The Fed's economic modeling continues to be overly optimistic, as has Wall Street's. As I predicted when the 2% 2011 payroll tax holiday was announced at end of 2010, the first whispers of extending it for another year have now surfaced. Essentially, we're Japanified.
- In a speech Tuesday, Bernanke acknowledged that U.S. economic growth remained "frustratingly slow" but said nothing to suggest the Fed was about to take any bold new action to shore it up. "Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established," Bernanke said.
Yesterday the S&P 500 sold off sharply in the closing 40 minutes, dropping 10 points as it became clear there was no immediate new monetary stimulus coming. This morning futures are being pressured again, and despite an oversold condition prone to oversold bounces, things remain in downtrend. It remains a time to be cautious and small, and increasingly likely our downside target appears to be the 200 day moving average of 1262. That would essentially wipe out the entire year's gains. An efficient use of $600B eh? Of course if you are an American, coupled with dollar losses (in no small part due to QE2), you will be sharply in the red for 2011 in real terms at that level in the market.