Fed QE3 Helps Extend September 2012 Rally, 7 Things To Look For Next:
Ben Bernanke last week announced a new QE3 program which helped keep the September 2012 rally alive. Short sellers are jumping right back to their traditional talking points stressing the lift in stocks won’t continue. Do they have it right?
The Fed Chairman made it clear in his press conference that he wants more risk in the market. Anti-QE proponents seem unable to grasp exactly what Ben Bernanke’s objective is in stimulating the economy further so he made it clear. He wants asset prices to go up. Plain and simple.
Here is how we explained it when Draghi announced a major bond-buying program in an article entitled “Shorts Get Dressed In Draghi As Investors Await Invariably Bad August 2012 Non-Farm Payroll Numbers Tomorrow” (September 6, 2012)
The ‘QE doesn’t work crowd’ doesn’t understand the goal of easing. It’s to create a put effect that makes shorting riskier and drives up stock prices to create a ‘wealth effect’. Now that same QE doesn’t work, ranting crowd has focused their biases on central banks overseas and are fighting the fed(s) – to no avail. Add the Draghi Put to the Bernanke Put and one gets more liquidity than history may have an equivalent for.
-and we did get those invariably bad non-farm payrolls…
What’s Next?
U.S. equities will try to test new resistance and support levels which will be critical in analyzing the strength of the current rally. We are watching bonds, namely the TLT which we have targeted at $117 and $110. We have new estimates coming later in the week for how far the current bond bubble will burst and stocks could remain good investments through the end of the year.
Monitor:
- European benchmark bond yields
- The impact of unrest in the Middle East/North Africa on commodities
- Our TLT exchange traded fund resistance/support levels
- Dollar/euro
- Small cap stock performance
- November elections forecasts President Obama vs. Mitt Romney (check individual state/local 2010 incumbent races to assess overall electoral college – not 2008 wins)
- New S&P 500 support levels
- Moody’s
