Fed Announces "Operation Twist"

So what is "Operation Twist"?  Basically the Fed will buy 400B worth of longer dated bonds and fund the purchase by selling an equal amount of bonds with the maturity of 3 years or less to fund that purchase.  This will all be done prior to June 2012.  The feds balance sheet will not expand as it did during the release of QE1 and QE2 (quantitative easing).  Bonds in the range of 6 to 30 years will be purchased, and an equal amount of bonds 3 years and under will be sold, all in the hopes of stimulating the housing market.
How did bonds react after the announcement of this stimulus package.  Below is the 10 year bond TLT.

Unlike QE1 and QE2, this stimulus package does not look to benefit stocks and commodities.  Under QE1 & 2, the feds balance expanded by purchasing mortgage backed securities and treasuries, and the liquidity found its way into stocks, commodities and bonds worldwide.  I don't see this stimulus as being as equity friendly as the prior two stimulus packages, that did not see a rapid economical improvement anyway.  

Bottom Line:  I believe the Fed Reserve is out of ideas to stimulate the economy and chose now to focus solely on the housing market.  I am not sure what another 50 basis points lower will do to spur the housing market.  Also, unlike QE1 and QE2, this package will not have a direct effect on stocks or commodities, but should lift longer maturing bonds (lower yields) in an effort to boost the housing market.  I expect stocks to be under pressure in the near term based on the makeup of this stimulus package.  Thank you for stopping by.

Macro Data

We have an important week ahead for the markets with these reports to consider.
* ISM data on Tuesday
* Jobless claims on Thursday
* President Obama speech Thursday evening 7 p.m.(His latest proposal to create jobs and boost the economy).
There are fewer safe havens to preserve assets globally at the present time. Below is a chart of Germany's DAX index.  Germany is a top exporter of higher priced goods worldwide. What you see below is a market crash as the index is down approximately 30% from the high this year and has taken out the 2010 low today.

I have noticed a very tight correlation (markets that track each other) between Germany's DAX and the S$P 500 index.  So what is that correlation telling us now.  Below is a chart overlaying the two indexes.  Notice the recent skew today, or the fact that the correlation needs some catching up to do.  Is Germany's DAX index a leading indicator for US stocks?  It will be interesting to see how that correlation plays out in the coming weeks.

Finally just to show a comparison between 10 year bond yields today compared to the crash low yield of 2009.  Safety of capital is driving yields lower.

Bottom Line:  Markets around the world are on shaky ground as shown by the crash that has occurred with Germany's DAX index.  The 10 year bond yield shows a flight to safety also. The presidential address Thursday evening will have my attention to see if any new plans are in the works to create jobs and stimulate the economy. We have no positions above.  Thanks for stopping by.