Emini Futures, Ben Bernanke Sure Knows How To Take The Wind Out Of the Market's Sails

For the last few days, the Market was beaming. On Tuesday, right before Ben Bernanke spoke, the Market climbed well over 100 points, encouraging investors to jump back in. Now however, it is back to the way it was, going down. Bernanke sure knows how to take the wind out of the Market's sails.

QE2 is dead. Long live QE2. For those unfamiliar with the actions of the Feds, QE2 refers to a second round of quantitative easing by the central banks. What is quantitative easing? In a nutshell...nothing, or more pointedly, the creation of "credit" out of nothing. QE2 created $600 billion of nothing. The Feds, under Ben Berkanke's direction, wento to the open market on a buying spree and purchased securities, bond, toxic assets (CDO's that are now worth pennies on the dollar) from brokerages, banks, etc. That equates to about $75 billion each month, The theory goes that for every $1 the Fed buys, the money supply increases by $10. So Bernanke's buying spree of $600 billion should have created $6 trillion in available cash, giving banks plenty of money to lend to businesses throughout the country.

In addition to the $600 billion, the Feds also purchased $250 billion of Treasury securities with TARP money, the $700 billion bailout from George Bush. There was $250 billion of that unspent. Quite a buying spree.

What was the stated purpose of QE2 by Bernanke? In his published statement, he said that "the FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed. With short-term interest rates already about as low as they can go, the FOMC agreed to deliver that support by purchasing additional longer-term securities." Beranke actually wrote that the Fed's dual mandate is "to promote a high level of employment and low, stable inflation".

In his speech yesterday, Bernanke signalled uncertainty. After this enormous buying spree, unemployment has not improved, and in fact, ticked worse, we hit a double dip recession in housing, manufacturing is at a standstill. The latest manufacturing reports from both the Empire region (New York area) and Philadelphia region were negative, minus. That's a huge tick down. So what happened to all the money?

Bernanke said in his press conference after the Federal Open Market Committee meeting, "We don’t have a precise read on why this slower pace of growth is persisting."

During Bernanke's press conference, on his every word, the Market ticked lower and lower, giving back all that it took the two days before. So why did the Market run up? Was it just to "pump and dump? (artificially inflating the price of a stock through misleading positive statements." The big news channels were saying, the Market is oversold, now is the time to jump back in.

Interstingly enough, at the CBOE, investors did not believe the news channels...they were buying put options on the SPX, not buying calls.

What was the outcome of QE2, did it work as designed? Hmmm...well the stock market recovered. For the year, the broad market indexes were up between 8.3% and 10.6%. While 25 million Americans remained unemployed or underemployed, CEO pay skyrocketed by 23 percent, for an average salary of $11.4 million in 2010, according to the AFL-CIO Executive PayWatch. Banks were bailed out of toxic assets they could not sell.

Unemployment, well, that ticked back up to a stated 9.1%. Financial institutions have stated that there is small business capital available to those companies who wish to borrow and can qualify. But institutions have tighened their qualifications so fewer businesses can participate. And mortgages? The slow economy affects mortgage refinance rates because fewer people qualify for mortgage refinance. Many are unemployed or have a reduced income, while others have underwater mortgages due to falling housing prices. Now so many people just do not meet refinance requirements.

So you be the judge...did QE2 work as designed? Just don't jump back into the stock market because the market is up one day.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.