Global Stock Market BLOG - Mike Burnick

Time to Get Selective with Your Commodity Plays… Here’s How

As I said in my last blog post, investing in commodities has been a hot ticket for investors in 2007, no doubt about it. Crude oil has surged about 44% this year, while wheat prices have nearly doubled in 2007!   

Over the last several years, some of the biggest moves in the commodities complex have come from these two “headline commodities. In fact, crude oil alone has jumped 215% just since the beginning of 2001.  Gold isn’t far behind, with 201% gains since ‘01.

The industrial (or base) metals have also performed very well thanks to a strong global economy and robust construction activity earlier this decade. For instance, copper prices jumped over 300% in the past five years. In fact, copper even outperformed crude oil over that stretch.

A Commodity Correction in the Making

But base metals have corrected sharply in recent months, due to concerns over potentially slowing global growth. Copper prices alone have fallen about 20% since early October. Crude oil and gold may also be subjected to more profit-taking pressures ahead in 2008.

In the current commodity bull-market cycle, the time has come for you to be more selective with your commodity plays.

A “shotgun” approach won’t work as well in 2008 and beyond. Instead, you should consider a “rifle-shot” strategy for investing in commodities to target the biggest gains.

Fortunately, the ever-growing landscape of exchange traded funds (ETFs) gives you a great opportunity to zero in on some specific sub-sectors of the commodity market, to zero in on potentially bigger gains. Let’s take a quick look at the growing lineup of commodity ETFs…

Barclays Bank is already one of the global leaders in ETFs with its popular iShares family of funds. This ETF innovator recently launched eight new exchange traded notes (ETNs) that track individual commodity sub-indexes.

Which Commodity-Backed ETFs Are On the Way Up in 2008

As mentioned above, wheat prices have been on fire this year, along with soybeans and corn. If you think the “grains” will continue to perform well in 2008, then Barclays has a new ETN for you. It’s called the iPath DJ-AIG Grains Total Return Sub-Index ETN (symbol: JJG). This ETN gives you indirect exposure to wheat, corn, soybeans and more; all of the leading soft commodities in a single transaction.

Perhaps you’re more of a meat-eater than a cereal consumer. Well Barclays has also rolled out the iPath DJ-AIG Livestock Total Return Sub-Index ETN (symbol: COW) which tracks live cattle and lean hogs. And you’ve gotta love that ticker symbol!

There are other new iPath offerings that target specific industrial metals including copper (JJC), nickel (JJN) and all the industrial metals as a group (JJM)! These ETNs are worth keeping an eye on as good barometers for the health of the global economy.

Should the U.S. economy avoid recession in 2008, and growth begin to reaccelerate next year, JJC should break out to the upside, providing an early signal of recovery. There’s one of Barclay’s new ETNs that I’ve got my eye for a big potential move over the next few months too; it’s the iPath DJ-AIG Natural Gas ETN (GAZ).

If Old Man Winter would just cooperate with some frigid weather in January and February, depressed natural gas prices should experience a nice rally.

Bottom line: the wide world of ETFs and ETNs keep expanding by the day offering today’s global investor more choices than ever before. In fact, I just recommended a NEW ETF to my subscribers in Global Market Investor that tracks all of the red-hot agriculture commodities in a single fund. To find out more about this ETF that’s poised to soar in 2008, and all of my Global Market Investor picks, click here to find out more.

What Separates an ETF from an ETN

Commodities have been one of the hottest investments to own in 2007. So it's no surprise that commodity-based exchange traded funds (ETFs) have been at the top of the charts in performance this year. Recently, Barclay's Bank launched a new series of commodity tracking fund know as Exchange Traded Notes (ETNs).

Before you jump into some of these new investment vehicles looking for repeat performance in 2008, it's important you understand the similarities and differences between ETFs and ETNs.

First off, ETN shares DO NOT represent fractional ownership of the fund’s underlying assets. By contrast, ETFs DO allow you to hold fractional ownership. For example, the iShares Dow Jones U.S. Energy Sector ETF (symbol: IYE) holds shares of Exxon Mobile in its portfolio. So if you own IYE, you are in essence a fractional owner of Exxon.

