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Wednesday, September 21, 2011

Running in Circles

So today, as widely expected and overtly hinted at by the Fed itself (it does everything humanly possible to leak out its intentions so not to ever spook the market), "Operation Twist" was announced which basically is the Fed will buy $400 billion of long-term Treasuries and sell an equivalent amount by the end of June 2012. The so-called Operation Twist will not change the size of the Fed's balance sheet but the duration of its Treasury holdings..

In other words it injects another $400 billion into the market temporarily without having to spend an additional $400 billion in new assets like it did with QE 1 & 2, so in a sense that is good news.

Here's how the NY Times described it: "The last time the Fed purchased long-term Treasuries was back in the 1960s during the Kennedy administration. The project, started in 1961, was called “Operation Twist.” It was intended to lower long-term interest rates (to stimulate investment) while propping up short-term interest rates (to attract capital from abroad and support the dollar). Economists generally seem to think the experiment flopped."

And the investors "loved" it so much, that from Bernanke's speech at 2p when markets were around yesterday's level, it Dropped -284 pts to close at 11,124.

Remember what we predicted last week-  Bernanke's announcement will either cause the market to spike up or dramatically fall based on our sarcastic example of Investors wanting 100 Zillion dollars and the Fed only giving 99 Zillion.    Obviously the cockroaches wanted more than $400 Billion.  QE1 was about a Trillion dollars and QE2 overlapped another $600 Billion.  So to them, $400 Billion seemed paltry.

All that hype and build up.. for Nothing.

We like giving comparisons when it comes to the market so people can truly see how Foolish and unwise it is to be investing in it.    On October 18, 2010, the stock market closed at 11,143.  And Today, just a little over 11 full months later, it ended at 11,124.   So if you locked up $10,000...  $50,000..  $100,000 of your precious money with the goal of investing and making a"killing", understand that for all the ups and downs of that period of time, the market pretty much ended today as it did 338 days ago and you probably will need to wait a bit longer to buy that dream yacht.

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