The Salvo from Battleship Ben

Battleship Ben Bernanke showed quite a bit of flexibility and aggresiveness with the Fed move yesterday to create the Term Securities Lending Facility. The size of the move was quite significant at $200 billion, which is about 25% of the monetary base of the US now usable for funding mortgage securities. That's not a niggardly application of medicine. Also, this might take some pressue off the dollar as extremely low overnight rates may not be necessary now. At this time, less dollar pressure might mean stabilization of oil prices.

My thinking is that 2% to 2.5% is a good place to stop for the overnight rate. That's plenty low enough to give lots of cash flow relief to all with adjustable rate mortgages and home equity loans. Also, I would prefer for the Fed to actually buy mortage securities outright as a permanent policy. That market is really huge, bigger than the Treasury market. Over the long term, I think unduly concentrating the Fed's balance sheet in the Treasury market has caused some distortions. A story in the WSJ says the Fed chose not to buy those outright now, as they feared distortions. And that's true as individual mortgage securities issues are relatively small. Perhaps the Fed can buy pools of mortgage securities by simply taking down some of the mortgage collateral for the TSLF when the loans mature after 28 days. That would not distort the mortgage market for individual issues.

The WSJ had a story about an explosion in FHA lending. That is good. FHA is a fine program that was neglected for years. FHA needs expansion and modernization, but even now it is helping large numbers of the "common man" get a fair mortgage loan. I remember a song from the late 1930s-early 1940s with the theme, "Will You Still be Mine" about love lasting a long time. One of the humorous lines was "When we have finally paid our FHA note". So that program giving fair fixed rate, long term loans to the "common man" has been around a long time.

Also, GOOG received approval from the EU on its Doubleclick acquisition and that closed yesterday. That's good news.

Markets

Yesterday was a huge move up reminiscent of August 13, 1982 when the Fed cut the discount rate triggering a big move up and started that great bull market from 1982 to 2000. NYSE up to down volume ratio was 9:1, which was an old Marty Zweig bullish signal. It's been distorted some due to program trading, but in my mind the coincidence with a major policy move adds to its significance. And I hear lots of skepticism. Good.

The S&P shows a double bottom formation now and is setting up a "W" bottom pattern. A grinding climb to the 1390-1400 area and two closes over that level would created a bullish bottom pattern.

I am still selling gold & silver and buying stocks. I'd like to add to GOOG now on a dip, but have a lot already. I have a lot of the banks now but would add some BAC and JPM at a good price. Also, I'd like to add to AAPL. But I'll be patient and let the beefer bears give me a good price. They are out there. A wounded bear is quite dangerous. Be patient and careful. But the news is good and can get a lot better into spring.

Words of the Day - reprise of some 'duces and one more.
[You can guess I have trouble remembering these $10 words ending in "duce"]

"Adduce" - verb, transitive [$10]
Adduce means to offer as an example, reason, or proof in discussion or analysis; alternatively, it means to cite as an instance or as proof or evidence.
Sentence: Bunkerman adduces the 9:1 up to down volume ratio that a bottom might have been set for the stock market.

"Conduce" - verb, intransitive [$10] (followed by "to")
Conduce means to lead or tend to a particular end usually desireable result: contribute.
Sentence: The Fed's TSLF conduces to more liquidity in the mortgage markets.
[This verb provides an active voice alternative to the common passive voice usage, "is conducive to"

"Congeries" - noun, plural [$10] (the "g" is soft, as in "jury")
Congeries means aggregation, collection
Sentence: Yesterday's congeries of the Fed policy move, double bottom and 9:1 up-to-down NYSE volume ratio provided strong indication that March 10 was indeed the "Spitzer Bottom".