To QE or not to QE – that is the question.
We had a lovely rumor-based rally on Friday as anticipation swells ahead of Bernanke’s report to Congress this week. Although the Fed Chairman has said no, non, nyet, nein, etc. in every possible language for months now – as David Fry notes, the “Bad News Bulls” continue to interpret each new bit of negative information as another reason to expect MORE FREE MONEY to rain down from the Fed.
Even at PSW, our sole bulish premise of the last few months has been an expectation of additional bailouts but, so far, they haven’t come – so we have gone back to being cashy and cautious in our long-term positions while remaining more bullish over the long-run, where the G20 MUST step in and pump up the economy.
As Dave Fry points out:
In the U.S. QE and ZIRP has boosted stock prices ephemerally but has done little to lift employment or the economy. So, does doing the same thing over and over again without success make sense? It does for short-term trading desk and hedge fund profits–that’s all you really need to know. You’ll recall yesterday the NY Fed issued a report stating plainly the result of their recent policies is why the S&P is at 1300 vs 600 where it would be without this help. (By the way, Jamie Dimon is a director of the NY Fed.).
Stocks (led by banks KBE & etc), commodities, and even the euro were strong as this out of the blue rally demonstrates. It’s hard to short when the Fed is hovering above and dangling more hints of QE-crack for the permabulls and HFTs. The only sector to experience some downside was bonds (IEF). Pick any other sector and it was only question of how much they rallied. Most pundits groped for details to explain the rally with comments like: “The confidence number was off some but still way off the bottom” and “…you eventually have to put some money to work” and “…some will point to China as providing more stimulus” and Warren Buffett has been trotted out to the media two days in row talking his book. And, so it goes. This day was reminiscent of the other out of the blue quarter end rally in June.
In Stock World Weekly, we summarized the situation…
