FED Minutes

I've been trying to get to this, and finally here we are.

Here's the initial reaction which is pretty similar all the way around. However remember that initial knee jerk reactions to FOMC related events are often wrong, although I think it's too early to say we've seen the initial reaction.

 The market reaction via the SPY-the volume is probably the most notable reaction thus far.

 The Q's which are more sensitive to anything rate related

 The commodity index, again volume being notable.

 Silver-there's part of our correction.

 Financials , a bit muted.

And the long bond (20+ year)

The highlights:

Once again "transitory" is the Fed's favorite adjective lately, this time applied to the weakness in Q1 economic activity. The usual culprits-weather, and "transitory" inflation among commodities.

This is the Dow Jones Commodity Index, a 2 year uptrend and a 70% increase in commodities as a whole, hardly seems transitory and matches up perfectly with the start of Fed monetary policy and Quantitative Easing. While joblessness remains stubbornly high, I think it's safe to say that Bernanke's actions haven't had the intended consequences, at least not the ones we were sold. Of course there is always a bias favoring Wall Street. I don't want to get on a rant here, but billions in risk free POMO cash to the banks as well as nearly free money, it makes perfect sense to see a trend like this.

While making it sound insignificant, they raised their expectations for core consumer inflation. Again, their view is that this inflation is "transitory" which is not much comfort to the 9-10% unemployed and the 20% underemployed.

"A few members" basically thought QE was a bomb, but given it's slated end, saw no reason to change course.

The Fed (according to the minutes) seems to be looking for the exit with regard to monetization of debt (treasuries)-still judging by indirect bidders aversion to US debt and the breach of the debt ceiling, with no serious plans to address spending on Capital Hill or to deal with the breach of the debt ceiling-which the Treasury has dealt with by raiding government pension funds, it seems unlikely that indirect bidders are going to suddenly come up with a change of heart and confidence in US debt.

And to deal with this, it seems Kocherlakota's two statements within a week which essentially talked about raising the Fed Funds rate by 50 basis points in one shot, seems to be the alternative the Fed is looking to pursue to generate indirect bidder interest in US debt. There's a catch 22 there though. If we can't put out a solid plan to reduce the budget deficit and have acted so irresponsibly as to allow the debt ceiling to be breached, as an indirect bidder ( foreign central bank), I would think there's a credibility problem there. How do we pay increased interest on debts when we can't even get the budget deficit under control. All in all, this doesn't sound like the Fed is in a very good position.

Furthermore, they are looking normalize the balance sheet. This means (and nearly all participants agreed) that they will need to stop re-investing principal payments on agency securities, then or at the same time, stop reinvesting principal payments on treasury securities. And the kicker, that this should be done in as little as 1-2 years. For those looking for QE3 to lift the market higher, it seems this environment and thinking in the Fed makes that very unlikely. So it would seem that we will see the continued sale of risk assets among just about every class of investments, but specifically for our purposes, an unwind in the stock market as well as in commodities.

So all of this has done exactly what? Created the wealth effect? I suppose so if you are a Wall Street investment bank.

Well played Bernanke! Since 2 p.m. today,  Dow 5,000 looks more and more plausible.