My weekly cyclical fundamental indicator (WCFI) continues to trend up from an interim low set around
mid-Jun. The coincident economic measure remains positve and the forward looking components
are stronger primarily reflecting lower unemployment insurance claims and a moderate recovery
of sensitive materials prices. Year-to-date, the WCFI is up 5.6% compared to 12.2% for the SPX.
A small amount of the differential in returns likely is a result of investor preference for larger cap.
issues, but the bulk of it reflects the expectation by players of some form of additional QE by the
Fed or ECB or both. Interestingly, the Fed has not announced any QE in the current economic upleg
while the WCFI was rising.
The upcoming monetary policy symposium at Jackson Hole, WY near the end of this week should
really be the ECB's show since it is the EZ which is in the more serious economic situation near
term. It is within the Eurozone where a big QE program is most critical. Naturally, investors will
listen intently to Bernanke's talk for more clarification about US QE as well. Do not discount
a significant Fed pledge to provide a sizable currency swap arrangement if it fits into the ECB's
plans as that is an "under the radar " form of QE. ECB leader Draghi needs to remember a key
rule of political economics this week, to whit: "Money talks and bullshit walks." Substantive
ECB policy action is overdue.
The SPX remains in an uptrend and that trend is supported by the primary weekly chart indicators.
SPX Weekly Chart The chart also shows the double top in place and suggests that there are only a
couple of weeks remaining in which the uptrend can successfully take out the resistance before it
exhausts itself anyway. With so many voices coming from the EZ, this week could be a bumpy one.
Ditto a Bernanke fumble.
The Fed does not operate this way, but now that Romney has indicated he plans to lift Bernanke's
chairman title if elected, the Fed has to be at least fantasizing having Ben announce that, indeed,
more QE may be coming soon as a counter to Mitt's casual effrontery....
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!