Tuesday, May 31, 2011

To QE3 or not to QE3?

Now we are one day away from the calender flipping to June, the market trading story du jour is whether the FED is considering QE3. We are already scheduled for QE2+, wherein the FED ends outright treasury purchases but still repurchases new debt with existing maturing securities. So under no circumstances is the FED balance sheet going to shrink. The only consideration is how the market reacts to the rate at which the balance sheet expansion is slowing.

News Coming in For: 
The Inevitable-or-Face-Central-Bankruptcy Theory (with video!)
The "Soft Patch Case" Means QE3 is Likely
The Bernank will be "Forced to Execute QE3"

News Coming in Against:
A 10% Chance
"High Bar" Necessary to Trigger QE3

Either way, this is the highest priority fiscal news item for the month of June, trumping Greece and PIIGS news a thousand times over. If the market feels QE3 is coming, or should ibe announced as policy, then the dollar will continue to sink, commodities will rise, and markets will rise. If QE program winds down as has been previously indicated, then the opposite will occur. A soft summer sell-off would then be probable and fairly predictable.

Sunday, May 29, 2011

Memorial Day Weekend inflation news round up

The AP is reporting that gas tanks are draining family budgets. "For every $10 the typical household earns before taxes, almost a full dollar now goes toward gas, a 40 percent bigger bite than normal. Households spent an average of $369 on gas last month. In April 2009, they spent just $201. Every 50-cent jump in the cost of gasoline takes $70 billion out of the U.S. economy over the course of a year. That's about one half of one percent of gross domestic product. The median household income in the U.S. before taxes is just below $50,000, or about $4,150 per month. The $369 that families spent last month on gas represented 8.9 percent of monthly household income, according to an analysis by Fred Rozell, retail pricing director at Oil Price Information Service. Since 2000, the average is about 5.7 percent. For the year, the figure is 7.9 percent."

The UK's Daily Mail on recent food prices: Memorial Day BBQ's up 29%.  "Those thinking of hosting a BBQ - even a modest one - can expect to fork out an extra $45 on food to serve a dozen guests. The total cost comes to $199, or around 29 per cent more than last year... and that's before soda and alcohol, according to the latest data for metro New York. Lettuce has sky-rocketed 28 per cent since last year's traditional BBQ, while an ear of sweet corn is now 50 cents, up from 20 cents last year. Those who don't like tomatoes are in luck though: they're up a staggering 86 per cent on last year. Nationwide the story is the same. Ground beef is up 12.1 per cent on last year and sausages are up 6.2 per cent, according to the U.S. Bureau of Labor Statistics.And don't even think about potato salad. The apple of the ground is up 13.4 per cent. Ice cream is up 5.1 per cent, beer up 2.4 per cent and coffee has increased by 13.8 per cent nationwide."