The FOMC decided not to alter interest rates or engage in any new changes to their monetary policy at the latest 2 day meeting, of which they spent all of 15 minutes discussing policy and 2 days discussing the propaganda of how to sell the policy to the legions of chicken-little traders and asset managers hanging on their every word, reduced to begging for rhetorical scraps of information because, thanks to the FED, the markets have become not tradeable and unintelligible.
The net result is that Operation Twist will continue until the Fed runs out of short dated bonds to sell, which could happen within the next 2 to 3 months. It will very likely happen before the election. Thanks to this bit of drama, the U.S. Dollar rally (AMEX:UUP) resumed full bore with the Euro (AMEX:FXE) selling off back to pre-Greek-election-fear-trade levels, Gold (AMEX:GLD) getting murdered back under $1600 per ounce and crude oil attempting to trade below $80 per barrel.
Just imagine the carnage in commodities if the Fed gets it all wrong?
The fear trade is back on people. The Fed, having goosed up the markets via Operation Twist and open swap lines is going to continue to ensure the markets remain range bound for the foreseeable future, until such time as the policy fails when a Lehman-style event happens. What they are doing now is guaranteeing another one happens soon.
Meanwhile demand for physical gold will continue to rise as the FDIC has just published their new rules on Bank capitalization ratios and Gold has been upgraded to tier 1 status, which means it carries the same weight as U.S. Treasuries do. Banks that have a need to protect themselves from the whirlwind will begin filling their coffers with gold. At least the smart ones will.
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