"Watch What They Do................"

Veteran Fed watchers like the old expression "Watch what They do, not what They say."
Various Fed governors have talked extensively about a new round of quantitative easing.
The new conventional wisdom is that the Fed plans to begin a fresh plan of easing right
after the Nov. elections. But, the Fed has been tightening since Feb. 2010, and continued
to do so through the last reporting date of 9/22. Specifically, the Fed has shrunk the
monetary base by nearly $200 bil. or 9% since Feb. This regrettable and record move
did the recovery no good and damaged the stock market.

Now, if there is a new round of quantitative easing, the first $200 bil. will only bring
the monetary base back to where it was in 2/10 and will not count as easing at all but
will only end the punishing squeeze the Fed applied over much of 2010.

Traders across most US markets are smitten with the prospects for a new round of
fresh monetary liquidity. With trader attention focused on what the Fed could be
planning for early Nov., you might want to keep in my mind that they have tightened
liquidity by a substantial margin as prelude.