In fact, ETFs are structured in such a way that if you own enough shares of IYE (we’re talking very large numbers of shares) you can actually contact Barclays and ask them to redeem your IYE position for individual shares in all of the portfolio’s underlying stocks. Big institutional investors do this all the time. That’s how ETF prices stays so close to the underlying net asset value of its holdings (unlike closed-end funds).

Instead of offering partial ownership of a fund’s portfolio, Barclays ETNs are debt securities. So a Barclay’s ETN is essentially a bond issued by Barclays Bank. However, you don’t receive a fixed return like a bond does. Instead,  your ETN is linked to the performance of the underlying index, minus Barclays’ management fees of course.

ETNs Have a Shorter Life Span and Face Potential Credit Risks

Also ETFs have an indefinite life span, whereas ETNs have a stated maturity date (just like bonds), usually of around 30 years. If you’re the type of investor who plays a market trend over a period of 6 -months to a year or more, then ETNs maturity date isn’t really a big deal.

ETNs also involve more risk than ETFs. Not only are you assuming market risk (there’s always a chance that the underlying index may go up or down), you are also assuming credit risk by owning an ETN. It’s just like owning any other bond.

In other words: Will Barclays pay up when your ETN matures? Frankly, it’s not that big of a concern with large, A-rated banks like Barclays. These banks have reputations to protect, so they’re likely to stand behind their ETNs. But still,  you should be aware that it is a “potential” added risk to owning an ETN.

Now that you know the ins and outs of ETNs, tune into my blog tomorrow to find out about some of the most interesting new ETNs targeting specific commodity sectors that might be worth watching in 2008.

Here Comes Santa Claus

Global stock markets rallied broadly on Friday, and there is good follow through to the upside again this morning too. This is good news for the bulls indicating we may yet get a decent year-end rally. Not that Wall Street deserves a Santa Claus rally – after all banks and brokers haven’t been particularly nice this year.

In fact, Wall Street has been downright naughty – packaging all that sub-prime junk and selling it to unsuspecting investors. These bankers deserve nothing but lumps of coal in their stockings this year; and certainly NOT the fat year-end bonuses they’ll collect in spite of losses now exceeding $70 billion!

There’s an old saying on Wall Street that goes: “If Santa Claus Should Fail To Call, Bears May Come to Broad & Wall.” According to the 2005 edition of the classic Stock Trader’s Almanac, markets tend to enjoy a short but sweet rally nearly every year-end, usually taking place during the last five trading days of the year and the first two days in January.

In fact, this has been a fairly reliable indicator over time. Since 1950, stocks have posted an average gain of 1.5% during the Santa Claus rally phase, and since 1969 the gains have averaged a stronger 1.7%! However, the Stock Trader’s Almanac also points out that “Santa’s failure to show up on time tends to precede bear markets.

In other words, if market sentiment is so lousy that even a bit of year-end holiday cheer can’t trigger a rally in stocks – then watch out for more selling in the New Year. Of course I have been expecting just such a year end rally. Not so much due to a belief in Santa Claus, or the traditional year-end rally attributed to old St. Nick, but because the market is very oversold right now.

Stocks became extremely oversold in November before managing only a brief bounce in early December. Then even more selling set in. Stocks in my view are way overdue for a bigger bounce, and Santa Claus is just the jolly old gent to bring one -- stay tuned -- and have a very Merry Christmas!

Sovereign Wealth Funds Continue Their Holiday Shopping Spree

First Citigroup, then Morgan Stanley, and now Merrill Lynch is apparently the target of a “distressed” investment from one of the world’s leading Sovereign Wealth Funds (SWF).

I have written about this trend before (China Rivals Middle East as Biggest SWF Investors in U.S.), but what’s most striking to me is the fact that it all seems so familiar ... it’s like déjà vu all over again, as Yogi Berra might say.

The Wall Street Journal reports today that Singapore’s state-run SWF, Temasek Holdings may take an investment stake worth as much as $5 billion in Wall Street’s venerable Merrill Lynch. The brokerage firm is of course reeling from the aftershocks of the sub-prime crisis. In fact, Merrill just reported its biggest loss in its 93-year history, so it’s in need of a financial shot-in-the-arm.

