Fed Gets Smart on Commercial Paper

Tiny Bits of Redemption

Old pirates, yes, they rob I
Sold I to the merchant ships
Minutes after they took
From the bottomless pit
But my hand was made strong
By the hand of the almighty
We forward in this generation
Triumphantly
--Bob Marley (Redemption Song)

“Redemption Song” is one of my favorite Bob Marley riffs, and -- from political movements to the stock market -- “redemption” seems to be a common theme at the moment.

The frightened investors frantically dumping their mutual-fund holdings are engaging in one kind of redemption (and they've played a major role in last-minute sell-offs). Toss in the miserable performance -- or ignominious demise -- of a number of hedge funds, and you see that these downdrafts seem more the result of anxiety than of true selling pressure.

Yesterday, however, the market was up, and there was a sense it would stay up, as buying begat more buying. As for those big-time hedge fund managers hitting the skids, many investors regard that with a sweet sense of Schadenfreude.

Some investors might even call it karma - a cosmic form of redemption, especially for those shorts caught in the Volkswagen squeeze.



Show Me the Money

So the market rebounded, and enjoyed its second-best day ever, but it doesn’t feel like much more than a mid-week relief rally - the kind we've seen many times before during this yearlong market struggle. Investors could take more from a follow-up rally today, even if it’s only 100 points or more on the Dow.

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It’s been a long time since the market posted back-to-back winning sessions. And to rally on a rate cut from the Fed, which everyone saw coming, would be a statement in and of itself. In addition to today’s rate cut and the even cheaper money flooding the system, big business is sopping up the commercial-paper opportunities created when the Fed entered into the fray on Monday.

After averaging 340 issues and $6.7 billion a day, 80-day-plus commercial paper volume Monday erupted to 1,511 issues for $67.1 billion. The government bought approximately $60 billion or more of Monday’s total.

Of all the things the Fed has tried this year, I believe this is the smartest. Payrolls have to be met, and cash has to flow into coffers if businesses are to forge ahead in a tight credit environment.



From Bull to Bull

It’s about time: White House press secretary Dana Perino finally got tough yesterday, saying that “banks exist to lend money.” I keep hearing how the White House can’t make banks lend - but they could make them offers that couldn't refuse. (Hasn't anyone in the White House seen The Godfather?)

The White House press secretary did suggest regulators are watching closely, and will be working with the banks.