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Very short and sweet today, because a good deal of the perspective is still the same as our assessment in last Thursday’s post Fed Head Extends Anti-Dread Meds. QE3 may be quite a tonic for assets, but whether it encourages any real improvement in the US and global economy is another matter altogether.
Mr. Bernanke seems to have taken the bait from Senator Schumer that he needs to “get to work.” And along with his natural instincts (and possibly a bit of self-serving additional prominence for the Fed), he seems to have caved-in mightily to the sense that the Fed ‘do something’… whether or not it actually accomplishes anything in the real economy.
In fact, there was already an article on the front page of Monday’s Financial Times articulating the degree to which the backlog in mortgage processing by banks may mean there will not be any benefit to prospective home purchasers. And along with that there are not likely to be enough mortgage-backed securities (MBS) created to satisfy the QE3 buying program if it lasts for any length of time. And it is already creating market distortions.
That is also very consistent with the observation by Newedge Senior Director Larry McDonald, “There’s a new hedge fund… and it’s the Fed.” For quite a bit more on that and McDonald’s views on Spain and the dysfunction in the mortgage securitization market, and much else…
…it is easy enough to click into the video clip of his appearance on the Fox business News ‘After the Bell’ show last Friday. We still believe the multiple risk factors in the global economic and financial landscape lend themselves to the current central bank asset bubble deflating quickly at some point. McDonald does a very good job of summing up how central bank market interference, the size of the debt problem in Europe (when compared to the commitment to rescue funds) and other factors leave markets at risk in spite of all the new regulation; and in some ways even because of it.
But for now what we know is that some of those key factors come to a critical juncture once again on Thursday. As we note in this week’s Summary Perspective, tomorrow brings European and UK bond auctions along with critical Euro-zone Advance PMI’s, UK Retail Sales, and various US economic data as well as many speeches by key financial luminaries. In fact, that begins with a speech this evening by prominent Fed Hawk Richard Fisher (president of the Federal Reserve Bank of Dallas.)
So it is still going to be quite an interesting show for the balance of the week after the reaction to last week’s sharp price swings in all asset classes. For more of the specifics you can still review the Weekly Report & Event Calendar via the link in the right-hand column, and the price trend ideas and levels in the Current Rohr Technical Projections - Key Levels & Select Comments, also updated as of yesterday’s US Close.
Thanks for your interest.