Like others, we hung out most of the day waiting for Ben’s next dose of easing. What the Fed released in the way of new operations was fully expected without much of a surprise. Several things stood out. To remove ZIRP and halt QE inflation needs to remain tame and below 2% while the unemployment rate needs to be below 6.5%. Since even the most optimistic bull knows inflation data as currently constructed is faulty and misleading and so too have been recent employment reports.

Below is inflation and employment data as measured by and courtesy of John Williams’ Shadow Government Statistics. Manipulating inflation and employment data have been in the government’s interest to reduce entitlement benefit payments and hide real employment conditions for political reasons.

Meanwhile the Fed has indicated it would extend ZIRP until 2015 which may be nice but it offers little incentive for people to buy homes even as prices might flat line. And we really need people to start buying homes to clean out inventory. Also Operation Twist has ended only to be replaced by another yet unnamed OMO of buying $45 billion of mortgage-backed securities and $20 billion of Treasury debt.  This means more money printing driving the Fed’s balance sheet to potentially $4-$5 trillion. In his post release press conference stated the Fed is “not monetizing federal deficit”…right, and I’m not Santa Claus.

Lastly, the Fed (behind the curve as usual) has downgraded 2012 GDP growth from 2.5-3% to 1.7-1.8% and 2013 from 2.5-3% to 2.3-3% (a shot in the dark?). These are poor numbers and certainly don’t support a tax increase on anyone. One headline stated the revisions lower were only “slight” which is of course to minimize things but .8% GDP decline on these low numbers are massive.

All of his has led to massive hording of cash and trading reserves by large banks and little in the way of lending. The chart below clearly demonstrates the ineffectiveness of current Fed policies in my opinion.

As usual, and in the video we posted after the Fed announcement, the “first move can often be the wrong move” and this maxim proved accurate once again Wednesday. So after the initial stock market rally, stocks turned south as selling and profit-taking hit the tape. Perhaps investors just sold the news while the best and brightest couldn’t have been surprised much by the Fed’s economic downgrade.

So stocks closed in the red Wednesday led broadly lower across the board. Wal-Mart (WMT) (XRT) and Eli Lilly (LLY) (XLV) led stocks lower while commodities (DBC), oil (USO) rose, the dollar (UUP) was flat and gold (GLD) was slightly higher.

Now we turn our attention to the fiscal cliff drama and other data like Retail Sales and Jobless Claims primarily on Thursday.

Volume remained light with most of it coming post Fed announcement. Breadth per the WSJ was mixed to negative.

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