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No matter what happens, all eyes should be on the Dollar following the FED meeting and we covered our short on the Dollar ahead of the meeting. 

Before the FED announcement this is what the set up looked liked at 12pm EST:

  1. The Dollar was up +0.10%
  2. Oil was up +1.23%
  3. Euro was down -0.05%
  4. Gold was down -0.23%
  5. Copper was down -0.57%
  6. The S&P 500 was trading flat
  7. Treasury prices are higher
  8. XLB XLY and XLE were trading lower
  9. XLI, XLF and XLU were trading higher

Out of the FED today we get:

  1. The FED intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.
  2. No acknowledgment of inflation - he is as delusional now as he was in 2008 when oil was at $145
  3. Hoenig dissents once again
  4. More confirmation that the US economy is weak

The facts have changed about the effectiveness of the FED program and they have not TIME IS RUNNING OUT.  The Republicans are unlikely to provide any “silver bullet” for the country's serious problems and from an economic perspective the new QE will get us very little bang for a lot of bucks.  The “recovery” is behind us and the current policy will not bring back the consumer spending to the level of the last 30 years.  So what’s the point?  Where is the job creation that is so badly needed and how is QE going to provide jobs?

As we can now get back the grind, there three things that matter most in global MACRO today:

  1. Global growth slowing
  2. Inflation accelerating
  3. Interconnected risk compounding

The initial reaction of the dollar to weaken only slightly stock rally the EURO improves and treasuries get hit hard.  All that matter is we are seeing the bottoming process for the Dollar and this is BAD for equities.  As the buck stops burning, our first level of support to the S&P 500 is 1167 or 2% down side from here.

Howard Penney

Managing Director