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4/10/2012

Well what do you know, the job creating pace has slowed.  So what does that mean for Fed policy and the future direction for the US Stock market?

Last Friday’s employment report has finally showed some signs of reality, as the payroll number came in significantly lower than expectations, and despite the nonsensical drop in the outright unemployment rate to 8.2%, we again focus on reality which involves a broader measure of the unemployment rate (includes those not working an not actively looking for work) which stands above 14%.  If you have been following the Doc’s reports, this slow down in job creation should be no surprise.

This data now magnifies the instability of Fed policy.  Last week, Bernanke and company released minutes which mentioned no need for QE3 stating a continued economic recovery.   But not even a week has gone by and the reverberations have quickly turned towards the need for QE3 in light of the employment report.  This instability in Fed policy magnifies the dangers and volatile state that Mal-Investment produces in markets such as Stocks.  (see previous reports on Mal-Investment)

News of no QE3 earlier last week put downward pressure on Stocks….but this was during a time of better than expected economic reports.  Then came last Friday’s weak job report that continued to exert downward pressure on stocks.  Here comes the ridiculous part…if Stocks show consistent weakness there is little doubt that QE3 will be put on the table again and then start the bubble trading in the major Indexes again (especially the QQQs).

The quick and simple point to make is that Fed QE policy seems to be more targeted at the state of the US Stock market than that of actual economic data.  If stocks post double digit gains…no need for QE3.  However if Stocks post some sizeable losses…along will come QE3….and the bottom line to all….US INTEREST RATES REMAIN VERY NEGATIVE…hence an impetus for Mal-Investment and no real policy to create long term economic growth.

 

Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR

 

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