SWFs Add to Their Holiday Shopping Lists

Merrill joins a growing list of Wall Street icons that have been bailed-out... er, that is seen as a good investment – by SWFs. Citigroup of course led the charge obtaining a cash infusion of $7.5 billion from the Abu Dhabi Investment Authority.

And China’s state-run SWF, China Investment Corp., just announced a $5 billion investment in Morgan Stanley. That’s on top of a smaller stake that China’s Citic Securities took in brokerage firm Bear Stearns in October.

Overall SWFs based in the Middle East and Asia have so far agreed to invest about $25 billion in Wall Street firms since the sub-prime market shock began -- but there’s a lot more cash and eager buyers where that came from.

A Strong Appetite for Beaten-Down U.S. Financial Shares

The willingness of these global financial power-brokers to invest in the distressed U.S. financial sector seems like a very good thing. Especially at a time like this when the U.S. banking sector is under such intense stress.

Investors welcome the fact that these SWF are seeing some value in beaten-down financial shares. The SWFs are bringing a “bid” to the market for free-falling financial shares; in effect putting a “floor” under the falling stock prices. This is one of the reason’s I recently turned bullish on the banking sector, expecting at least a bounce in the near term.

What about the longer-term consequences of offshore investment funds owning such big stakes in the key U.S. financial sector? That’s a question that no one seems to be addressing just yet.  Financial shares make up 20% of the U.S. S&P 500 Index by market cap, by far the largest sector of our domestic market.

Up until the recent losses now being posted by Wall Street, financial stocks accounted for a big chunk of U.S. corporate earnings too. In 2006 in fact, stocks in the financial sector accounted for nearly one-third of the total profits earned by S&P 500 companies.

Repeating the Experience of Japan Inc!

So what’s the long-term cost of selling such a vitally important part of the U.S. economy to SWFs? Only time will tell.

It reminds me of the experience with Japan two decades ago. Japan Inc. (as it was then know) was “accused” of buying up American assets en mass in the 1980’s. Pebble Beach Golf Course in California, perish the thought... Rockefeller Center in New York City, outrageous! It seems like more than half of the Hawaiian Islands are still owned by Japan. Circumstances were slightly different with Japan then, than they are with SWFs now.

Chronic weakness in the U.S. dollar in recent years makes U.S. assets look very attractive indeed to foreign buyers. Just ask all the Brits and Irish who fly into New York with empty suitcases for their holiday shopping sprees this year.

Flush with Cash and Willing to Spend

Back in the 1980’s it was more the case of a very strong Japanese yen than it was a weak U.S. dollar that spurred Japanese investment spending. Striking similarities exist too. Japan was flush with cash two decades ago, just as the SWFs are today.

In fact a recent study by global consultants McKinsey & Company shows that SWFs in the Middle East and Asia, combined with global hedge funds and private-equity firms, are sitting on an $8.5 trillion pile of investment assets. Talk about flush with cash!

In the late 1980’s an intense backlash sprung up in America about Japan Inc.’s ownership of so many high-profile U.S. assets. So far, we haven’t heard similar protests about SWFs... at least not yet, but stay tuned.

Perhaps as Wall Street worries about the U.S. consumer's ability (or willingness) to spend this holiday season -- it's comforting to know that the free-spending SWFs are on a shopping spree of epic proportions -- doing more than their fair-share!

What $500 Billion Will Buy You These Days

Yesterday, the European Central Bank (ECB) – flush with cash from lines of credit from the U.S. Federal Reserve – swung into action!

The ECB pumped an astonishing one-half trillion dollars into the global financial system on Tuesday. And what did that vast amount of money buy the ECB? Nothing but a lousy 0.08% loss in the DJ EURO STOXX 50 Index of leading Eurozone stocks, that’s what!

The ECB cash injection did a bit more good to cheer up shares on Wall Street however, leading the S&P 500 Index to a 0.6% gain. However this was a rally full of fits and starts that included several round-trips from positive to negative territory and back again.

After two days of very heavy selling on Friday, and again on Monday, some investors went bargain shopping yesterday. But those bargain buyers appeared to be just as finicky as shoppers at the mall this Holiday season.

