Returns on POMO/ non POMO Days

This is from a friend of mine « Billy O’Nair » from the « Value In Time » Google Group, it was written last weekend.

This is not the time to think and worry about your usual overbought indicators and divergences wanting lower prices. The Fed wants higher prices and will succeed no matter what your oscillators will do. Just consider the impact of POMO days since September 1st compared to non-POMO days. 21 POMO days averaged a daily gain of 0.64%, 7 times the average daily return of 26 non-POMO days of 0.09%. The compounded return of all POMO days has been 14.18% vs. 2.27% for all non-POMO days!

Monday will be the last one of the currently scheduled POMO days so don’t expect potential “weakness” before Tuesday. The next release of the approximate purchase amount and tentative outright Treasury operation schedule will be at 2 p.m. on Wednesday November 10, 2010. But the FOMC statement was clear last Wednesday: we will get more and more of these bursts of free leveraged liquidity to ramp up prices of all asset classes for the next 10 months.