The FOMC

by Larry Levin

Yesterday the FOMC gathered and slashed rates again, further screwing all people who try to SAVE money. That is apparently what the Fed is trying to avoid. It doesn't want you to salt away any extra cash; it wants you to spend it all. What the Fed and government officials cannot understand is that the average American is saying NO to pissing away money on overpriced junk: frugality is now cool.

The average Joe doesn't want to repeat the mistakes of the recent past, but the Fed sure wants him too. In fact, the Fed is aggressively manipulating the entire yield curve lower, trying to get the carrot-on-the-stick closer to the proverbial horse.

Bloomberg.com ----------------------------------------------

The Federal Reserve opened a new era in U.S. monetary history, cutting interest rates to as low as zero and pledging to buy unlimited quantities of securities, after conventional policies failed to arrest what may be the worst recession since World War II.

The new strategy is likely to involve unusually close cooperation with the Treasury of President-elect Barack Obama, which is still formulating its economic-rescue plans. The aim is to kick-start borrowing and spending to propel the economy toward a recovery by the middle of next year.

It's going to take a combination of fiscal and monetary stimulus to get the job done, said former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co. in Washington. The central bank has signaled it will make sure that the fiscal stimulus package, which is going to be a big one, is fully supported" and "in effect financed by the Fed.

We are running out of the traditional ammunition that is used in a recession, Obama said at a news conference yesterday. While the Fed is going to have more tools available to it, it is critical that the other branches of government step up, he said.

The only meaningful limitation right now is their capacity to be creative, said David Resler, chief economist at Nomura Securities International Inc., New York. The Fed is telling us there is just about nothing off the table.

The availability of Fed credit might deter private credit, said Vincent Reinhart, resident scholar at the American Enterprise Institute in Washington and former director of the Division of Monetary Affairs at the Fed Board. The lender of last resort becomes the lender of only resort.

Quantitative easing American style is what they're giving us, said Allen Sinai, chief global economist at Decision Economics Inc., New York. The Japanese style was to buy government maturities. The U.S. style is directly buying agency securities, buying mortgage-backed securities and lending money right into the private sector.

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Is there an incentive for banks to lend at lower rates during a recession? When unemployment is increasing? It is this simple: Banks only lend for profit. No profitable borrower equals no lending. That is all you need to know. Why doesn't the government understand this?

All we do here in the U.S. is play around with our money by adjusting interest rates, infusing cash into the system, or stimulus packages. There is no talk of real economic growth, which is for us to produce more, which comes from savings. What we get, however, is just more BS from our leaders.


Previous Day's Trading Room Results:

Trade Date: 12/17/08

E-Mini S&P Trades*
(before fees and commissions):

1) TP sell @ 12:45pm at 916.00 = +.50 (1 lot)

2) Algorithm positions (21)...combined daily total...-0.50

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) No trades today.



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