In spite of the massive liquidity being provided by the major central banks, credit conditions are not yet back to normal. The chart above vividly shows that U.S. dollar Libor rates, a key interbank lending rate, inched down somewhat yesterday from recent highs, settling at 4.95%.

But that rate isn’t much reduced from the 5.33% U.S. dollar Libor rates posted on August 1st. Keep in mind that over this time frame the Fed funds rate has been cut three times, by a total of 1%. Typically, Libor rates would be hovering just above the Fed’s current benchmark rate of 4.25% -- if credit markets were back to “normal.”

Today we will learn the details of the Fed’s $20 billion auction that took place Monday. And on Thursday, the Fed will auction off yet another $20 billion.

Keep an eye on Libor to see the “real-world” reaction to the Fed’s easy money moves.

Doomsday Delayed for the U.S. Dollar

So many perma-bears on the buck have outlined the doomsday scenario for the dollar in recent years that you probably know it by heart. I can recite the “dollar doomsday” call in my sleep; it goes something like this...

1. The gapping U.S. current account deficit and Washington’s chronic budget deficits can only be financed by the benevolent actions of investors abroad willing to finance said deficits, but this cannot go on indefinitely.

2. Overseas investors are getting tired of watching their U.S. dollar holdings fall in value. Therefore, they’re likely to pull the plug at any moment and stampede out of the buck with massive selling of dollar denominated assets including Treasuries, stocks, corporate bonds ... you name it – they will be dumping it!

But a funny thing is happening to the dollar on its way to the dump – don’t look now you perma-bears on the buck – but the greenback is rallying! Shhh!

Can the Dollar as Endangered Species Make a Big Comeback... Just Like the Eagle?

As my colleague Sean Hyman recently wrote: “Just when everyone was about to put the “buck” on the endangered species list, the U.S. dollar came back with a vengeance. Lately, the hunted dollar has actually become the hunter.”

Far from finding dollar-denominated assets distasteful to hold, overseas investors are actually buying into the beleaguered U.S. dollar at an even faster clip these days.

In fact, according to just-released Treasury Department data, net foreign purchases of U.S. securities surged to $118 billion in October, up from $56 billion the month before.

Offshore buyers snapped up $30 billion worth of U.S. stocks, and a whopping $87.8 billion worth of U.S. corporate bonds.

That’s the biggest single-month bond buying binge on record for corporate bonds! Net purchases of U.S. Treasuries jumped close to a record, thanks to private investors, while foreign banks preferred corporate bonds. Those among the biggest buyers include Japan, Great Britain, Brazil, and the OPEC nations.

The Dollar-Pit and the Pendulum

So it would appear rather than selling the weak dollar, overseas investors are backing up the truck to buy with both hands – perhaps sensing that dollar-denominated securities are a bargain after the multi-year slide we’ve seen in the buck.

We already know that oil rich Middle Eastern Sovereign Wealth Funds (SWFs) are on the prowl in America, snapping up (perceived) bargains like Citigroup. And China’s SWF is likewise hunting for “strategic” investments in U.S. financial assets, such as private equity firm Blackstone Group. The latest Treasury data show that other offshore buyers are likewise being attracted to bargains in dollar-based assets.

All this buying may continue to give the maligned greenback a lift in 2008. According to Sean Hyman, “Now it’s time for the pendulum to swing the other way. You’ll see the dollar get a bit of a breather and recoup some of the ground that it’s lost.” Stay tuned!

The Fed’s Right to Be Worried About Inflation – Especially in Food!

The relentless plunge we’ve witnessed in the U.S. dollar is finally beginning to translate into higher import prices – thanks to America’s gapping foreign trade deficit.

It’s no wonder why the Fed remains worried about inflation. According to the latest data in fact, import prices are soaring at a record rate - up 11.4% year over year – the biggest increase in over 10-years!

Sure, surging oil prices have a lot to do with this. But food prices are soaring too, and so are industrial and precious metals. Now, we see that the price of manufactured goods (previously considered “cheap” imports) were up nearly 1% last month, the most since January 1996.

Producer Prices Doubled-Up on Expectations Last Month

Producer Prices paid by business and industry are surging higher as a result. The November Producer Price Index (PPI) out yesterday displayed a shocking 3.2% increase. That’s double expectations that called for just 1.6%.

