Fomc Shocker...Unprecedented Campaign...Massive Quantitative Easing...

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IS THIS IT? I BELIEVE NO, THERE IS MORE TO IT; HAS THIS RALLY GOT SOME MORE STEAM LEFT: I ONCE AGAIN FEEL "YES" …

IS THIS IT? I BELIEVE NO, THERE IS MORE TO IT; HAS THIS RALLY GOT SOME MORE STEAM LEFT: I ONCE AGAIN FEEL "YES"

CAUTION: WHY THIS UNPRECEDENTED ACTION??? ARE WE AGAIN MOVING TO THE SAME ERA OF EASY MONEY WITH TOO MANY DOLLARS CHASING FEW ASSETS (REASON FOR THE CURRENT MESS)???

Please provide your perspective by responding to two polls at http://vinittulsyan.wordpress.com/

1. IS THE CURRENT FOMC MOVE OF MASSIVE QUANTITATIVE EASING A MOVE IN THE RIGHT DIRECTION?
2. IS THIS AN END TO US DOLLAR RALLY?

THE RALLY CONTINUES…

The rally continues with US markets posting their best 7 day performance since 1930s. With one big event of details on FOMC meet out, I continue my belief that Dark clouds to fade further on the back of other six events. These events as and when unfolded will provide direction to global equity markets including Indian Markets. (Refer my earlier article titled “fading dark clouds” dated 16th Mar’09). Please find attached file to read more...

