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Fed Increases Liquidity - massive short covering

March 11, 2008 12:54 PM

Helicopter Ben is dropping dollars from the sky and the futures are skyrocketing. The fed just announced another step to increase liquidity by giving 200 billion for primary dealers to swap out of agency paper (mortgage backed, etc) to unfreeze the credit markets. Primary dealers are companies like Goldman…and even Countrywide. This is to free up money so the banks will lend again. Will they? I do not believe they will as the facts have not changed.

Dow futures up 250 currently. The question here is to believe this rally or is it just massive short covering. Personally I think the rally is complete nonsense and none of the facts have changed. Banks are not lending because the facts do not dictate to lend - and this hasn’t changed. While I do not pretend to understand banking in full, there is a reason that the credit markets have been freezing up - billions of bad loans and an economy that is heading south rapidly.

Now you will hear this talk about a succesful test of the Jan lows. I personally think this is a fake rally on orchestrated news. The Fed did this just above the Jan lows on purpose - make no mistake in that. But fake rallys can have legs once people forget WHY the rally occured. Case in point was the emergency rate cut in July 2007 when the market was inches from plunging 1000.

But for now, let’s see how this plays out. As I have mentioned many times, do NOT allow logic and fact to get in the way of what the market says. Whatever the market says is reality. Period. We wont know if this is real or not for a few days once more bad news comes out.

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One Response to “Fed Increases Liquidity - massive short covering”

  1. Bear Market Plunge: StockBlade Timeline Of Views For 2008 | on October 28th, 2008 12:07 am

    […] 11th: “Fed Increases Liquidity - Massive Short Covering Rally”. I make the case that it was a “fake rally orchestrated by the fed” and the facts had […]

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