March 18, 2009

Yesterday legislation was proposed in the U.S. Senate to reinstate the so-called "uptick rule," requiring short sales to be executed only when prices are moving higher. The rule was scrapped in July 2007 as the SEC recognized its irrelevance in the age of electronic trading and decimalization. Since then the S&P 500 has lost over 50% of its value, which some lawmakers and regulators attribute to "abusive" short selling, "tantamount to fraud."

"We believe the ability to achieve private equity-like returns at an even more senior position in the capital structure provides a significant opportunity for the fund." Leave it to GS - Goldman Sachs is looking to raise as much as several billion dollars from outside investors for a new global fund that will invest in the debt of troubled companies, The Financial Times reported.

tech companies adopt quicker to econ slowdowns and they lead the way out of recoveries. What is starting to work now would be commodities, emerging markets and global tech.

What the fed did today is forcing people to go further out on the curve. They want to reinflate the economy, which will hurt the dollar.

Per Stocktrading.com - intent of the government to inflate the economy, the investment implications are many. In an inflationary environment, Treasury bonds will suffer. Currently, the 2 year Treasury pays 1.45% and the 10 year Treasury pays 3.49%. The initial steps of an orchestrated increase in inflation will be led by a Federal Reserve (Fed) interest rate reduction. When it occurs, you should expect Treasury yields to decline further. At that moment, I would exit these positions as increasing inflation will erode the value of the bonds.

The largest beneficiary of increased inflation will be hard assets and related companies. Gold offers the purest exposure, but all commodities should do well. Equities that either supply commodity producers (i.e. -fertilizer companies such as POT) or currently possess abundant commodity reserves (i.e. - oil companies such as XTO) should see their shares perform well. Real estate should begin to bottom and then eventually outperform.

Government bond prices surged. The yield on the benchmark 10-year Treasury note, which moves opposite its price, tumbled to 2.48 percent from 3.01 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.21 percent from 0.22 percent late Tuesday.

The Fed said Wednesday it will pump about $1 trillion into the economy, including the purchase of up to $300 billion of long-term Treasury securities over the next six months, as it works to revive the housing market and halt a punishing recession.

Specifically, the Fed will purchase up to an additional $750 billion of agency mortgage-backed securities. Furthermore, the Fed will purchase up to $300 billion of longer-term Treasury securities over the next six months.

In all, the Fed announced it would buy $750 billion in mortgage-backed securities and $300 billion in longer-term Treasuries in a push to loosen credit markets and restart lending, which froze as the financial crisis erupted last autumn.