More Hopium On The Way

Our down trending economy and markets may have begun to levitate again with Chairman Bernanke’s Jackson Hole speech last week when he announced the Fed would keep interest rates at zero for two more years (that would be 4.5 years total.) I believe this is just the beginning of “QE3” (generally defined as more money printing.)

Because there is some opposition to more stimulus and money printing (including three of the Federal Reserve’s Presidents and members of Congress,) the Government and the Federal Reserve have to “justify” more spending. In other words, there has to be enough “pain” to justify more spending and interfering with the economy. I believe we will get more fiscal stimulus and more money printing because we have, over the years, turned our economy (and education, health insurance, parenting, retirement, etc. etc. over to the government) and stimulus and money printing are the only way they know how to fix things. Besides, there is an election coming soon and fixing will take time.

There are two data points coming this week that may give the government the “justification” they need. One is the ISM-Manufacturing Report on Thursday. I suspect it will be more negative than expected. The second is the jobs report on Friday. I think the consensus is for about 75,000 to 100,000 jobs. However, the data over the past month is so negative that we may see a much smaller number and even a negative number for August or September. A negative number will defiantly get attention.

These events will be followed up by President Obama’s speech on September 5th when he will tell us what his “plan” is for restoring the economy and creating jobs. I believe it will be a bigger, more expensive program than we have had to date. It will have to get through Congress, but did I mention an election is coming soon.

Also, on September 21st Chairman Bernanke will announce the decisions made by the Federal Reserve Board. If the data is bad enough, we should get QE3 almost immediately. If the data is not bad enough, we may have to wait. But we should not have to wait very long as the economy is sliding further into recession.

In summary, we may get some bad news with the ISM-Manufacturing Report and the August Jobs Report which would negatively impact the market. But, that would be immediately followed up by the President’s new stimulus plan and the Federal Reserves’ money printing plan. This hopium will levitate the market, if big enough, until +/- next Labor Day. Another short-term “fix” and a worsening long-term problem.