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Oh My….it looks like a QE3 in the pipeline??

Well, the Doc is back after a short summer hiatus from a global marketplace that was simply filled with speeches, promises, spin and you got it…kicking the can.  All this bought the US Equity markets a few more percentage point gains for the major Indexes and a whole bunch of underlying risk.

As we embark on the return to more active trading in the exchanges following the summer doldrums, the markets seem to be preparing for a bout of QE3 after Bernanke did some jawboning in Jackson Hole last week.  A major question to ask at this juncture…with all the positive spin that has been hyped around the markets and media regarding a recovering economy over the past few weeks, why is it that the Fed appears to be ready for more stimulus activity? And the answer is….lackluster growth and anemic job creation.  

So what is Fed stimulus given that interest rates are basically zero (or should we say negative in real terms)?  Perhaps some buying in the mortgage back area and attempting to push longer term yields even lower to squeak out another round of re-financings.  But remember, the real objective to Fed stimulus over the past years has been to shift buying/investing into risk assets….and the Doc really sees this as bubble policy. 

Yes, stocks can go up a few more percentage points, and mortgage rates can grind a few more basis points lower and housing can bottom for the short term and consumption can increase a bit in the short term because of 401K power.  But the bottom line remains that real growth and quality job creation is not changing and as quickly as risk assets can go up in value, they can drop even faster bringing the seemingly recovering economy spiraling downward again.

Here’s yet another question?  Have you heard any political talk regarding addressing the continued state of job destruction in the US as a result of outsourcing?  It seems shockingly quiet in light of the current election coming up.  Let’s just end this session with the phrase…tighten those seatbelts because things may just start getting bumpy out there soon.  The Doc is back and will keep you posted!!


Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR


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