The US has been put on negative credit watch.
Small but respected Egan-Jones' Vice-President, Bill Hassiepen said "We are not receiving QE3 positively. The fiscal situation is a nightmare. While the Fed is seeking to support economic growth through its quantitative easing, the central bank’s massive monetization is instead causing sluggish to stagnant economic growth.” In fact, he expects growth to become stagnant within six months as a result of the Fed’s policy. The reason the country does not have a weaker rating, he said, is that it remains “the only viable reserve currency in the world.”
Does any of that sound wrong to you? Hassiepen is just the first of many who are lining up to point out that the US economy has no clothes. Retail sales data was terrible, industrial production was terrible but consumer confidence was unnaturally boosted by a 10% rally in the stock market due to QExpectations. Which report does the MSM latch on to? Consumer Confidence – of course! Why bother going over silly data facts when people have opinions we can discuss?
The Federal Reserve’s “money printing,” Hassiepen said, has not “really contributed to the improvement in the general economy” so far. Instead, all it has done is increase inflation and the cost structure in the general economy, as will the new round of QE just announced Thursday. “We actually think this is going to cause unemployment, not employment,” he said. the Fed’s policy will reduce household’s disposable income and raising costs will also “lead companies to lay off people,” he said.
I'm not saying we shouldn't enjoy our free money that the Fed is doling out but let's take it with a grain of salt and not assume it's going to be a cure-all. As you can see from the chart above, after a VERY brief moment of euphoria post QE2, we did drop 5% the following two weeks. While we did get a nice pop last week – this week is the expiration of September options contracts and, as you can see from our Global Economic Calendar (thanks StJ!), it's a major data week with lots of Fed speak as well as potential economic mine-fields.
As noted in Friday morning's post, we shifted our short-term positions to neutral in the face of overwhelming monetary easing (see post for updated $25KP positions) but, during Friday's Member Chat, not only were we unable to find things to get bullish about, but we…