The Stock Market gets CRUSHED on Monday! Biggest losses since 2008 Financial Crisis, not because of the Congressional Budget issues but because of the European debt woes comingling with slowing growth in the one economy that MUST lift the world out of its current economic malaise. Re-pricing of risk caused by the S & P lowering of the US Credit Rating was another domino but we know from past experience that S&P Credit Ratings are not always accurate (see current housing mess). The Market determines said ratings and the result...the only safe haven trade on Monday was...THE US TREASURY MARKET! Bonds were downgraded across several spectrums including FNMA and FHLMC Residential Mortgage Backed Securities (RMBS). The result? Rates hit new lows today as bonds rallied in lockstep with the Stock Market.

What did The Fed do? Looking back to 2008 they have grown their balance sheet by purchasing $1.1 Trillion in RMBS to lower rates. They lowered the Federal Funds Rate to 0-.25%. They said they would maintain and accommodative policy for an "extended period." They fought off deflation by creating fears of inflation in a market that was teetering on deflation which would create an ugly economic mess (who would buy anything today if they knew the price would be lower AFTER they bought it). They rode out a storm of criticism over QE II which was meant to devalue the US dollar, inflate the stock market and prime the economic pump into a supposed 2nd half of growth and prosperity. Jobs would be created, houses would be bought and "happy days would be here again." It didn't happen and when the forward looking index of the Stock Market realized things were not what everyone thought and expected, sellers came out in droves. Over 1500 points were lost. 600 points in one day! Every floor of support was pierced and technical signals were not apparent. Globally, there were no winners.

Tuesday 1:19 PM (4 minutes late) the Federal Reserve Board Policy Statement comes out. A wild ride begins! Stocks were up between 90 and 130 points (DOW). The announcement came and stocks reversed course to be down over 100 points. Volatility is the word of the day! Then...traders digested the news! The FED announced that they would not raise rates until mid 2013 at the earliest. Never before have they "time stamped" an accommodative policy. Typical wording since 2008 and prior... "Extended period!" Stocks sold off because the initial perception was that perhaps The FED would step in and stimulate the market similar to the highly scrutinized QE II. This did not happen. In one statement The FED raised sentiment, improved rates and gave the United States a "free market" credit rating that made the rating agencies obsolete. Upon digestion of the statement Wall Street realized that low rates would be the norm and that risk was not to be repriced, portfolios did not need to be repriced to higher risk. STOCKS CLOSED UP OVER 400 POINTS. That Ben Bernacke is a GENIOUS!

LOCK NOW, HOWEVER!!! (Wednesday)

(Next how THE FED will use low rates to keep rates lower)