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Just in case you were believing all the positive hype about the economy recovering, along came Bernanke, who dowsed the situation with cold water…and that probably wasn’t his intention.

You know the hype, you’ve been hearing about how cash rich organizations are and how initial claims and the employment picture is apparently improving and that’s why US Stocks have posted a robust 5% gain so far in the first month of trading.  Well, if you’ve been following the Doc for a while, you would know it’s a lot of hogwash.  And what piece of information supports the hogwash outlook?  Something called a negative real interest rate monetary policy that exists at the current moment and last week’s Fed’s minutes alluding to the fact that this will be the shape of things for a long, long time. 

What a nice way to suck the air out of the recent US$ strength, but more disturbing is the attempt to get investors to continue to chase risky assets in order to achieve any type of positive yield in 2012.  And yes, these more risky assets include US Stocks, real estate and commodities.  The latest GDP report was anemic, the past holiday retail season was weak, while the latest housing numbers continue to decline.  Keep an eye on employment….you may see one more OK number and then all bets are off for the remainder of the year.  Zero interest rate and negative real interest rate policy is simply not a good thing…can we call it QE3?  Why not…Stocks need something to keep them going up.


Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR


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