Dow loses 300 points

In the wake of Treasury Secretary Henry Paulson's stunning announcement that America's economy is in "sharp decline," the Dow Jones Industrial Average ended yesterday with a dramatic 3-digit loss of 293 points, giving back much of Tuesday's 420-point gain, to end just above 12,000.

And while there was temporary euphoria yesterday over the Federal Reserve's decision to lower the federal funds rate .75 percent to a six-month low of 2.25 percent, many investors began to realize the Fed was rapidly running out of room to lower interest rates any further.

The Fed has only 1.25 percent left to lower rates back to the 1 percent level former Federal Reserve Chairman Alan Greenspan held rates in 2003-2004.

These historically low rates are now largely blamed for creating the real estate bubble, with so much liquidity made available to mortgage lenders that home values reached never-before-seen highs and sub-prime loans were being sold aggressively to non-qualified home buyers.

Besides, with the Federal Open Market Committee yesterday expressing continued concerns over inflation, the Fed is unlikely to return to 1 percent fed funds rates any time soon.

With the Federal Reserve appearing to run out of monetary policy bullets, many investors yesterday questioned what the Bush administration could do next to head off recession.

Meanwhile, commodities came under pressure as gold traded down to $ 941.00 an ounce, from recent historic highs it reached over the $1,000/ounce mark.

Oil also traded down, ending the day at $102/barrel, down from previous highs exceeding $110.

For its part, the dollar showed some slight signs of strength, ending yesterday at $1.56 to the euro, up from all-time lows reached earlier this week at levels exceeding $1.57 to the euro.

Yesterday's movements in commodity prices caused Michael Bolser of InterventionalAnalysis.com to issue an alert in his daily subscription newsletter.

"The large strategic commodities reversal has started," Bolser wrote, convinced Treasury Secretary Henry Paulson is organizing a behind-the-scenes market intervention designed to push down the price of oil and gold, while simultaneously boosting the dollar.

"Although there will be spikes and mini-rallies, gold is headed down as Treasury Secretary Paulson's 'Strong Dollar Policy' (alias 'Slash Gold Policy') ramps up into full force."

Bolser is advising his newsletter clients to take their profits in gold and oil now.

He's also reporting that the Federal Reserve yesterday added $7.25 billion in repurchase agreements, in an action calculated to hold the outstanding repurchase pool near its recent top at $242.408 billion.

A repurchase agreement, as defined by the Fed, is a government security offered by the federal government to a small list of specified primary government securities dealers, for a limited period of time, usually 28 days or less, with overnight return being the most common.

WND has previously reported on Bolser's quantitative analysis supporting his theory that the Federal Reserve regularly manipulates the Dow Jones Industrial Average by increasing the repo pool (that is, the sum of all the repurchase agreements) when the Fed is trying to prop up the Dow and reducing the repo pool when the Fed wants to depress or slow down the stock market.

Recent Fed moves in the repo pool would indicate a current Fed policy to keep the Dow above 12,000 to reassure investors that the stock market remains robust and fears of an impending recession are over-stated.