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The Fed

August 10, 2011 – 5:17 pm

Volatility is here to stay for a while and the last few days have seen historic percentage moves on an intraday basis. The fall of the indexes reached almost 20% from its recent high marking an extreme of what would be considered a correction versus a new bear market. Then a huge final hour rally yesterday reclaimed most of Monday’s loss.

The Fed met and announced that they were going to leave short term rates at 0 to .25% for two years. They have never made that kind of statement. What this does is tell banks and consumers that interest rates are going to stay low and you are not going to make any money in short term safe instruments for a long time. Your money will be safe, losing value to inflation only, but growing your money is going to take some risk taking.

I think the Fed is trying to nudge banks to lend more and get the consumer to considering something else besides cash. They certainly are pushing consumers to spend r invest instead of staying in money market funds or CDs.

It was not much of a nudge but they are running out of things to do. Their next step may be to enter directly in the stock market buying stocks. More likely they will do some more nudging. Just what that might be is certainly subject to speculation.

Good Trading
Steve Peasley

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