Back in April the Federal Reserve chairman Ben Bernanke said there was no foreseeable need for QE3, indicating the economy was performing positively and was firmly on track to recovery. Though I was skeptic back then, I wanted to believe him, so I at least hoped this was the case. his judgement was backed up with good reasons, as it came off the back of this year’s positive first quarter which closed on a high with the markets making significant advances into the beginning of the second quarter.
At same period the S& P has made significant strides to an all time high since 1999. This was phenomenal by market standards given the aftershock of 2008 which resulted in Quantitative Easing being introduced in most major economy.
Stocks, oil, gold, and commodities were all finished floating on a high.
It seems that the Mr. Benbernanke judgement back then lacked the far reaching insight required predict May’s cooling down jobs figures.
The reason: the news folks were touting the manufacturing numbers from.
Yes, the ISM index of national factory activity rose to 53.4 in February, topping economist’s expectations of 53.0. Although it was only a .4 bonus, it was double the points of last mays number, which rose 0.2.
The economic data released back in early April was far from uniformly positive. Construction Spending data was not the +0.7% gain that was expected but a -1.1% decline. It was also far worse than the previous month’s release of -0.1%. It doesn’t seem to matter. Any and all economic data is viewed through a myopic lens that screens out any negative information and over-emphasizes the positive.
The US markets went straight up despite the aforementioned construction spending that suffered its biggest drop in seven months. In addition, The Euro zone’s manufacturing sector contracted for an eighth straight month in March, with the downturn spreading to the core economies of Germany and France.
Whilst Europes woes did not seem to affect to the US markets back then and is still not permeating yet, It eventually will start to bare heavily on the US especially through its global banking system which is exposed to Europe. Morgan Stanley is the for example is exposed exposed to the PIGS (Portugal, Ireland, Greece) dilemma.
With the central planners in charge, we’ve become conditioned to the good-news-only part of the proposition.
Now QE3 is back on the table again and becoming increasingly more likely as
dismal jobs, manufacturing and housing figures prevails. The Federal Reserve may very well have to act fast in order to keep the dollars coming, and interests rates low to prevent US double dip recession as the one Britain is experiencing