September 27, 2010 – Bring on the Bernanke Put!



1) Bring on the Bernanke Put! It is now clear that the Fed's unprecedented message last week implying that public enemy number was deflation, not inflation, has given a green light to global risk accumulation of every description. Any further slowdown in the economy will now be met with aggressive quantitative easing. Although I don't spend vast amounts of time dissecting Fed statements, the words are unequivocal:

"The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

Never was so much said by so few words.

It is rare that everything goes up at once, but that is exactly what we got, with stocks, bonds, foreign currencies, commodities all rallying hard. Coming into the Fall, I did have some concerns that asset classes that performed well over the summer, like emerging stock markets, precious metals, and the grains, might sell off on any American stock market strength, as managers rotate money from outperforming groups to laggards.

It was not to be. On Friday, the 23 point leap in the S&P 500 was matched by gold punching through $1,300, silver hitting another 30 year high above $21, the grains tacking on 5%, and most emerging markets reaching either six month highs or all time highs.

Who was not invited to this love fest? Financial stocks, where a weak housing market continues to wreak havoc with balance sheets, whether they publicly admit it or not. The US dollar was also missing in action, since any quantitative easing is certain to fan the inflationary fires down the road. The euro has blasted through to a multi month high, and the British pound is threatening the same.

I warned readers that the markets were primed for a move like this (click here for 'My Equity Scenario for the Rest of 2010'). All of the seasonal and historical indicators were predicting that in an election year like this one, six months of famine in the equity markets would then be followed by six months of feast. It looks like the S&P 500 now has a free pass to make a run to the 200 week moving average at 1,200, and possibly the high for the year at 1220. After that we'll see how real this is, for stocks anyway.

Party away like there's no tomorrow, but keep an eye on the door as usual, and keep snugging up those stops on US equities. Use the strength in long dated Treasuries to unload what you still own.




Helicopter Ben Says It's Party Time