Current market conditions have shifted from a drastic sell off in the face of what appears to be an economic downturn into an optimistic hope that Friday will bring some comments from Fed Chairman Bernacke about a potential "QE III." There is a lot of irony in this stance because QEII created so much controversy. Now...Wall Street is hoping for a FED BAILOUT that will lift stocks in much the same way. Given the Congressional, Media, investor feedback and ignorance about QE II (they thought is was inflationary when in fact the FED was trying to fend off deflation and generate wealth by inflating the Stock Market) it is unlikely that the US Federal Reserve Board is positioned to create a QEIII. What is more likely is that the EU will act in a similar manner as the FED. However, the FED does have significant holdings in Bond Issuance and they will be able to hold rates lower by holding out on liquidating these securities from their inflated balance sheet. Or, they could quietly liquidate holdings at a tidy profit and reinvest those funds in new issuances to keep rates lower for more than the former "extended period" wording and into the Mid Summer 2013 time frame (most recent wording).

Wall Street is speculating that the Jackson Hole Summit, taking place this Friday, will result in continued efforts by the FED to stimulate the economy. Many are of the opinion that a new QEIII will only result in commodity inflation and given the current levels of Gold, Oil and Gasoline it is unlikely that the FED wants to play a role front line inflation on necessary consumer staples. The goal of the FED is to control inflation and facilitate employment.

The employment picture is the most disconcerting. Stock gains this week have been based on the big speech Chairman Bernacke is giving on Friday at the Jackson Hole Summit. It looks like some harsh realities have set in for the Stock Market today as the Dow was down 170 points. Investors have renewed concerns about European debt and have begun to price out Ben Bernacke riding in like a "white knight" to save the day. My friends, in light of recent history, this is virtually impossible. In reality it is more likely that the FED will say that while things are "soft" the economy has enough steam to limp along and a more extended period of low rates combined with market forces there will be a resulting turn around that will gain traction. This will likely put some selling pressure on stocks and we will revisit the historic lows that occurred after the last round of "fed speak." Float for now but don't get too greedy (see previous blog "Pigs Get Fat, Hogs Get Slaughtered") and it is advisable to have the pipeline locked in coming into next weeks Non Farm Payroll Report. I'll have some more data on this Wednesday (ADP private payroll report and Thursday).