Two Ways: Fed Goes on Shopping Spree
Strengthen your portfolio in good times and bad.
In addition to increasing its purchases of mortgage-backed securities, the Federal Open Market Committee (FOMC) said today it would buy as much as $300 billion worth of Treasuries over the next 6 months. It's an unprecedented move in the history of the Federal Reserve.
According to the Wall Street Journal, the strategy will help push up prices in Treasury bonds and bring down yields, thereby easing the stress in the credit markets as interest rates on many corporate bonds and consumer loans are tied to US Treasury debt.
Today's statement also signaled the willingness of the FOMC to expand the Fed's balance sheet: It voted unanimously to purchase a maximum of $1.25 trillion of Fannie Mae (FNM) and Freddie Mac (FRE) guaranteed mortgage-backed securities.
As expected, the federal funds target rate was left unchanged at 0 to 0.25%.Treasuries rose, while the dollar declined, and stocks in general rallied.
Looking ahead, Friday is expiration day. Make sure you check out Professor Steve Smith's Expiration Week: Defending Your Positions.
From the Bull Pen: The response in the gold market was loud. The Gold ETF (GLD) finished the day closing on session highs. Those bullish can continue to play this stock; a sell stop can be set 2 points below entry.
From the Bear Cave: Bears notice that the S&P 500 stalled at 800 resistance. Aggressive types can attempt a quick downside play using the Ultrashort S&P 500 (SDS). But this play isn't for the faint of heart, so remember to set your sell stops.
Have a good night, Minyans!
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