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Who Stands to Benefit From The Fed?


How is it that the captains of capitalism could capsize the ship of state?

Looking beyond the embers of bridges glowing behind us
To a glimpse of how green it was on the other side
Steps taken forwards but sleepwalking back again
Dragged by the force of some inner tide
At a higher altitude with flag unfurled
We reached the dizzy heights of that dreamed of world

--High Hopes (Pink Floyd)

As a teenager in the late 60's, I remember watching my dad, who ran a hedge fund from his home office, jump into stocks as they exploded higher and higher.

Having recently studied the era of the Great Depression in high school, I asked if he wasn't concerned that the more vertical the market, the greater the risk it could topple and once again bring the economy down with it.

It seemed to me a simple law of nature that every school kid understood - the bigger the bubble you blow, the bigger the splat on your face. It seems the truism lost in the annals of history, gone by the wayside of human endeavor: the bigger they come, the harder they fall.

My father's response to my question: "The Federal Reserve would never let the Great Depression happen again". His answer didn't exactly appease me as I saw him speculate with our family's nest egg. I wasn't exactly filled with confidence by my dad's faith in the Federal Reserve - after all I was a child of the sixties.

However in the markets, sometimes the law of action and reaction gets repealed for a time by the actions of men. Although in trading, less is more, the market many times has a way of making more of less, of turning logic on its head and screwing it into counterintuitive floorboards.

It wasn't until many years later as a student of the market that I learned how the actions of the Federal Reserve not only contributed to the buying binge into, and collapse after 1929 but actually exacerbated the Great Depression.

Who exactly was this Federal Reserve and why was it created? How could a group of such supposedly knowledgeable and prominent men wrought such havoc?

Maybe it's just my skeptical, some say cynical nature, to reconcile the above question with a more pointed question: who would stand to benefit the most by the creation of financial chaos? Who would stand to benefit the most by the creation of a Federal Reserve? The answer to these questions is laid out in a book about the banking cartel - The Creature from Jekyll Island. Seriously, that the book is out of print is probably just coincidence.

How is it that the captains of capitalism could capsize the ship of state? Or, is it just that the tide in the affairs of men have their own inevitability?

It certainly seems ironic that the preeminent scholar of that era, Ben Bernanke, is the current Chairman of the Federal Reserve. It seems the height of irony that Mr. B is Being for the Benefit of the Boyz in the investment banking bailout band.

After all, this is the same Bernanke that gave an albeit belated apology to economist Milton Freidman for the Fed's behavior in bringing about the Great Depression, saying "We won't let it happen again".

So, Boom Boom's posture strikes me as eerily bizarre and analogous to the summer of 1927 when the Fed cut rates with the market near all-time highs and that history may be repeating. It strikes me as odd and disingenuous that the reasoning behind Wednesday's market comeback was laid at the doorstep of Wednesday's release of last month's FOMC minutes which presumable showed unanimity of opinion in favor of further rate cutes. Of course, that was a month ago with the S&P some ninety points lower - not at all-time highs. However, the bulls never let little details derail an agenda.

Hey, seems to me the minutes could have shown that Fed members played strip poker and never even discussed the credit crisis and the market would have rallied on the premise that if they're not worried, well why should we worry? To be sure, it's an Alfred E. Newman market: "What me worry?"

The market's impressive resiliency and underlying strength are obvious to everyone. It has overcome all obstacles and crisis. Surely, all market participants can see it. It has climbed the highest wall of worry ever built. So, just one question: who's left to buy?
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No positions in stocks mentioned.

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