It is Only Money

Yesterday, the Fed repeated its previous announcements that it will continue its course of action, which we all know has worked, so very will (LOL), by purchasing $600 billion of bonds from Wall Street.  It also repeated its short-term interest rate target of “zero percent,” and suggested it sees no change in its policies coming any time soon.  The Congressional Budget Office (CBO) reported that the Federal Deficit would reach $1.5 trillion in 2011, as I posted yesterday, that the U.S. Government would borrow 40 percent of the money it spends in 2011.  The CBO, also, pointed out that tax revenues, as a percent of GDP, will sink to the lowest level since 1950.  That is NOT good news, which definitely tells us that the economy remains sick, because consumers, who account for 70 percent of GDP, are struggling, as are small businesses.  QE1 is over.  Did that assist you?  No, because you are not Wall Street.  Now, QE2 is underway and again it will only benefit Wall Street, not you.  QE1 and QE2 are designed to boost GDP through your wealth effect of a rising stock market.  (That is, your perception is that you are wealthier because of your unrealized stock market gains.  Therefore, you will consume more, which increases GDP.  However, what about those really, weak real estate values out there?  Oh, that should have the opposite impact on your wealth effect.  But, the Fed doesn’t want you to think about that.)  Keep-in-mind that the stock market is not the economy, but that is the association Washington and the Fed want you to make.  The result of this false association will be an eventual stock market decline that reverses the entire, manipulated rise in prices since March 2009.

In Elliott Wave terms, Bear Markets usually have two huge down-legs separated by one rally between the two down legs.  The decline through March 2009 was the first major down-leg.  The rally from March 2009 is the fake-out rally.  Therefore, coming soon to your financial house will be the third-leg down, which will be more powerful than the 2007-2009 decline.