As stated in my weekly forecast earlier today, the markets are rapidly adjusting to the fact that QE 3 is not coming anytime too soon.
Indeed, the two primary pro-money pumpers at the Fed (Goldman stooge Bill Dudley and general Wall Street lackey Ben Bernanke) have completely changed their tunes regarding providing additional liquidity to the markets.
Indeed, Dudley who made headlines earlier this year by suggesting iPads were as relevant to inflationary data as food and energy (no joke, he did), is now openly stating that higher commodity prices (inflation) are hurting US households.
Even though I expect a moderate economic recovery to be sustained, the recent disappointing data suggest that downside risks to the outlook have increased. Let me list some of them for you:
· As I mentioned earlier, high oil and commodity prices have further strained many families that already had tight budgets.
This is quite an admission from a man who’s been one of the biggest proponents of “inflation is under control” at the Fed. To give you an idea of the impact of the above statements, Bill King, Chief Market Strategist at Ramsey King Securities notes that stock futures entered a nosedive within minutes of Dudley’s speech last Friday resulting in the market tanking for most of Friday’s session.
This is what happens when the markets are being propped up by nothing but Fed liquidity and the Fed suddenly changes its tune… DOWN we go. However, judging by stocks’ performance so far, traders are still hanging on to hype and hope that the Fed might at least hint of more easing soon.
On that note, the final straw for stock bulls will come June 21-22. If the Fed doesn’t at least HINT of more QE or something like it, then we’re in for a VERY interesting time in the stock market.
Remember, stocks tanked 16% after QE 1 ended in 2010. So far, we’re already down 6% and QE 2 hasn’t even ended yet! If we match last year’s post-QE correction, the S&P 500 will be at 1,144 soon after QE 2 ends. And given the numerous disasters (economic and financial) occurring in the world today, we could easily drop a lot further than that.
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