The Fed announced about $630 billion in additional liquidity today. Bloomberg Reports:

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed’s emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The timing is auspicious, right?

The Fed’s expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry.

Now, why didn’t the market rally on the news of $630 billion in additional liquidity, but was supposed to be calmed by $700 billion? Would that $70 billion really have made a difference? I only had two call contracts left to sell, but held on to them expecting the bill to pass, and expecting the relief rally. Of course, I am holding a decent number of puts, so I’m not hit hard by this move down (you did hedge, right? If not, email me nutjob@crazynutjob.com any questions and I will give my opinions here). Here’s another trading adage: “The longer an obvious trade remains open, the more likely you are wrong.” I say this because I thought these calls were a sure thing.

The Fed has essentially gone ZIRP. They aren’t going to be buying the necessary treasuries to hit that 2% target. They are officially out of ammunition. The only step they have left is to fire up the printing presses. That’s not a good idea. Printing money is a tax on savers to benefit those in debt (I wonder which the US Government favors?). You can be certain they will try it. Hopefully pressure from foreigners makes them stop.

Forecast: More Intervention

I expect Chris Cox to take the stage in the next couple days to extend the short ban. This will not likely lead to a big rally, but it’s the action that logically follows.