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Wednesday, August 12, 2009

Federal Open Market Committee (FOMC)

Wednesday is an important day for the market. The Federal Open Market Committee (FOMC), aka "The Fed", with chairman Ben Bernanke will announce the intention of the FED for the next few months.

The big announcement for decades was the NEW artificially held low interest rate. That created created the world's largest credit bubble. However, now that the interest rates can't be held lower, announcements are now for "emergency actions", such as quantitative easing (aka, printing money in an irresponsible way), taking debt notes at over-valued prices as collateral for US treasury notes, and paying interest to banks for their reserves. (A backdoor way for the government to in essence have NEGATIVE interest rates to help banks).

Granted, all of this probably is being done with best intentions, the FED with their power granted by the US government with it's banking system, is trying to fix a problem with the tools it has. The problem is, the fix should be made with different tools, such as government enforcing laws, and cleaning up the system.

But since that isn't the Fed's tools, it uses paper money games to try to fix the system. This Wednesday will be very critical. The USD is near the lower trading range, if the Fed does something to shake faith in the USD, the USD could fall to new lows, which brings on the possibility of USD collapse.

If the Fed acts to strongly, the fragile market will immediately tank, while the USD soars, likely hastening the demise of the insolvent financial companies that currently are barely getting by.

I expect they announce next to nothing and hold their breath for the next beat of the market.

No one knows that the Fed will announce, except Goldman Sachs. (in all likelihood). So 2pm to 2:30pm will have fireworks. Wednesday will be everyman for themselves, you get no advice from me, except have a plan going into Wednesday and act by EOD if needed.

Natural Resources, long term bonds
As already blogged, I am out of the natural resource trade. Oil, Gold, Food are all very very dangerous bets for Wednesday. Best to be in cash and jump in Friday or Monday once the direction is solid. Any long term debt notes are at high risk, if interest rates rise, existing long term bonds will fall in value immediately. I of course can't stay in cash due to my need to play in this game, and I am in short from the top of this market (as blogged, added to positions)

Below is news lineup for the week, highlighting Wednesday afternoon.
From WebSurfinMurf's Financial Blog

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