As we wrote last week, the wind down of Treasury’s Supplementary Financing Program (SFP) begins today, with $35 B in the program not being rolled over, $24.3 B of which was initially allocated to primary dealers.  We have speculated that the effect will be similar to that of the quantitative easing/permanent open market operations (POMO) of the Fed whereby the resulting excess reserves are plowed into equities.  The impossibly high correlation of paint-the-tape closes to POMO days in the first few months of the rally made for an easy trading edge.  Equities have, of course, continued their tear, but the timing of equity ramps has become increasing erratic and can no longer be easily correlated with Fed operations.  This is expected because an easy trade cannot exist for too long when many know of it.  At best, for now we can only remain generally bullish until the operations are scheduled to stop.  For SFP, this will be the last Thursday of October.  However, the FOMC announced yesterday that Agency (Fannie/Freddie) and mortgage backed securities (MBS) buybacks (both permanent liquidity ops) will continue until the end of March 2010, with a gradual wind down.  The Fed may purchase a further $75 B in the former and another $600 B in the latter.  All in all, there is much more liquidity coming down the pipe.  We will likely not become long term bearish again until we see a steep drop in bank non-borrowed excess reserves, indicating the juice for the rallies has dried up.  Until then, corrections will be buying opportunities, though we expect some will likely be violent.