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davejh23 (< 20)

Will Friday Start the Biggest Sell the News Event Ever?

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August 23, 2011 – Comments (4)

I'm starting to believe that Bernake's statements later this week could trigger the biggest sell the news event in history.  Stocks are soaring today on the back of more dismal economic data...we're now batting a thousand on Fed factory activity surveys showing contraction.  Several weeks ago many economists were putting odds of a new recession later this year or early next year at 1-in-2 or 1-in-3...it now looks like the odds that we're already in a recession is closer to 1-in-1.  Housing continues to look worse than most had expected.  We've seen many more weak earnings reports and guidance than in the past several quarters as well.  Despite all this stocks are up on nothing but hope...headlines read "Wall Street Rallies on Fed Speculation". 

I just don't see Bernanke announcing QE3, or anything like it, at this point...even with all the weak data we've seen recently.  Next week could look a lot like the first week of August...wouldn't be suprised to see the Dow below 10K within a couple weeks. 

4 Comments – Post Your Own

#1) On August 23, 2011 at 1:14 PM, leohaas (30.12) wrote:

If the odds are really "closer to 1-in-1" like you state, then QE3 is a given. Bernanke has proven to be reliable (even though you may not like what he says/does).

The market seems to be pricing QE3 in, so if Bernanke's speech does not include a QE3 announcement, the market will drop. I don't know how much, but I will be short the market before the announcement.

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#2) On August 23, 2011 at 1:35 PM, davejh23 (< 20) wrote:

"If the odds are really "closer to 1-in-1" like you state, then QE3 is a given."

I don't know.  I try to imagine what Bernanke must be thinking...QE2: stocks took off, only to fall back to about the same level shortly after it's conclusion, and the economy weakened, reaching near zero growth and possible contraction by the end of Q2.  If he believes we're on the verge of recession and there's any doubt in his mind about the effectiveness of QE, what would he do?  If he launches a plan with promises to improve growth and the employment situation and we still slip into recession, he winds up looking like a massive failure...his life's work ridiculed, etc...  If he waits, the start of a recession is declared, stocks sink, etc... and then launches QE3, even if it proves ineffective, he can always claim that his only failure was in waiting to act.  In my opinion, the only way we'll get another easing announcement this week is if it's accompanied by a declaration that the Fed, based on recent data, believes we've already slipped back into recession and housing is sure to crash, unemployment to soar, etc...  That way, if things don't improve, they can at least pretend that things would have been so much worse if they had done nothing.  Only other option is some minor easing or future promises "if conditions warrant" that will fail to impress.

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#3) On August 25, 2011 at 12:49 PM, rfaramir (28.62) wrote:

Bernanke already promised to keep interest rates near zero, so we're already screwed. The only mystery, to be revealed Friday, is in what manner.

Federal 'stimulus' spending is actually damaging, and while in deficit, an immoral burden to put on the future. But with the Fed keeping rates low, deficit spending is practically costless, so, since it benefits the politicians and only hurts our children, they will continue it until the Fed lets rates rise again. It is making things worse as they steal from the future.

Even apart from enabling fiscal overspending, monetary 'stimulus' itself is also damaging and immoral. Damaging to the economy because artificially low interest rates make unsustainable capital projects *look* profitable when they really won't be. Immoral because it is arrogating to themselves and their cronies the purchasing power of our money. It is making things worse as they steal from current dollar holders.

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#4) On August 26, 2011 at 1:59 PM, leohaas (30.12) wrote:

OK, time to admit we were WRONG.

Dow Jones Industrial Average (DJI: ^DJI )Index Value:11,308.34Trade Time:1:50PM EDTChange: 158.52 (1.42%)

No "Sell the news event" happened, it looks like. The announcement was a non-announcement, so it should have led to a sell-off, like we both predicted. Again, we were wrong. With a capital R. And you cannot be any wronger.

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