Thanking You,
Warm Personal Regards,

Vinit Tulsyan
http://vinittulsyan.wordpress.com

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  • 1. FOMC SHOCKER… UNPRECEDENTED CAMPAIGN… MASSIVE QUANTITATIVE EASING… 1 FOMC SHOCKER… UNPRECEDENTED CAMPAIGN… MASSIVE QUANTITATIVE EASING… Equities Equities COPPER OIL BOND PRICES USD FALLING YIELDS BUT… March 19, 2009 Vinit Tulsyan http://vinittulsyan.wordpress.com
  • 2. FOMC SHOCKER… UNPRECEDENTED CAMPAIGN… MASSIVE QUANTITATIVE EASING… 2 THE RALLY CONTINUES… The rally continues with US markets posting their best 7 day performance since 1930s. With one big event of details on FOMC meet out, I continue my belief that Dark clouds to fade further on the back of other six events. These events as and when unfolded will provide direction to global equity markets including Indian Markets. (Refer my earlier article titled “fading dark clouds” dated 16th Mar’09). Today’s FOMC decision at-least provided clarity on the state of economy and as this one big event unfolded, with market participants just expecting a statement from FED on the state of economy on the back of expectation that FED on the back of already 0% interest rates and widening deficits have exhausted all its ammunition…BUT unprecedented times calls for unprecedented action, unprecedented campaigning. Its realization that credit market or main-stream market stability is the key to put a stop on economy contraction and brining back stability to economy; which in turn will guide the equity markets. The other events which going forward will unfold and provide direction to equity markets include: 1. Details on Geithner’s BANK TOXIC ASSET PLAN (though part of it became clearer today that the existing TALF program will be extended to include other financial assets in order to spur consumer lending to help remove distressed assets from banks’ balance sheets), 2. G20 summit in London, 3. Continuation of good news on banking front, 4. Details on Stress Test conducted on 19 largest banks in US and March 19, 2009 subsequently clarity on the bad word called “NATIONALIZATION” and whether banks would be needed to recapitalized further or not, 5. Decision over UP-TICK and MTM rule, 6. News flow unfolding in China Vinit Tulsyan http://vinittulsyan.wordpress.com
  • 3. FOMC SHOCKER… UNPRECEDENTED CAMPAIGN… MASSIVE QUANTITATIVE EASING… 3 Note: Please refer my earlier article dated 16th Mar’09, titled FADING DARK CLOUD FED FIREPOWER IGNITES REBOUND AND THE RALLY ON THE WALL STREET CONTINUES… Mr. Bernanke reiterated that to stabilize the economy, one needs to stabilize the financial system and the main stream market and that is exactly what FED has done. Very few market participants expected FED to take any drastic action and the expectations gained confidence due to already 0% interest rate, a large deficit. But Fed showed that unprecedented times calls for unprecedented actions to be taken, unprecedented campaigning to be done. Fed showed that Interest rates are not the only tool it has, rather it will do anything or it is ready to take unprecedented decision at any cost to avoid repetition of 1930s. But at the same time, it also shows that how much cautious fed is about the economy, and it believes that the health of the economy is not good, nor its’ expecting the economy to come back on track any time soon. In other words, the more dramatic the move, the more it says about the depths of the economic problems. How do the policy makers view/observe this economy? quot;The economy continues to contract,quot; the policymakers observed. quot;Job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending,” Businesses are facing weaker sales prospects and Credit troubles have them cutting inventories. Problems overseas have crimped demand for U.S. exports, providing domestic companies another blow, March 19, 2009 Unemployment rate up to a quarter-century high of 8.1 percent and expected to breach 10% over sooner rather than later. Vinit Tulsyan http://vinittulsyan.wordpress.com
  • 4. FOMC SHOCKER… UNPRECEDENTED CAMPAIGN… MASSIVE QUANTITATIVE EASING… 4 Decision taken by FOMC: The last time the Fed set out to influence long-term interest rates was during the 1960s. To buy up to US$300 billion in longer-term Treasuries over the next six months—which will encourage lending by lowering interest rates; It will buy up to an additional US$750 billion of agency mortgage-backed securities (MBS), bringing the total this year to US$1.25 trillion. It will also double its purchases of agency up to US$200 billion. It had decided to hold its target for overnight interest rates in a zero to 0.25 % range; a level reached in December (and expected to be in this range at- least this year) and repeated that borrowing costs would likely stay unusually low for some time. In addition to all these above steps, the Fed said a US$1 trillion program to jump-start consumer and small business lending could be expanded to include other financial assets. Range of eligible collateral for the TALF “is likely to be expanded to include other financial assets in order to spur consumer lending to help remove distressed assets from banks’ balance sheets. o The TALF would provide loans to investors and agree to take illiquid debt as collateral. TALF may lend as much as US$1 trillion to investors from hedge funds to pension funds and insurance companies. FED action in sync with the central banks actions around the globe Central banks around the world are grappling with how to formulate policy with target interest rates near zero. The current monetary policy move of US FED is March 19, 2009 similar to MPC (Monetary Policy Committee) of Bank of England. The Bank of England is buying government bonds and corporate debt, the Bank of Japan is snapping up government notes and making subordinated loans to banks, and the Swiss National Bank is intervening to weaken the franc. Vinit Tulsyan http://vinittulsyan.wordpress.com
  • 5. FOMC SHOCKER… UNPRECEDENTED CAMPAIGN… MASSIVE QUANTITATIVE EASING… 5 A CAUTION… APART FROM EQUITIES, OTHER ASSETS CLASSES ALSO RALLYING…MEANING THAT INVESTORS LOOKOUT FOR SAFE HAVEN IS NOT YET OVER…RISK APPETITE STILL NOT IMPROVING Treasuries rallying: FOMC action spurs the biggest rally in bond prices in decades, BUY WHAT GOVT. IS BUYING; focus again shifted on safe haven, as bond market turned bullish with FOMC announcement of buying treasuries securities and MBS to help ease credit market; with bond prices soared at a roaring pace. Yields on long term 10 year treasury paper fell by as much as 50 basis point during the days trade, finally closing at 2.54% against 3.01% at the start of the day’s trade, the biggest decline since records dating from 1962. Gold Rallied: “INFLATION HEDGE AND SAFE HAVEN STATUS CONTINUES”, U.S. gold futures rose above US$940 an ounce (up 3%)on inflation fears and a tumbling dollar after the FOMC released their statement, which included buying up to US$300 billion of long-term Treasury securities over the next six months. GOLD is there for diversification, and is expected to continue its rally in the long term. Another reason why his rally has more steam left? Dollar Plummets: Dollar plummeted after FED decision as fed action balloon fed balance sheet and will add additional 1 trillion USUS$ to the FED Balance Sheet. US$ plummeted against major currencies with US$ March 19, 2009 index falling by more than 3%. Vinit Tulsyan http://vinittulsyan.wordpress.com
  • 6. FOMC SHOCKER… UNPRECEDENTED CAMPAIGN… MASSIVE QUANTITATIVE EASING… 6 BUT??? Are we again moving to a situation where too many dollars or too much of money due to “EASY MONEY” availability again starts chasing too few assets which is the root cause of the current problem. The goal is to kick start the US economy, and if that will be done by increasing the appetite of borrowing money by an already over-debted people and it will further put pressure on an already troubled economy. The easing of interest rates, mortgage rates, as per FED expectation will facilitate the extension of credit to households and small businesses, but what about INFLATION? Will the decreasing mortgage rates artificially put increase the home price, which have been the plummeting the worse, and is the first and the major reason for the situation the economy is into now? Thanking You, Warm Personal Regards, Vinit Tulsyan, http://vinittulsyan.wordpress.com March 19, 2009 Vinit Tulsyan http://vinittulsyan.wordpress.com