Tuesday, August 10, 2010

Encouraging Words

The Fed just announced that it will roll over its mortgage security investments. This is a sign that the "doves" are gaining control at the Fed. This is a very bullish development and probably reflects the two most recent appointment to the Board.

In my opinion it is critical that the Fed convince the market that it will NOT shrink its balance sheet and NOT reverse the quantitative easing steps it took during 2008 and 2009. Why? Employment and corporate investment depends almost entirely on expectations for GDP growth. These growth expectations in turn depend almost entirely on expected tax rates and upon the expected growth of the Fed's balance sheet. Tax rates are still expected to go up (although the November elections may change the situation dramatically). But this afternoon's announcement by the Fed shows that it is changing its mind about its previously announced plan to shrink its balance sheet. This is a change for the better as far as expectations for economic growth go.

This is a very bullish development for the U.S. economy.


tempo said...

Agree completely. Without today's announcement the market was toast. A declining market was never going to happen (INHO) with the pending November elections on the horizon.

dclancy said...

Yes, but Carl, you are a contrarian, if everyone thinks this is bullish, what makes it so? Why no contrarian viewpoint here?

Dave Narby said...

I expected a weak, mushy statement from the Fed, and that's what we got. They are stuck between a rock and a hard place.

Small caps are leading the way back down.

Gold and silver are up as the structural problems in the economy are continued to be ignored.

Absent profligate money printing, this sucker is going down quicker than a...

...Anyway, I expect we go dwon over the next month, get a dead cat bounce, then new lows.


pej said...

carl, with all the due respect... I've been trying to warn you for many months now.

When you end up on the same side as Jim Cramer, only bad things can happen to you: http://www.cnbc.com/id/38645597