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The U.S. Federal Reserve is Going on a Spending Spree

By Robert Folsom
Fri, 14 Dec 2012 17:30:00 ET
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This past Wednesday, Dec. 12, the Federal Reserve released its FOMC meeting minutes and policy statement.

Such releases from the Fed are common, yet this particular statement was uncommon indeed.
The central bank announced it's going on a spending spree.
To wit, the Fed will now purchase $45 billion in Treasury bonds each month. Along with the $40 billion in mortgages it has already committed to purchase each month, "the Fed has promised to increase its balance sheet by $1.8 TRILLION per year going forward," says Robert Prechter in a special interim issue of his Elliott Wave Theorist.
And by the way: Here's what else the central bank's Dec. 12 announcement managed to purchase.
An hour-long rally of about 80 points in the Dow Industrials.
That's right. When the Fed made its announcement at midday, the Dow was near 13,250. In the hour afterward, prices spiked up to about 13,330. From there, prices headed south for a loss on the day, hitting session lows near the close.
So what's the point of the story?
Fair question.
When it comes to the stock market, it's important to have a good memory. Learning the right lesson is often the difference between investing success, or, things like a margin call from your broker.
In this case, Prechter himself has identified the "right lesson." He mentioned it in his Elliott Wave Theorist Special Interim Report, which he posted on Dec. 12 just a few hours after the Fed's announcement.
It's a chart he published in October 2008: He labeled it the "Slope of Hope." In the context of this week's news from the Fed, the Slope of Hope chart is more powerful today than when it published.



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