doing?  What if you end up fighting the Fed unknowingly?  As speculated upon last year in this space, it turns out that I was correct in suspecting the U.S. government of surreptitiously propping up the stock market back then (to my own great detriment as I shorted it over and over again), now that "secret" bailout loans to major U.S. banks have been revealed.  (It turns out there even was a bona fide "run on the bank" at Morgan Stanley, as it happens.)  Now I'm not one to embrace conspiracy theories, in fact I abhor them, but I fear those secret bailouts weren't - and aren't - the end of it.  We all know the Fed is running out of "silver bullets", and a curious coincidence that happened last week may just show how close to the precipice Helicopter Ben Bernanke (and the rest of us) are.  To wit: a 7.34% rally in the S&P 500 over three days last week for no reason.  No news, and nothing substantial from Uncle Ben and the FOMC either.  However, as it turns out, that rally started 3 hours after the New York Post ran an old 1989 quote from Robert Heller, a former Fed governor, who suggested way back then that the government should directly purchase stock index futures contracts to calm the markets in times of distress.  If indirect market intervention ain't working, why not try some direct intervention?  Call me crazy, but stranger things have happened.  It's almost enough to make you embrace Dr. Ron Paul's "End the Fed" stance (an interesting read for those so inclined).  Hey Ben, I've got some shares you can prop up, gimme a call!

The Good News:  What doesn't kill us makes us stronger!