Oil rallies following Triple Crown of Fed actions


Think of all the possibilities! They are unlimited, especially after the Federal Reserve used the nuclear option with open ended QE3D and an extension of the low interest rate pledge for another year! Commodity bulls will be dancing the twist as the music plays on with the Fed buying the long end and selling the short end in what can only be described as explosively bullish for the markets.

Ben Bernanke rightly said that this had nothing to do with politics and the Fed can’t do it alone! The Fed felt like it had no choice. With under-employment over 20% and the fiscal cliff ahead, the Fed did everything it could and the markets are on notice. Whether or not you agree with QE or do not, with the third round of QE in place, you might as well enjoy what will be an incredible ride!

The Fed printed a new floor for commodities when, “the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

The Fed also said that, “support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.”

In other words, you can’t fight the Fed because they will continue to buy and print money so get out of the way. We know the Fed is serious because it's more than was expected and because they did not just pick one possibility, they picked all the possibilities. QE, twist, accommodative extension, or the Triple Crown of bullishness!

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