Friends
Fed Chairman Bernanke testified before the House today and the main headline to emerge was that, if necessary, there could be a QE3. That’s right. If things get bad enough, the Fed would consider more asset purchases, etc. Never mind that QE2 had no positive effect on employment, and the prices of everything important to consumers (food, clothing, gasoline etc.) went up significantly, the Fed has QE3 on the back shelf just in case. Stocks took the cue and it was “risk on” once again. Remember, the biggest beneficiary of QE2 was the stock market, and at least for a while today, traders were emboldened that Dr. Bernanke is again the backstop for stocks. After about a 160 point Dow rally, stocks settled back to end the day up 44 points. The late pullback was attributed to doubtful Boehner comments with regard to the budget talks.
We are very doubtful that QE3 will actually come into play. First of all, we think the economy will not likely warrant it, as the headwinds of Japan and high oil prices subside in the second half of the year. Second, politicians will go ballistic if the Fed even thinks of starting down that road. They will claim that the effects are simply to continue to damage the little guy for the benefit of the investor class. It was big news for about 5 minutes, but it seems unlikely to matter tomorrow.
The debt ceiling talks most likely will take center stage over the next couple of weeks along with earnings reports on a day to day basis. Of course we can always wake up to another European debt crisis at any time.
We’ll be watching. Have a nice evening everyone.
