US Stocks Rally As Fed Moves To Buy Tsys???

NewCreature posted on Wed, Mar 18 2009 4:16 PM

rated by 0 users

There is some pretty serious manipulation going on these days to pump
up the markets that the general public care about while increasing the
risk of a catastrophic melt down. This is just another example. Am I
wrong to think that this is a really really bad thing?

Mike
<><

US Stocks Rally As Fed Moves To Buy Tsys, More MBS

By Geoffrey Rogow
Last update: 2:43 p.m. EDT March 18, 2009
NEW YORK (MarketWatch) --

 A spending spree from the Federal Reserve drove a rally in stocks,
especially in banks that helped fuel a nearly 100-point gain in the
Dow Jones Industrial Average.

In a mid-afternoon announcement, the Federal Reserve said it will buy
up to $300 billion in longer-term Treasurys and raise the size of
lending programs already aimed at reducing mortgage rates by another
$750 billion. The commitment to buy Treasury securities and additional
mortgage-related debt should mean lower rates for a variety of
business and consumer loans.

Banking stocks were most helped by the Fed's announcement. Bank of
America was up 15% while Wells Fargo tacked on 8%. Citigroup, which
had been gaining all day, recently was up 23%.

By buying Treasurys, the Federal Reserve is increasing the amount of
money in the system in a similar fashion to cutting interest rates.
That likely means another decrease in mortgage rates and more
favorable rate spreads for banks. Banks will now be able to borrow
money more cheaply, leaving more room for a profit.

"It's basically the next best thing [to a rate cut]," said Dan Cook,
senior market analyst at IG Markets. "Bernanke, in 2002, laid out this
exact scenario almost word for word," he said, referencing a speech in
which current Fed chairman Ben Bernanke advocated use of the "printing
press" to fight deflation.

Longer term, however, Cook said, "this debt is [going to be] tough to
service after a while. I didn't hear about an exit plan."

Though the Fed, as universally expected, took no action on its main
policy rate, holding it near zero, the move also served as a reminder
that officials still have powerful tools to combat the recession.
While banking stocks paced the gains, much of the afternoon rally was
broad based.

The Dow, recently up 98 points at 7493, was off about 60 points prior
to the Fed's announcement. The S&P 500 recently gained 1.9%, to 793,
while the Nasdaq Composite rose 2.2%, to 1494.

In other markets, Treasury yields tumbled following the Fed's
announcement while the dollar also declined.