Dr. Ben Speaks, ETFs Launch

Markets and ETFs launch on Dr. Bernanke and QE3

Dr. Bernanke has done it again: QE3 is here and so are the stock and ETF prices, as the SPDR S&P 500 ETF (NYSEARCA:SPY) rose 1.52%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) rose 1.51%, the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) added 1.35%, and the iShares Russell 2000 Index ETF (NYSEARCA:IWM) rose 1.31%. To add more fireworks to the day, the S&P 500 finished its highest since 2007, while the NASDAQ reached its highest level since November of 2000. As expected, the Fed spoke and investors listened and liked what they heard.

So goes the story again: The Fed and Dr. Bernanke initiated another round of quantitative easing, although QE3 is not so aggressive as the first two. The Fed plans to keep interest rates at near zero (no surprise there) but has extended the duration of this policy to mid 2015 instead of mid 2014 (surprise here). The Fed also plans to purchase $40 billion worth of mortgage backed securities per month, as opposed to the $100 billion mark per month of old quantitative easing programs. Operation Twist will continue as well, at least through the end of the year, but potentially longer.

The biggest kicker in all of this is the open ended nature of the program, as Dr. Ben did not elaborate on how long the bond buying program would last, or to what scope. Furthermore, the Fed continues to extend the near zero interest rate program which speaks volumes of desperation, as Dr. Bernanke is likely at the end of his rope in the interest rate world: .25% is low, but would 0% help much more? Like the European Central Bank and Mario Draghi, the Fed has chosen an “unlimited” stance to bond buying and interest rate lowering, which only adds to the creepiness of the issue in the sense that yes, the Fed can buy as many bonds as it wants, and maybe, will these policies help the economy? The economic value of these policies remain to be seen, and many argue one way or the other, yet it is clear that each quantitative easing session is less powerful than the last. Regardless of whether Dr. Ben’s policies are helping the economy or not, they sure are helping markets, as the 1.5% average rise suggests today. Likewise, if Dr. Ben did not initiate QE3, markets would have likely taken a journey to the center of the earth.

Today’s FOMC meeting came in line perfectly with today’s no good unemployment claims report, which indicated that 15,000 more people filed for unemployment last week than the week before. The Producer Price Index Report was nothing special too, with a 1.7% increase. Read more about dismal economic reports here.

To confuse matters more, ECB official Panicos Demetriades, a member of the ECB Governing Council, stated that buying bonds for the EU was really not necessary, and naturally, European stocks sunk as investors lost confidence in Draghi’s bond buying initiative brought forth last eek. Read more about Europe’s confusing ECB here.

Dr. Ben also destroyed the VIX today, as any fear in the marketplace quickly evaporated into an 11% drop for the VIX Index. Dr. Ben also gave glitter back to gold, as more QE3 has added value to the alleged “reserve currency.”