What's the Fed's Number? - Wyatt Investment Research

Well, new unemployment claims rose by 13,000 to
462,000 last week. I probably don’t have to tell you that unemployment is
moving in the wrong direction.

Of course, we’ve discussed the fact that
unemployment is a lagging indicator and will be among the last data points to
improve until we’re blue in the face. And really, investors seem to be
looking beyond the weekly swings.

What are they looking forward to? Why, quantitative
easing, of course. These days, any weak data makes it seem more certain that
the Fed will dump as much as $500 billion into the system in some form of
asset buying.

The long-term risks of such a move are fairly
obvious. If inflation picks up before employment and GDP growth make a
significant move, the Fed is in a tight spot. It will be forced to remove
supply, and hinder growth.

However, in the short-term, the Fed’s promise has
certainly lit a fire under stock prices. And there is a trickle down effect
of higher stock prices in terms of confidence. Higher prices = more wealth =
more spending. At least, that’s how the Fed hopes the formula
works...

The U.S. dollar has been
on a one-way ride since late August. This 2-year chart of the dollar vs. the
euro (USD) shows it pretty clearly…

The U.S. dollar index is currently at $78.07. We should note
that the ultimate low is around $74.50.

At $77, the U.S. dollar index is in the range of where it
has bounced before. (And there should be no doubt that stocks will fall if
the dollar rallies.) But does that mean the dollar is going to bounce any day
now?

It would seem reasonable for traders to take profits and
cover any short dollar positions ahead of the FOMC meeting on November 2-3.
And I would expect that to happen.

The wild card is, of course, what will the Fed actually do?
As I’ve said, $500 billion is the number being circulated as the size of the
Fed’s intervention. And I doubt that number was pulled out of a hat. More
likely, that number was leaked by the Fed to test the market’s
sentiment.

No surprise the market likes the idea of $500 billion. But
the funny thing about markets: they always want more. So I suspect $500
billion would be a disappointment. I look for the Fed to blow that number out
of the water, at least if it’s serious about keeping stocks and bonds trading
at high levels.

Bank stocks are getting hammered in the
early going. Citi (NYSE:C) and Bank of America (NYSE:BAC) are down over 3%.
With earnings for both coming on Monday, this may not be a good sign.

On the other hand, tangible book value for BofA is around,
$12.40. That should act as strong support for the stock, if it even falls
that far.

I told you yesterday that my colleague at
Wyatt Investment Research, Jason Cimpl, made his
TradeMaster Daily Stock Alerts subscribers very happy
with a 40% gain on China MediaExpress (Nasdaq:CCME) in 3 weeks.

Yesterday, they took another 16% on RXi Pharmaceuticals
(Nasdaq:RXII).

Jason has been leading his subscribers to consistent
profits, regardless of what the stock market’s doing. To learn more about how
Jason stays in the profit-zone, click HERE.

Of course, I’d like to hear your thoughts here: [email protected]

Well, new unemployment claims rose by 13,000 to 462,000 last week. I probably don’t have to tell you that unemployment is moving in the wrong direction.

Of course, we’ve discussed the fact that unemployment is a lagging indicator and will be among the last data points to improve until we’re blue in the face. And really, investors seem to be looking beyond the weekly swings.

What are they looking forward to? Why, quantitative easing, of course. These days, any weak data makes it seem more certain that the Fed will dump as much as $500 billion into the system in some form of asset buying.

The long-term risks of such a move are fairly obvious. If inflation picks up before employment and GDP growth make a significant move, the Fed is in a tight spot. It will be forced to remove supply, and hinder growth.

However, in the short-term, the Fed’s promise has certainly lit a fire under stock prices. And there is a trickle down effect of higher stock prices in terms of confidence. Higher prices = more wealth = more spending. At least, that’s how the Fed hopes the formula works...

The U.S. dollar index is currently at $78.07. We should note that the ultimate low is around $74.50.

At $77, the U.S. dollar index is in the range of where it has bounced before. (And there should be no doubt that stocks will fall if the dollar rallies.) But does that mean the dollar is going to bounce any day now?

It would seem reasonable for traders to take profits and cover any short dollar positions ahead of the FOMC meeting on November 2-3. And I would expect that to happen.

The wild card is, of course, what will the Fed actually do? As I’ve said, $500 billion is the number being circulated as the size of the Fed’s intervention. And I doubt that number was pulled out of a hat. More likely, that number was leaked by the Fed to test the market’s sentiment.

Bank stocks are getting hammered in the early going. Citi (NYSE:C) and Bank of America (NYSE:BAC) are down over 3%. With earnings for both coming on Monday, this may not be a good sign.

On the other hand, tangible book value for BofA is around, $12.40. That should act as strong support for the stock, if it even falls that far.

I told you yesterday that my colleague at Wyatt Investment Research, Jason Cimpl, made his TradeMaster Daily Stock Alerts subscribers very happy with a 40% gain on China MediaExpress (Nasdaq:CCME) in 3 weeks.

Yesterday, they took another 16% on RXi Pharmaceuticals (Nasdaq:RXII).

Jason has been leading his subscribers to consistent profits, regardless of what the stock market’s doing. To learn more about how Jason stays in the profit-zone, click HERE.

Of course, I’d like to hear your thoughts here: [email protected]

Well, new unemployment claims rose by 13,000 to
462,000 last week. I probably don’t have to tell you that unemployment is
moving in the wrong direction.

Of course, we’ve discussed the fact that
unemployment is a lagging indicator and will be among the last data points to
improve until we’re blue in the face. And really, investors seem to be
looking beyond the weekly swings.

What are they looking forward to? Why, quantitative
easing, of course. These days, any weak data makes it seem more certain that
the Fed will dump as much as $500 billion into the system in some form of
asset buying.

The long-term risks of such a move are fairly
obvious. If inflation picks up before employment and GDP growth make a
significant move, the Fed is in a tight spot. It will be forced to remove
supply, and hinder growth.

However, in the short-term, the Fed’s promise has
certainly lit a fire under stock prices. And there is a trickle down effect
of higher stock prices in terms of confidence. Higher prices = more wealth =
more spending. At least, that’s how the Fed hopes the formula
works...

The U.S. dollar index is currently at $78.07. We should note
that the ultimate low is around $74.50.

At $77, the U.S. dollar index is in the range of where it
has bounced before. (And there should be no doubt that stocks will fall if
the dollar rallies.) But does that mean the dollar is going to bounce any day
now?

It would seem reasonable for traders to take profits and
cover any short dollar positions ahead of the FOMC meeting on November 2-3.
And I would expect that to happen.

The wild card is, of course, what will the Fed actually do?
As I’ve said, $500 billion is the number being circulated as the size of the
Fed’s intervention. And I doubt that number was pulled out of a hat. More
likely, that number was leaked by the Fed to test the market’s
sentiment.

Bank stocks are getting hammered in the
early going. Citi (NYSE:C) and Bank of America (NYSE:BAC) are down over 3%.
With earnings for both coming on Monday, this may not be a good sign.

On the other hand, tangible book value for BofA is around,
$12.40. That should act as strong support for the stock, if it even falls
that far.

I told you yesterday that my colleague at
Wyatt Investment Research, Jason Cimpl, made his
TradeMaster Daily Stock Alerts subscribers very happy
with a 40% gain on China MediaExpress (Nasdaq:CCME) in 3 weeks.

Yesterday, they took another 16% on RXi Pharmaceuticals
(Nasdaq:RXII).

Jason has been leading his subscribers to consistent
profits, regardless of what the stock market’s doing. To learn more about how
Jason stays in the profit-zone, click HERE.