The
market is taking a beating this morning as investors are anticipating
news from the Feds. Investors are clinging on to the hope that the
Federal Reserve will approve of some form of stimulus. “People are
looking for some comfort from the Fed,” said Rick Fier, director of
equity trading at Conifer Securities LLC in New York. His firm oversees
more than $12 billion. “Just adding to the Operation Twist might not be
enough to make them happy. They would like to see something more coming
out of the Fed. We’re of the opinion that they are not going to get
that.” The Fed will probably decide today to expand Operation Twist
beyond $400 billion to spur growth and buy protection against a deeper
crisis in Europe, according to a Bloomberg News survey of economists.
The program, which seeks to lower borrowing costs by extending the
average maturity of the securities in the central bank’s portfolio, ends
this month.”
Anticipation is building up and we will know the result of this Federal
Reserve meeting shortly. If the Federal Reserve just adds stimulus in
the form of expanding operation twist, we could see some upset investors
and some further market pull backs. Though, the affects in the long run
will be a stimulated market. Operation Twist is a very simple process
where the Feds take their medium-term bonds that have low interest rates
near zero and sell them and use these proceeds to buy long-term bonds,
such as 10 year treasuries. This allows for an increasing in the
monetary supply. In theory this should drive down interest rates on 10-
year bonds. Plenty of other interest rates like mortgages are tied to
the 10-year rates. So this would be a move to further drive down
interest and ultimately stimulate the economy in the long run.What investors are really hoping for is another round of quantitative easing. A round of QE is a much more simple process where the Feds stimulate the economy by printing money out of thin air and it having its largest effect on the short run. The issue with this is inflation and with every extra dollar printed is that people lose money on their dollars. The decision is going to be a difficult one. Another round of QE will send gold and silver surging upward while operation twist will simply lift the asset up and not send it through the roof tops. Regardless of what happens we are looking at a pretty hefty increase in the price of gold and silver. With prices so low right now it is a good time to invest. This window will not be open for long as the Feds are meeting to determine the future of the U.S. economy and investors are anticipating their decision.