Meanwhile, the Core PPI in November jumped to 0.4%, which doesn’t sound like much, but again it was twice the 0.2% expected. So both headline and core producer price inflation significantly exceeded forecasts last month. In fact, it was the fastest increase in the PPI in over 30 years (since 1973 to be exact)!

Consumer prices for November, reported just this morning, were also higher-than-forecast fanning even more fears of inflation. Ther Fed now finds itself between an even bigger rock and a much harder place when it comes to cutting rates. Creeping inflation isn't just a growing problem in the U.S. either...

> The Bank of England reported this week that inflation expectations are at an 8-year high.

> The European Central Bank has said publicly that they are “seriously concerned” about inflation so much that they still haven’t cut interest rates.

> In China, inflation’s reached an 11 year high, spurred mainly by surging food and energy costs. So this is really a global phenomenon.

Speaking of a surge in food costs, my last trip to the grocery store gave me sticker-shock! Food prices are through the roof.

After Declining for 30 Years, Global Food Prices Doubled Since 2005

In fact, just since 2006:

Wheat prices have nearly tripled, to $9.42 per bushel.

Corn has soared more than 150% to $4.33 per bushel.

Soybeans are nearly twice the price, surging from $5.87 a bushel in ’06 to $11.52 now, which is a 34-year high!

Prices of cocoa, coffee, palm oil, and rice are going parabolic too.

According to a recent story in the Economist, the International Monetary Fund's index of food prices (actual prices of a basket of food items) has steadily declined over the past 30 years.

In fact, this index was slightly lower in nominal terms in 2005 than it was in 1974. And in inflation adjusted (or real) terms food prices declined about 75% since 1974!

Since 2005 however, the IMF’s food index has just about doubled in price – that’s on both a nominal, and a real basis.

There are many reasons for the big surge in food prices, strong demand from emerging economies, and the increasing trend toward using crops for biofuel production, are just a few. But whatever the root causes, it’s certainly feeding back into higher long term inflation expectations, regardless of what the government stats say.

There’s good reason to believe that commodity prices in general– and food prices in particular – will continue to move higher still.

In fact, I have positioned investors in my Global Market Investor newsletter to profit from the upside in agricultural commodities going forward. To learn more about this emerging investment trend that still has years to run in my opinion, you can read my Special Report on this, and other emerging global investment trends.

Investor Lose Confidence in the “Shadow Banking System”

The Fed’s plan to inject new liquidity into gridlocked financial markets may be the right recipe to restore investor confidence in the fragile banking system. We’ll just have to wait and see... and we won’t have to wait very long.

The Fed’s first round of $20 billion in liquidity will be auctioned off by the Fed on Monday, with the results of this auction to be released on Wednesday at 10:00 am. Then another round of $20 billion will be auctioned next Thursday, with still more scheduled for January.

Will this alternative financing channel help clear log-jammed credit markets where global banks have grown reluctant to lend to each other? Only the “shadow” knows.

Bill Gross, the well regarded bond fund manager at Pacific Investment Management (PIMCO) recently addressed this issue in his Market Commentary posted on PIMCO’s website. It’s a very interesting article, and well worth reading.

Wall Street Wizards at a Loss to Explain What Went Wrong With Sub-prime

According to Gross and his colleagues at PIMCO, the root of the credit crunch problem lies in a systemic loss of confidence in what they refer to as the "Shadow Banking System." This is a largely unregulated world of financial engineering that in recent years has packaged “subprime mortgages into a host of three-letter conduits that only Wall Street wizards could explain.”

Now that these fancy subprime conduits are blowing up, and the Wall Street wizards are at such a loss to explain why, the casualty list has been predictable. “Home prices have been the obvious first hit--down 5% nationwide already, with perhaps another 10% to go over the next several years. Following in lock-step have been financial stocks with subprime exposure to be joined in short order by consumer-based equities as jobs and disposable income falter.”

So far, Gross is following my Market Shock Trader template chapter and verse!

He goes on to explain in his market letter that the key problem is uncertainty about just how big the credit crunch losses may snowball. That’s why the Fed’s rate cuts so far just haven’t done much, besides lowering yields on ultra-safe U.S. Treasuries. “What appear then, to be strikingly low yield levels for U.S. Treasuries, are not being reflected by the rest of the U.S. high-quality bond market.”

