Update
2:30 p.m. CT
In
an unprecedented step, the Fed's policymaking panel launched another aggressive
economic stimulus program today by saying it will buy $40 billion of mortgage-backed
securities per month until the outlook for jobs improves - and as long as
inflation remains contained.
The new purchases
combined with the continuation of "Operation Twist" will increase the
Fed's buying appetite by about $85 billion per month through at least the end
of the year. In the Fed's first two
rounds of economic stimulus, dubbed QE1 and QE2, the Fed had a buying appetite
of around $100 billion per month.
The latest purchases build on the $2.3
trillion in Treasury debt obligations and mortgage-backed securities the Fed
has already bought.
In
an additional move, central bankers said they are not likely to raise their
benchmark short-term interest rates from current rock-bottom lows until late
2014.
There
is quite a party going on as the mortgage market is experiencing a
"moon-shot" rally as I write.
Stocks are rallying too -- but Treasury debt prices remain soft.
There
is absolutely no doubt the market is always right - and I am some of the
time. The current rally may be more than
the "head fake" I suggested it might be in my commentary earlier
today. I am willing to accept the idea
that things may be different this time around - but my experience continues to
nag me into bearing in mind the historical fact that QE1 and QE2 each produced
at least a 600 basis-point swoon in mortgage market over the six months
following their launch.
One
day does not a trend make - but more than a 100 basis-point single-day rally is
certainly a nice start. Let's see what
follow-through trading is like over the next two days or so before we get out
our party hats out and start dancing in the street. I've modified my short- and long-term trend
pipeline risk management recommendations from this morning.
