Is the Fed out of Bullets?

Right now it's almost not worth it to use Stop Market orders, because the after hours butheads are going to blow through them anyway. I for one think it's a bigger scandal than all the fuss about naked shorting and the like. I get screwed on a regular basis by the institutional after hours traders...and no flowers, no kiss, no nothin'

I have just kept my short postions (via ETFs in my case) which I initiated last Wednesday. The trades are doing really well, so I have no reason to do anything but tighten stops Monday morning and then turn off CNBC...sounds risky, right? Look...if the Fed criminals want to levitate this market again they're going to do it. I can't control that. But I can ensure that my trades are profitable once they're positive by managing them.

My thesis is, though, is that the Fed is beginning to lose credibility. #1- They have been instrumental in making the US dollar fall badly since 2001...this is stealth stimulus, and de facto inflation to boot...how much more are they going to be able to get away with before they crash the bond market? #2-their forecasts and jawboning of the financial markets has been both egregiously wrong (how many housing bottoms have they called this year?) and dangerous...they WILL at some point make things much worse. #3 check out the Bloomberg story about rumours of China starting to dump US treasuries...doesn't sound like they believe Bernanke, does it?

If perception becomes widespread that the Fed is behind the curve and not indeed the masters of the universe, if it becomes apparent that one man, even if he did teach at Princeton, cannot micromanage interest rates and money supply to avoid a major recession...then watch out bond market, and watch out stock market.

Another way of saying what I'm saying is that, by lowering interest rates to almost nothing in 2001, by letting the dollar go for 6 straight years, by encouraging foreign buying of treasuries, thereby pushing up prices for falling yields...the US government has essentially put the US stock market on steroids. But in doing so, we basically have never really had our recession, never damped down speculation, never took out the crazy derivative trades. These signs of excess because institutionalized, and even celebrated as signs that the good times were here to stay.

So what happens if the Fed lowers short term rates? Well, considering that real rates have NEVER BEEN HIGH ANYWAY, essentially nothing at all can come of it. The market, that marvelous morphing thing that it is, has found it's way completely around the Fed. The Fed is impotent and irrelevant...like it ever had any real power anyway. They control the money supply, but they NEVER CONTROLED THE BUSINESS CYCLE. In fact they have, in my opinion, only the ability to mask the results and soften the statistics of the business cycle, but that is all.

Of course Jim Cramer and all the other lemmings in the market know that when the Fed cuts, you buy banks. It probably will still work that way, but again the FED DOES NOT CONTROL THE BUSINESS CYCLE...and until the excesses are worked out of the system, bounces of the financials are short-able in my opinion.

On the flip side if treasuries sell off and interest rates spike, it might actually help the US dollar though...