While Wall Street Scrambles for a Super-SIV Life-Raft, Main Street is Sinking

Indeed, high-yield corporate bonds have sold off, pushing up yields, and thus borrowing costs, for corporations. Mortgage rates haven’t declined all that much since the Fed began cutting rates in September.

And some types of non conforming loans, such as “jumbo” mortgages for more expensive homes, can’t be obtained at all from many lenders. The lenders that do offer “jumbos” are charging interest rates close to 7%! No credit crunch easing there.

Also, Libor borrowing rates offered by the world's biggest banks, which typically track very close to the interest rate on Fed funds, now “provide 70+ basis point premiums or more to Treasuries across almost the entire yield curve,” as Gross points out.

In other words, Wall Street may be taking steps to bail itself out of credit-crunch trouble – trying desperately to avoid the problems it created in the first place – but what about Main Street?

Keeping an Eye on Libor

As Gross points out, the Fed’s easing campaign “has lowered Treasury yields, but for the rest of the market--the segment that influences the bottom line of U.S. corporations, homeowners, and consumers--not much has changed.”

Bill Gross’ prescription for a healthy economy is more and faster easing. “The Fed needs to bring Fed Funds levels down steadily and significantly more in order to counteract the contraction of the shadow banking system.”

After a full one-percent cut in the Fed funds rate since September – the Federal Reserve still appears to be behind the curve. The “shadow banking system” is still in gridlock; so be prepared for more turbulent market conditions in 2008, or until the Fed catches up with the reality of this credit crunch market shock.

The barometer for the credit crunch is the London interbank offered rate, or Libor. It eased a bit on Wednesday following the Fed’s announcement. Also, yields on Treasury bills rose, which helped flatten the wide spread between these two key rates.

If the Fed’s easy-money auctions next week go as planned, the first sign of credit crunch easing should show up in falling Libor rates... stay tuned.

Who Says You Can’t Teach a NEW Fed OLD Tricks?

The Fed blew it yesterday, no doubt about it.

The Bernanke Fed, which has expressed a desire to improve its communication with financial markets -- did just the opposite yesterday by taking another incremental, baby-step -- cutting rates by just a quarter-point. 

Investors hoping for more substantial easing, or at least some soothing words, got neither yesterday. This left markets with the impression that the Fed is insensitive to the growing credit crunch, or worse – that Bernanke just doesn’t get it.

But in a stunning about-face this morning the Federal Reserve unveiled a surprise plan to ease the global credit crunch by injecting cash into the financial system. The Fed came up with a new trick play: a well-coordinated combination of $40 billion worth of direct liquidity to U.S. banks; and another $24 billion in currency swap lines of credit to the European and Swiss central banks.

A Potential Game Changing Play

The Bernanke Fed actually borrowed this trick from the Greenspan playbook.

A synchronized move of this magnitude last took place in the aftermath of 9-11. Make no mistake: this IS a potential game-changer for gridlocked capital markets.

Significantly, the Fed is coordinating this measure with the European Central Bank, Bank of England, Bank of Canada and Swiss National Bank to provide lines of credit to commercial and investment banks worldwide.

Here at home, the Fed is taking even more significant steps to inject liquidity into the financial system by setting up a “Term Auction Facility” that will essentially provide $40 billion cash in two separate auctions, the first of which will take place on Monday. This Fed underwritten lending won't mature until January, providing banks with much needed cash and breathing room over the holidays.

Here are Two Key Points About the Fed’s New Trick

#1 The Fed will auction off these funds to banks against a “wide variety of collateral.” Translation: put up whatever you’ve got, including shaky mortgage-backed securities of questionable value.

#2 The auction will be opened to all “generally sound” financial institutions. Translation: ALL banks and brokers are welcome to participate, despite the $80 billion in collective losses and write-offs they’ve taken in recent months.

On the heels of the Fed’s actions, short term Treasury notes and bills dropped in price; signaling a sharp reversal in the flight to quality and liquidity trade we saw yesterday, and in recent weeks.

