The Fed To The Rescue

Ben Bernanke and his minions announced bold moves yesterday to jump start the housing market. The Federal Reserve Bank will buy $300B of U.S. Treasuries and billions more of mortgage securities. The result will be lower mortgage rates and a stimulus for housing demand. We have been arguing that the economy and the markets need help from housing and this could be the catalyst.

The short-term reaction to the Fed's moves were lower mortgage rate, higher treasury prices, and rising stock prices. However, the dollar is falling fast and gold is rising. We have been concerned with the potential for excessive inflation coming from the Fed's actions and the government stimulus programs. Those worries escalated yesterday with these new moves. If you don't own gold, it may be a mistake.

Stocks may continue to go up a little but we believe this is still a bear market rally. The Federal Reserve said the economy is getting weaker and they are responding to the dire conditions. The economy is not going to bottom anytime soon and if we are extremely lucky, we will see the light at the end of the tunnel by year-end 2009.

Unemployment claims were only 646,000 last week which was lower than the previous week. That doesn't sound like good news to us but the markets will view it as a positive sign. This is a market where the strong will get stronger as we have seen in the tech sector lately with Oracle's earnings, and acquisition news from IBM and Cisco. We continue to like well capitalized companies but have big concerns in the short-term with the rising market. Oil is up as are other commodities. The Fed is flooding the economy with dollars in hopes of spurring the economy. Investors are giddy but earnings season is coming so beware.