With the US equity markets in seeming free fall today, there are some things worth pointing out here as well.
First of all, take a look at the horizontal red and blue lines shown on the weekly chart. Look first at the lower red line. Back in August of last year, rumors began to surface that the Fed was going to embark on another round of Quantitative Easing. The reason - the first round had apparently run out of impact. Yes, it had halted the collapse in both equity and commodity prices associated with the unwind of the carry trades on the heels of the credit crisis eruption, but when it came time for it to expire, the equity markets had nothing else to drive stock prices higher and began retreating.
Since that time, look at what the S&P has done - it has completely erased the entirety of its gains associated with the actual implementation of QE2. Another way of stating this is that the effect of the gargantuan sum of $600 billion in Treasury purchases and $300 billion for Agency Debt has been utterly wiped out. We are now back to levels commensurate with rumors of the QE2 program began surfacing.
When one considers the fact that we just witnessed a month in which ZERO new jobs were created on a net basis, you can reflect on the enormity of the wasted effort.
Perhaps that was in the mind of the Fed yesterday when they announced a sterilized Treasury purchase program of $400 billion. Either way, the markets are not at all happy.
What is more ominous however is where this market appears headed. Tomorrow's close is going to be extremely significant from a technical perspective. Note that the S&P has not yet CLOSED below 1100 on a Weekly basis. It did violate that level in early August but recovered to end the week well above this key level.
Let's see what we get in tomorrow's action.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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