Bernanke Gives Us $600B in QE 2.0, Equities Soar

Thursday, November 04, 2010

US Futures are trading up 1% following the Fed's announcement for QE 2.0 yesterday in the amount of $600 billion. Republicans also handily captured majority in the House of Representatives and gained seats in the Senate. Tokyo followed yesterday's rally in the US with its own 2.2% gain and London trucked higher up 1.8%.

Don't fight the Fed

I hit out of my dollar position yesterday after waiting around for a month for a rally. I certainly underestimated the Fed's willingness to stimulate the economy. With GDP growth in the 2% range consistently I thought the Fed would, at the very least, not continue to ease. I understand the Fed's mandate to promote full employment and I'm done fighting them. I lost some in the long dollar trade but what hurt me the most was the distraction it caused from where my strongest abilities lie.

This month I'm going to reduce my concern with the macro picture and focus my time on sectors and companies. Understanding individual companies will yield the greatest amount of benefit to me rather than attempting to guess whether the Fed will roll out large QE or small QE. Ultimately the repeatable and scalable strategy I am always building towards will be dependent on the micro level.

No stopping this rally

And just like that we're back to the April highs in the market. Four months of decline, flash crash, equity fund withdrawls, bond bubbles, range-bound action, double dip recession, Greek bankruptcy, PIIGS, head and shoulders, Hindenberg's over. This was the harshest correction in this rally off the March 9th lows. First was the 9% pull-in in June 2009 where panicked traders thought we were heading back to the bottom and second was the 9% pull-in in January 2010 as we doubted the possibility of a positive earnings season. Now we've seen a 17% drop as the first true stall in the economy since the reflation began and we went running for the exits. Yet, our economy remains resilient continuing its long, slow trudge back to life helped by a very accommodative Federal Reserve.

Brandon R. Rowley
"Chance favors the prepared mind."

*DISCLOSURE: Nothing relevant.
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