Don’t Fight The Fed

The Fed’s James Bullard suggested that the QE might start up , or never officially end as its supposed to at the end of this Month. Of course, many had anticipated a fed rate hike in March. That has all been shelved, with 1) the slow down in Europe 2) the German’s reluctance to ease 3) China apparently slowing down 4) The drop in oil prices, suggesting a world wide slow down and finally 5) Ebola. If Ebola gets into the heads of the US public and they decide to stay home and stop shopping, then we have a slow down because the consumer is the driver in US economy. When China had Sars in 2–6 their economy in 2002, it resulted in their economy slowing down because people hunkered down and stopped going out. We had a similar move after 911, when people stopped going out for fear. All in all, when Mr. Ballard put US QE back on the table, the bond market moved lower and the stock market rallied. Yesterday’s 6 handle day in the bonds was unprecedented. It looked like forced liquidation by margin clerks gave us that spike. So far the stocks look to be holding. The 10% pullback, as scary as it looked, for now holds. Long term investors should have taken a bite of the market on that pull back, if you are following that playbook to the letter. The US dollar found support, for now. Crude Oil rallied after posting its low at 79.78. Crude Oil settled at 82.50. 350 point trading range in the Dow. 35 handle range in the S&P. 3 handles again in the bonds and 2-1/2 handles in the 10 year. That high tick 130=16 in the dec 10 year looks like a blow off move. If the Fed’s going to keep the punchbowl out at the party, then perhaps the worst is over. For now. The market seems to be telling us that. CER

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