Commentary (Newsletter 29/8-2/9/2011)

The market has QE3 on its brain. This just shows that macro economic factors have more impact on the markets than any factors affecting the businesses that these stocks getting pummeled are supposed to represent. Hopes for more support from the Federal Reserve have helped stocks levitate in recent sessions, making investing and trading in any markets, especially stocks much more difficult, as if it wasn't hard enough, and frustrating the average investor or destroying the savings of pensioners as their 401ks or IRAs come down with the markets. The minutes of the last Federal Reserve policy setting meeting, released Tuesday, revealed that a third round of asset purchases, or "quantitative easing," was raised as a possibility to support the economy and financial markets. QE2 spurred a significant rally in many markets and Investors are beginning to say, 'Hey, if they're going to do a QE3, probably the same thing happens.’ Stocks and commodities rallied as the Fed minutes came out., as Some traders clearly felt that the Fed was signaling a third round of quantitative easing (QE3) solely because they acknowledged discussing a range of easing options. A few members felt that recent economic developments justified a more substantial move which seemed to be all that was necessary to get everyone salivating again.  The Fed is deeply divided; they couldn't even seem to agree on whether inflation posed an imminent threat or not however the minutes revealed that some committee members advocated another round of  easing or QE3.  By itself the Fed can't restore confidence or create jobs, so any steps it might take won't be game-changing for the economic growth prospects. The likelihood of more stimulus has increased dramatically as a result of this and some other recent data, but at this point it's unclear how much that will really help markets. Frankly if it didn't work the last time its not going to work the second time. Wall Street has a gambling problem and the fed cannot keep supporting it because when news comes out showing inflation again the complainers will come in their masses to blame everything on Mr Bernanke. The same traders making a killing on rising wheat prices will crush a restaurant stock when it says wheat prices are shrinking margins or complain when their trading profits buy less in the stores. When you bite the hand that feeds you, don't be surprised when it does return and I will loose much of my respect for Ben Bernanke if he decides to feed Wall Street’s gambling problems once again.