Sunday, August 26, 2007

One Sunday Evening

Just a short comment this evening with more to come on Monday evening: The market has shown that it can rally when it thinks the Fed is "supporting" it. We look at the relatively low volume and know this rally is mostly without substance or staying power. When the market was declining two weeks ago, conviction for the decline could be measured in the very high volume.

We would like to make one comment about the Fed in our short post this evening. The Fed has "loaned" money to the banking system by purchasing very secure assets from member banks. This action has allowed some liquidity to be floating around the system but its time is short as the Fed has promised to sell them back in 30 days or less. These actions by the Fed are called "repo's" and they will be resold over the next few days or weeks.

The Fed has given the banks some time to sell some of their own assets so that they can repay the loan given to them by the Fed. This will necessary Drain liquidity from the marketplace. More tomorrow but for this evening just know the Fed has entered the market on a very temporary basis.

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