Yesterday sure did feel like a “get me in” day.  Volume was heavy and not just in the usual HFT names like C and BAC.  It appeared that most market players decided to either cover their short positions or hold their noses and just start buying everything.  Performance anxiety is a strong motivator.  Now, that the Fed has every markets back, the market has decided that there is only one direction for every asset class – UP.  Volatility is also nowhere to be found recently. We developed a new equation for calculating market volatility:

              QE2 + Intraday HFT = Zero Volatility

Market speculators reacted to the Fed’s QE2 news like it was a Yahoo stock split announcement in 1998.  We all know how that ended up.  The thing about bubbles , as we all remember from the late 90’s tech stock rally and the more recent housing bubble, is that they can go on for a lot longer than most people expect.   Even though the speculators now worship at the Ben Bernanke altar, lots of other market observers are not exactly loving what Mr. Bernanke did this week.  Here are few quotes that we thought were interesting:

“After QE2, Fed balance sheet assets = $3 trillion. Capital = $60 billion. Leverage = 50:1.  A 2% decline in asset values = bankrupt Fed.  LTCM death spiral began at 20:1 leverage. Lehman death spiral began at 30:1 leverage.” – James Rickards, LTCM rescue architect 

“Today the Fed is scared to death that the boys and girls and robots on Wall Street are going to have a hissy fit.  I think the Fed is injecting high grade monetary heroin into the financial system of the world, and one of these days it is going to kill the patient.” –  David Stockman, director of the OMB under Ronald Reagan

“As long as the world exercises no restraint in issuing global currencies such as the dollar and this is not easy then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament” – Xia Bin, adviser to the Chinese central bank

“It is doubtful the Fed decision will produce any results…throwing money out of a helicopter doesn’t do any good.” – Brazilian Finance Minister Guido Mantega

“Dr. Bernanke unfortunately does not understand economics, he does not understand currencies, he does not understand finance.  All he understands is printing money.” – Jim Rogers

“Money doesn’t grow on trees” – every mother in the world.