With the markets on the cusp of seeing very important economic data over the next three days (ADP, Chicago PMI, ISM, Claims, vehicle sales and Payrolls), comments yesterday from Fed voting members Evans and Kocherlakota have changed the dynamic in terms of what the market response will be. The question is how long it will last. QE2 we know only boosted asset prices but did nothing to help the US economy. It actually damaged it particularly with the rise in commodity prices, a debased reserve currency and distorted capital allocation. Assuming more accommodation will not help at all again, will there be a further rally in stocks on QE3 talk after weak economic data because investors won’t want to own US dollars and equities are a form of debasement and money printing protection or will they not because investors know it won’t work and will just lead to more damaging consequences? I’m of the opinion that in the very short term, the market will like the possibility of more Fed action due to the former reason, but this ‘fix’ won’t last that long due to the latter. I digress. German unemployment in Aug fell 8k, about in line with expectations with the rate holding steady at 7%. Euro zone Aug CPI was unch at 2.5% and the July EU unemployment rate stayed at 10%. The MBA said purchases rose .9% from a 15 yr low while refi’s fell by 12.2%. II: Bulls 40.9, unch, Bears 36.6 v 33.3
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