Stocks Fall As Investors Reinterpret August-September 2012 QE3 Likelihood, Romney Says Bye-Bye Ben Bernanke:
Stocks continued the recent downtrend with the worst day of August 2012 as investors reinterpreted the FOMC meeting minutes. We believed the knee-jerk reaction of stocks rising after the Fed minutes stated QE3 was on the way “fairly soon” was unwarranted and wouldn’t last. Equities resumed their drop today as investors realized the likelihood the Fed will implement QE3 has decreased in the past three weeks since the meeting was held July 31 – August 1 2012.
The FOMC had a window of opportunity to help stimulate the economy with monetary policy and now that opening has closed. We would disagree with Bill Gross who believes there is an 80 percent chance the Fed will implement QE3, especially now that the election is only a couple of months away and such a policy would appear to be politically motivated. Bernanke may have done a poor job of ‘predicting’ and it may cost him his job.
Romney Says Bye Bye Ben Bernanke
In a rare move that could backfire for the Republican presidential nominee, Mitt Romney stated he would not give Ben Bernanke a second term. While we won’t argue whether Ben Bernanke may deserve a second term, Romney may want to keep the economy as his main focus and not the Fed Chairman whose term will expire in January 2014. Romney’s comments could cause Ben Bernanke to, in an ‘apolitical’ way, – decide to move forward on QE3 because he’s got nothing to lose. While we disagree with Bill Gross that there is an 80 percent likelihood the FOMC will move forward with QE3, Romney may have helped keep that possibility on the table and only gave ranters more fodder. Luckily the economy seems to be on the slight upswing which could negate this argument.
Romney stated, “I would like to select … a new person to that chairman position, someone who shared my economic views, someone that I thought was sympathetic to the needs of our nation,”
As the election nears, Romney will need to focus on “now” – not the future, not the supposed ‘fiscal cliff’ (which most Americans have no clue about), not Medicare. Raising taxes on the middle-class and lowering them for the wealthy also won’t resonate in a post-’occupy’ environment. President Obama needn’t change a thing. He’s got Republicans focused on Akin, taxes and Romney-Ryan character issues.
We are more neutral on equities but with a bearish bias and are looking for opportunities to buy stocks. The short term Romney-Rally has fizzled and it may be time to reassess if equities drop below key support levels. The S&P 500 fell 11.41 to 1402.08 down 0.81 percent.