Sunday November 1, 2009

Sunday, November 1, 2009
How long can the party last?
And how long can they continue to 'fill the punch bowl'?

As long as our federal government continues to play the role of 'usurper' we shall walk down the road of liberty absconded...

prb

BBW Capital Advisors - Market Monitor
The word on the Street is that no investor “likes” the current level of rates or spreads, but every trading desk is seeing widespread demand for risk assets. This is likely to continue until the Fed takes the punch bowl away. Last Monday we got a hint of what this might look like. When Congressional lawmakers indicated that they might not extend the tax credit for 1st time homebuyers, stocks traded off 2% within the hour. The downside of not withdrawing liquidity fast enough is a potential re-inflation of asset bubbles and further devaluing of the dollar.
Does this concern the Fed? Doubtful. Last week on CNBC, Boston Fed President Rosengren stated the dollar weakens when equity markets do well, suggesting there was no reason to worry about the dollar. We ran the numbers on these two markets every possible way and found absolutely no long-term correlation between them. To suggest otherwise is statistically spurious at best, and downright misleading at worst. As far as we can tell, the Fed is doing everything in its power to distract investors from any negative consequence of its liquidity program in order to allow them to keep the party going. Stay tuned here to see who actually wins this modern day financial tug-of-war.