A Whiff of a “Mini” QE-2?

The 100% certain sure thing in the market today is that QE-2 will come
on November 3rd and that it will be decisive in its scope. Well I am not
so sure any more.

-The Fed’s Beige Book from yesterday did not make a case for an economy
that needed emergency measures. Yes there was some discussion about the
weak housing market and soft loan demand. But we know that QE-2 is not
going to fix those problems.

-It is of significance to me (and should be to all) that Zero Hedge was featured in a Time/CNN article titled, Will the Federal Reserve Start a Civil War?

I am certain that the Fed reads Zero Hedge. But how much influence they
have is a question. When it gets up to Time magazine however, it is
another matter altogether. It is not possible for the Fed to avoid the
collective roar that is coming from across the country at this point. If
the Fed blunders with an unpopular QE-2 the results will be disastrous.
Not only will the economy tank but the Fed will have lost a good chunk
of its remaining credibility. The downside risks to Bernanke are
enormous. I don’t think he believes he is in a popularity contest, but
he does know he can’t run monetary policy with protesters outside his
door. How much is he prepared to gamble given that he clearly does not
have a consensus amongst his own board? He is an academic, not a
gambler.

-Today St. Louis Fed Bullard made remarks to reporters that were a
warning sign to me (and the market). He talked a much different game
than what has been dished out of late. He made reference to a smaller
program. Maybe less than $500billion (about half what is now in the
street). He also threw out something that blew me away. He suggested
that the 11/3 decision was in someway dependant on the Q3 GDP numbers
that come out before the Fed meets. Bullard even “spun” the numbers on
the hot side:

"it may come in a little stronger than the second quarter." So we have to keep our eye on that."

Bond traders shit in their pants and hit bids on long coupons. I like
that read. Bullard gave us a hint that maybe this QE-2 is not such a
slam-dunk. (See ZH story on Bullard)

-The WSJ had a market story about Bullard’s comments but their big gun
on QE, Jon Hilsenrath, has been quiet. Should the press follow with the
new question mark on the timing and scope of QE2 we may have an
October surprise that is bigger than a SF-Texas series.

I started this with; “The 100% certain sure thing in the market today
is that QE-2 will come on November 3rd and that it will be decisive in
its scope.” If that certainty factor falls to 50% the S&P is
going to take a big dump. That possibility is simply not in the print at
the close.

Comments

[max2205]

Ah. Bear market rally might hit new highs soooon. And pretty close to all time highs.

[Howard_Beale]

Ya think we got the juice for 270 points in the S&P, and 3000 dow points? How about that Nasdaq...gonna gun it to 2000 levels? And please suggest how that might happen. APPL at $1200, JPM at $90, IBM at $200? Think about it.

[Charley]

Yes. What the Fed does has to be the over-riding concern of everyone and at all times. How else is the Fed to maintain its stature unless we all pore over every utterance as if it were the pronouncement of Delphi.

Can someone tell me how we got to this point if the Fed was as significant as we all appear to imagine?

[RoRoTrader]

You have nice taste in grafitti art BK.

Bullard wobbled a week or so ago and made statements to the press that came across as confused which seemed out of context since Bullard was the one to frontrun QE in the early stages of verbal intervention with the Times story over the deflation threat.

Getting close to D-day and maybe the nerves are starting to rattle. Or, maybe buyers remorse taking hold and shaking Bullard's resolve?

Like your reference to the 100% to 50% and possible blowbacks politically if the route is taken and if not the long drop looking down for the S&P.