As we get moving into the second quarter of the year, it's springtime – (boy how time flies!) there remain a number of open questions. First and foremost is the tug o' war between the Fed and markets. What of QE2 and when it ends, a finite event that is destined to conclude in June. It appears the markets have been juiced by the Fed's purchases for months, but then QE1 was not considered a success. Will there be another round of Fed buying? If so will the that spark a flame under price inflation. If there is no QE3 as many are predicting will the markets react like a junkie who needs a fix – violent withdrawal and shakes. What about the effects on the greenback? Is the printing of dollars healthy for an economy on the mend? Can the market sustain itself through a rough patch of earnings – which are about to get underway. How about higher oil and instability in the MENA area (Middle East North Africa)? How long can the US consumer sustain $4 a gallon gas before it breaks the back of a recovery? These are many of the uncertainties that haunt this market – yet it seems to roll forward.
Calendar Issues
Sell in May and go away. That's only a month from now. That strategy worked like a charm in 2010 for about four months. In August Chairman Bernanke would have nothing of it and helped push markets higher from the fall until now. So, where do we stand? Markets are at/near breakout levels and recent highs. The liquidity 'helicopter' drops may be ending soon yet we are in April – the strongest month of the year and in the 3rd year of a presidential cycle – also typically strong. Perhaps one last thrust by the bulls before the end of the Fed support.
Removing the Fed
Whatever your bias may be regarding the Fed there is no denying they have helped the economy recover quickly. Did they sacrifice our currency? Did they fail our Republic, breaking the cardinal rule of intervention? That remains a debatable issue, but we certainly need to see how things play out first before passing judgment. One thing is certain – there will likely be 'less Fed' involvement a year from now, perhaps sooner. Many will applaud when the Fed is pushed aside and no longer assisting markets. I believe they have embarked on the right path, assisting to put our economy on higher ground. Currency? Debt? Spending? Issues to deal with in the future – something that could not be tackled by a failing economy, which is where we were headed just a few short years ago.
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