Reality Check Ex the BS

Hello! It's Friday and what a week it has been! The meltdown on Monday/Tuesday created near panic as the mkts came under pressure - piercing thru technical support levels seemingly unable to find support - we witnessed as the mkt sold off right down to the exact 10% correction range and stopped. As if someone just put their hands out to catch it....Volumes surged - as it usually does on the down days - as investors/traders began to reassess the state of the global economy. There was a lot of technical damage done and the mkts will need time to re-group before we see any meaningful rally - Now that being said

- This morning European mkts ARE in rally mode - all up between 1.5 - 2% across the board - Italians and Spanish bonds surging on the expectation of more stimulus....Benoit Coeure - and executive board member of the ECB - stuck his head out from under the table and had this to say:

"The European Central Bank will start within the next days to purchase assets in the new program to support the economy"

And BOOOOOMMMMMM! Mkts go into rally mode....Will we hear something similar from the FED? Oh - we did....... Yesterday St. Louis Fed Bank President James Bullard, - not a voting member – so not anyone who has much sway – did suggest and in fact challenged his colleagues at the FED to be 'sensitive' to incoming macro data and mkt action as they weigh future bond purchases........

“may want to extend its bond-buying program beyond October to keep its policy options open given falling U.S. inflation expectations…. It would keep the program alive, and the Fed’s options open as to what we want to do going forward.”

Behind that - he also mentioned that the fundamentals of the US economy remained strong (of course he did – Janet gave him the data from the 1990’s) while laying the blame for recent mkt volatility squarely on Europe.

He was very careful NOT to give too much time to the recent ‘price adjustments’ seen in the US capital mkts – adjustments that were swift and violent as investors/traders suddenly realize that there is a DISCONNECT between current fundamentals in the global economy and the level of the Dow, S&P, Nasdaq, Russell and every other major mkt in the developed world – thus causing a ‘do over’ in terms of prices. - (But that's another story.....)

It's funny - but do you think that the members of the FED really believe their own BS? I mean - do they really think that it's all systems go? Do our esteemed elected officials in Congress even have a clue? Do they realize that their lack of responsibility has only made the recovery more prolonged and difficult?

Like I said the other day – maybe the gov't should talk to the man on the street - you know - the working man/woman and get his/her view of the current state of affairs and publish that in RAW FORM on a weekly basis – vs. those airbrushed, photo shopped reports that get shoved down our throats. We could call it the weekly REALITY CHECK - and like the PPI ex Food and Energy we could have the 'Reality Check EX the BS'....... Just a thought......

This leads one to ask - Did Janet and her band of merry men send Bullard out to test the waters? Was he the sacrificial lamb – sent to be slaughtered or not – I mean he has no vote – so he can only talk – to test the water and see what happens. You have to believe that The Fed is surely keeping a close eye on the recent market action without trying to give it too much significance just ahead of midterm elections - but don’t be surprised if they change their tune at the next meeting on October 29th. The FED (and every other central bank) has a vested interest in minimizing market volatility and ensuring confidence in the economy by helping to stabilize the capital mkts – if we continue to see violent swings expect that they will sound a new 'call into action' when this doesn’t go according to plan.

This morning US futures are in RALLY MODE - currently SURGING 25 pts - as traders recall the famous Beatles song and sing - "Here Comes the Sun"

"Here comes the Sun - Here comes the Sun, And I say, It's alright.. Little Darling - It's been a long, cold lonely winter...."

Well it hasn't been cold yet - but it was one helluva week......

Yesterday stocks remained under pressure most of the day but did manage to recover and finish the day fairly flat – which was actually a win upon hearing the chatter from Bullard. Now Jamesey boy is correct about Europe, and the ECB will have to ‘do more’ than what is currently on the table but this will require the Germans to “buy in” - something I think they will have to do given all of the negative data we have seen - but the jury is still out on that count.

But Jimmy Boy is confused when he talks about the strength of the US economy - as evidenced by the continued mixed to weaker macro data we have been seeing.
Inflation is well below target – clearly a problem – and this makes you wonder if the Fed may ‘pull a fast one’ and move towards targeting the inflation rate over the unemployment rate – because if they do then guess what? They can extend or re-introduce more stimulus – which then makes Jimmy’s comments more interesting…..I’m just sayin…..

While we all have been focused on the ECB and what they are doing – do not forget our friends on the other side of the world in Asia......should we also be concerned about what the BoJ (Bank of Japan) is doing? Will they make a decisive move in the near future also? - I mean look - the BoJ has a clear mandate to kick start the economy, and a weaker Yen will help to get it there - so it's all about a renewed currency war as competing central banks work to force their own currencies lower to help their economies.

Next - What is going on with OIL? It's been under a bit of pressure lately - good for the consumer but bad for the oil man......but we did get a bit of a bounce yesterday - which also helped the tone of the mkt. WTI (West Texas Intermediate) rallied 1.1% to $82.97 on what I think is speculation that prices have fallen more than justified - overdone to the sell side. Brent crude rose 0.8% to $85.82/barrel, climbing from the lowest level in almost four years. Is it really falling demand or is it too much supply? Has everyone forgotten that they can turn off the spigots? Oh yeah - but then that creates a whole host of other problems.... As the IMF points out - the Saudi's need $83.60/barrel in order to balance their budget The Russians need even more - but let's remember - No one can choose the price that works for them - but they can work to try and force the price higher - so that they all feel good about themselves........kind of what the FED has been doing to equity prices for 5 yrs.....

GE reported this morning and BEAT the number....The stock is up $1 in pre-mkt trading.....

Take good care - Enjoy the weekend.

Warm Brownie a La Mode

You know when you've just had it and you need to eat something that makes you feel good? This is it.

Warm Brownies and a big scoop of vanilla Ice Cream - add some warm Hershey's chocolate sauce and crushed walnuts -

Curl up on the couch and watch your favorite movie - Maybe a classic - Like Casa Blanca or the Godfather....something warm and fuzzy....you get the picture right?

Enjoy the weekend.