Weekly market report – Qe 2 injection – Pumping the financial system

Topic of this week ending the 5 November 2010.

Stock soar this week, even latest job report on Friday 5 nov 2010, showed signs of life.
The Dow Jones went up 326 points this week, a nearly all time high, with a little help from the widely-anticipated 600 billion Bernanke quantitative easing (Qe2) and the heavy 2010 election turnover of the House of Representatives.

Non- farm payrolls increased a 151 thousands. However, the unemployment rate did stick at 9.6 % in the October jobs release.

The big Question… Can all this good news last the remaining of this year?

The big difference is sentiments… yes! Sentiment has started to change at the end of August as we rallied off a 9900 Dow Jones industrial to 11 400.
Part of this change in sentiment investors, is due to no double dip recession, stronger than expected earnings, and the Republican tsunami which may change policies on tax and spending regulation on Washington DC.

However, this is what I believe… I don’t think you can print money and lead to prosperity!!

The Market might have some momentum now, and might go a little higher. However, on a longer term this can move down really fast.
The FED is trying to be the catalyst, to get things moving forward, hoping that the market will be able to move on its own momentum, once Qe2 has done it’s job.
However, can this injection bust into a bubble like we have seen before?
Remember the Tech bubble or the oil bubble…Qe2 pump priming can lead to another bubble creation.
If you look carefully at this rally, stock our up to 15 -18 %, but the dollar is down by just as much, Gold is up by just as much, commodities are up by almost this much and therefore, an inflation adjustment term may not be a real stock market rally.
Our trading allies worldwide are ticked off at Bernanke Qe2 injection, because we are degrading the currency, this has been an injection of high grade monetary heroine in the system, and it could end in disastrous debt and fail.
This could be the precursor of a big bad conclusion.

The problem is we are not doing what is smart for the longer term, we are only concerned about immediate solution, which can lead to longer term problems?

Next week numbers out of the retail sector should continue to improve the market situation, if those numbers are positive.

The good news is, with the change in policies and politics in Washington, it looks like the Bush taxes rates are going to be extended for another year or two, and that is a huge plus for the market.

In conclusion, pumping the market is having a positive effect, but watch out and be careful, don’t play it for the long term.

From now until the end of the year, my suggestion is to own silver in order to protect yourself from debasement currency, and a good play is Amazon, because people shop tax free, and Xmas is just around the corner.