US & Global Feds Inject Liquidity

A: US Federal Reserve to add $12B into the financial systems to help ease the problems with credit concerns; specifically with the ultra dry liquidity in the mortgage backed securities markets. In Europe, the ECB agreed to inject 95B Euros (roughly $129B in US Dollars) to help add liquidity into their financial system. Obviously Europe is taking a much more aggressive stance than our fed is. The fact that both fed's are acting on the same day is quite interesting and concerning at the same time. As I wrote on Monday in my post "Should Fed Step In To Save Credit Markets", I clearly noted the side effects of fed action in spooking the tradable markets. Its happening this morning.

The news:

ECB Adds EUR94.841 Billion in One-Day Quick Tender At 4% (www.fxstreet.com) -

The ECB said earlier Thursday that the liquidity providing fine-tuning operation aimed to assure orderly conditions in the euro money market. It also said it intended to allot 100% of the bids it receives. The ECB received EUR94.841 billion in bids from 49 bidders.

Fed/ECB Respond To Credit Crunch (TheStreet.com) -

Two days after taking a tougher-than-expected stance on monetary policy, the Federal Reserve injected $12 billion of reserves into the banking system. Meanwhile, the European Central Bank - which has been in an overt tightening mode for several months - has allocated nearly 95 billion euros, or about $130 billion, at a fixed-rate of 4% in a "fine tuning operation" aimed to assure orderly condition in the euro money markets.

The central banks' actions come as a the investment unit of BNP Paribas, France's largest bank, temporarily suspended three of its funds due to a lack of liquidity in the market. In addition, Dutch investment bank NIBC Holding said it lost at least 137 million euros on subprime investments

On Monday I stated:

If the fed comes out and cuts interest rates to help the current credit problems, it will come off the wrong way and will be interpreted as an acknowledgment by our monetary policy makers that there are major issues that are seriously bothering them right now.

I was referring to a rate cut in the above statement and NOT an injection of cash into the credit markets; which is what happened this morning. At Tuesday's meeting, they didn't cut rates, nor did they fully remove their tightening bias as they maintained inflation as their #1 concern. However they did add some language regarding an eye on the credit markets. Today, with the fed acting to add liquidity to the financial system, it has completely SPOOKED THE TRADING MARKETS as it adds to uncertainty of these credit concerns.

While it is a good thing to have the fed step in there is a temporary price to pay and an unavoidable side effect of stock market carnage that comes with it. To take a step forward, we have to take three steps back. Expect stocks to get clobbered at the open of today's trading; I'm focusing on if there will be a bounce showing resiliency later in the day.

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