I had to add that extra mad, because the world is just that much more mad than it was when the movie was released. One more mad probably isn't enough.
So the stock market goes up, and it's the highest it's been since I've had any involvement.
The Fed hands another 600 million to the banks. So ... stocks go up.
Is that because they think the banks are suddenly going to start loaning money? At lower rates?
Or that the banks will have so much cash they can....hey, buy stocks! Or something equally dubious and duplicitous.
Sorry, don't much like banks these days.
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The FED did not hand 600 Billion to the banks. The Fed is doing quantitative easy by buying Treasury Bonds. So this can be best represented by saying that the Fed just printed 600 billion in cash and handed that to the government. Basically the fed action means that the government does not have to sell 600 billion dollars worth of bonds that would otherwise have to be sold. That reduces bond rates.
If anything it is a negative for the banks because they borrow at fed fund rates (near zero) and then buy treasuries and profit the difference. If the amount treasuries pays is driven down the amount they make drops.
Except that every article I read about this, says that the banks end up with the money; for instance this from the USA Today:
"Fed action may help stock investors but not savers."
First sentence: "The Federal Reserve is launching its second round of quantitative easing, and stock investors should get a rise out of it."
O.K. That talks about stocks. Damn, where was that article....
Anyway, I'm suspicious it won't end up on Main Street.
Short answer to Dunc's question about why stocks rose: When bond rates go down, it makes stocks a more attractive investment.
Oh it won't really impact main street, except to raise the price of imports. What it is doing is driving down the value of the dollar. Lowering Treasury Bond rates.
Now it does also takes 600 billion in debt off the market so in a small way the government is not competing as much in credit market so it will help non-government bonds by reducing the supply of government bonds.
Keep in mind that whatever help it does provide it will provide as much, if not more drag, when the Fed reverses its course and sells those bonds in the future.
I have a book I can send you that talks about the Bond market, similarly to the one I gave you about the stock market.
Why this impacts equities in this case:
1. Sends a message that the Fed will keep interest rates low for an extended period.
2. Removes 600 billion from competition in the debt sales arena making it easier for companies to get favorable rates for their own bond sales
3. Drops the value of the dollar vs other currencies which makes companies foreign revenue worth more (most of the S&P 500 have substantial overseas revenue) improving earnings
4. Makes our exports cheaper and imports more expensive improving US companies competitiveness.
Even though I have made money from the Fed announcing QE2, I am very much against it. The long term cost/damage is not worth the limited short term gains.
Hey, RDC, did you see what the bank stocks are doing today? Hmmmmm?
today the XLF is pretty flat. It rose with the market yesterday, but not overly much.
Kind of a rising tide lifts all boats kind of thing.
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