Fed going to act?

Speculation that the Fed will act to avert a brewing crisis credit crisis triggered a huge market rally today. Fed vice-chairman Don Kohn "dropped what investors saw as a clear hint that the US central bank was ready to cut interest rates again next month unless market conditions improve." This and the previous seemingly hawkish statements from other Fed officials appears to UU as just expectation management on the part of the Fed -- send out the hawkish guys that want a calamity first, like "Calamity" Bill, so not everyone gets their hopes up, then send out the dovish guys to get the everyone in position for "Helicopter" Ben's carpet bombing the market with paper coming out of his printing press on overdrive.

The Fed can rail against moral hazards all it want, but at the end of the day it is in everyone's best interest -- including the Fed's -- that the banking system stays functional. Whether it likes it or not, the Fed will have to bail out the market in some way. The most disciplining the Fed will do is shoot a few weak or unruly market participants as example, slap the rest on the wrist, let the survivors go their merry way and let the next round of financial "innovation" (excuse to put on more leverage) begin.

One of the headlines this week is the Abu Dhabi state investment vehicle injecting cash into Citibank. The opinions in the mainstream press and blogsphere have been nearly unanimously negative with the 11% coupon Citibank will be paying likened to junk bond rates. Andrew Clavell who writes Financial Crookery has a different opinion. Mr. Clavell's analysis seems rather reasonable to this blogger.

UU's short in OIH looked like it was going to take a hit with the market rallying and rather than risk turning a winning trade into a losing trade, he took half the chips off the table at an average price of 174.90 in morning. Given that big sell off in oil related items after the 10:30 EST inventory announcement, it appears that this blogger probably missed the boat on shorting crude oil. Oh well...such is life in speculation.



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