Stocks have rallied on expectations of QE2. Let's say they rally some more. If stocks are up 15-20% from the lows by the next Fed meeting, can QE2 be justified by the Fed? After all, a stock recovery like that would imply a strengthening economy. It might be hard to justify a risked repeat of the Greenspan 2003-04 blunder of a century merely by keeping rates at 0.5%, let alone increasing the money supply.
So, if Bernanke wants to do QE2 and have a good excuse, wouldn't he want stocks to *fall* between now and early November? That way, he could point to economic fears, the S&P down 10%, negative news headlines, and then QE2 to his heart's desire.
Perhaps we should be on the lookout over the next 5 weeks for Fed members warning about evidence of an economic slowdown.
So, if Bernanke wants to do QE2 and have a good excuse, wouldn't he want stocks to *fall* between now and early November? That way, he could point to economic fears, the S&P down 10%, negative news headlines, and then QE2 to his heart's desire.
Perhaps we should be on the lookout over the next 5 weeks for Fed members warning about evidence of an economic slowdown.