You can see the thaw in frozen credit markets even more clearly in Libor lending rates. This is a key benchmark rate that big banks charge each other for overnight loans. Libor rates typically hover very close to Fed funds, usually a fraction of a point higher.

But in recent days, Libor rates shot up as much as 80 basis points above Fed funds. That’s an unusually high spread indicating credit market anxiety.

After the Fed’s move today Libor rates tumbled quickly, indicating a renewed willingness to lend among banks in this new environment of abundant liquidity provided by the central banks.

Will This Move Ease the Wall Street Credit Crunch? CNBC Thinks So!

I tune in to CNBC periodically on days when some key news or event takes place; for comic-relief more than any other reason. I also tune in to get a read on mainstream market sentiment.  But one commentator whose opinions I respect, and always listen to, is bond market commentator Rick Santelli.

More than most of the TV talking-heads, Rick seems to have an accurate read on what’s taking place in global fixed-income markets. Today he said, “all the metrics of credit anxiety have reversed quickly.”

Don’t get me wrong: I still don’t think the Bernanke Fed “gets it!”

If they did, then why wait until today to unveil this liquidity plan that clearly took time to put together? The Fed’s trick-play should have been announced at 2:15 yesterday afternoon, along with the rate cut news, and a lot of unnecessary volatility could have been avoided. Once again, the Fed leaves investors scratching their heads, wondering what to expect next.

Bottom line: shell shocked investors, already reeling from the after shocks of the credit crunch (which is NOT yet over) should get used to volatility. I expect more booms and busts ahead until the Fed gets it right – if indeed it ever does.

However, it’s clear that the Fed is willing to PRINT MONEY as necessary to ease the credit crunch. While it's clear that the Fed is behind the curve, it’s tough to argue against the world’s biggest printing press.

What was it that Marty Zweig used to say? “Don’t fight the Fed!”

The Fed Lowers the Boom on Rates Again, But Stocks Go Bust...

The Federal Reserve moved as widely expected yesterday, and cut the Fed funds rate in another incremental, quarter-point step.  Financial markets were not too happy with the Fed’s cavalier assessment of risks to the economy, as noted by a plunge of nearly 300 points in the Dow Jones Industrial Average.

The Wall Street crowd, hoping for a bigger bail-out, apparently wanted more from the Fed. How about a little sympathy for the suffering financial sector?

After UBS’ latest $10 billion confession on Monday, Wall Street’s big banks and brokers have collectively posted about $70 billion worth of losses and asset write-offs since the credit crunch market shock deepened in the third quarter.

Yesterday, the Fed admitted that the latest data show “economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending.” But the Fed promised to “act as needed to foster price stability and sustainable economic growth.”

But that was cold-comfort to those speculating on a half-point cut from the Fed, or a similar large cut in the discount rate, which was instead reduced by the same measure; a quarter-point cut.

Bernanke & Company Behind the Curve

Investors seem to think the Fed should be even more aggressive in easing the credit-crunch. One investment manager quoted by Bloomberg yesterday said, “The market's instinctive reaction is that it's too little too late and that the Fed is behind the curve.”

But all this noise and discussion of a half-point versus a quarter-point cut misses the key point: the Fed has largely been powerless to ease the credit crunch so far. So why should another quarter-point make any difference?

The current market shock is deeply rooted in the world of mortgage backed securities and other arcane derivatives manufactured by the financial sector in recent years. There’s been a fundamental breakdown in trust and investor faith in this opaque world of financial derivatives.

What Surprises Still Lurk in SIVs? Only the Shadow Banking System Knows

A quarter-point cut here or there from the Fed may simply not be enough to restore that lost faith. Instead, what it will take is for Wall Street to render a full-accounting on the true extent of sub-prime related losses, as I have said before. What surprises still lurk in all these CDOs, CMOs, and SIVs anyway, and what’s the real market value?

Britain's HSBC recently "came clean" on it's subprime exposure; taking about $40 billion worth of shadowy SIV assets on to its own balance sheet. That's quite a hit to the bank's capital, but also a gutsy act of self-confidence in HSBC's ability to weather the subprime storm.

Perhaps Citigroup, now flush with cash from its new Middle Eastern investors, can muster up the same courage to own up to its SIV losses, and restore some of that lost confidence on Wall Street.