The Fed put and its danger

Asian markets overnight took the economic slowdown, selloff cue from us and Europe continues its correction, further adjusting to the US selloff after markets there closed yesterday. Yesterday I mocked the discussion of QE3 as an unfortunate byproduct of the Fed put that has been so ingrained in market psychology over the past 15 year where the Fed acts as any drug dealer would, always satisfying the addiction of borrowers and market participants anytime a sense of withdrawal is kicking in. While I have no doubt a Bernanke led Fed will have no problem acting again (taking no introspection that what they are doing is a failure of policy), they will definitely pause for a period of time after QE2 ends and the WSJ today explicitly made that point intentionally saying “Fed Reserve officials are in no hurry to respond to recent indications US economic growth has hit another soft patch, despite chatter in financial markets that the Fed might start a new program of US Treasury bond purchases to boost growth.” AAII: Bulls 30.2 v 25.6 Bears 33.4 v 41.4

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