What to do today...

[Grieve]

So, the elections are over, gridlock as expected. The really big event is later today, with QE2. The question is whether to sell this morning (anticipating "sell on the news" or less QE than expected), or hold through it hoping they surprise on the upside.

I'm leaning towards selling my Apple (hoping to buy it back cheaper), and holding on to my gold and electronics stocks (AUY, CRUS, MFMNF.PK). The buzz is that anything less than $800B will be a disappointment to the markets...

[Vanraw]

I thought these election results were already priced in.

[Grieve]

I thought these election results were already priced in.

That's my point - QE2 is going to be a bigger deal today to the markets than the elections.

[Vanraw]

Good write up on the WSJ Blog.

<!-- m --><a class="postlink" href="http://blogs.wsj.com/economics/2010/11/03/qa-on-qe2-what-a-fed-move-would-mean/">http://blogs.wsj.com/economics/2010/11/ ... ould-mean/</a><!-- m -->

Market is yawning so far. You think it will go nuts at 2:30?

FYI, also hearing allot about investors taking profits, that might also cause a dip. The market has had a good run. Perhaps the QE2 announcement along with profit taking will create a correction.

[Grieve]

Yes, I'm expecting a sell-off after the announcement, unless they announce a very high number ($1T, or even $1.5T). Or maybe an initial jump up followed by a sell-off. I gues we'll see.

I sold my Apple this morning, but kept my gold stocks, which turned out to be a mistake. Gold is getting hammered today.

[Grieve]

$600b - market is moderately positive so far. I suspect it won't last.

[Vanraw]

Well no matter what happens, I think you did well with Apple. I recall us talking about it when it was less then $100. Nice job!

[Grieve]

Thanks, although I'll be buying it back ASAP.

[Vanraw]

$600 Billion and the market just yawned.

<!-- m --><a class="postlink" href="http://www.cnbc.com/id/39990450">http://www.cnbc.com/id/39990450</a><!-- m -->

Perhaps you or Breand can explain this to me. As I understand it, Mortgage interest rates are based on Long term bonds. So Buying long term bonds will / should lower the 15 and 30 year mortgages. But I just landed a interest rate at 4%, which is historically extremely low.

How does the government buying Bonds help the economy?

Its not going to motivate banks to lend. I'm reading the banks are sitting on trillions of dollars?
Its not going to boost home building. I mean 4% 30 year and 3.75 15 year is pretty sweet.

So how does this help?

2nd Question. Does this add to the deficit, or reduce it? This is the question I really have that I don't understand. Aren't they in effect printing money to buy back debt? If so will the deficit go down? or is it going to increase by 600 more billion?

[Grieve]

They are effectively devaluing the dollar. That should help the deficit, but will create inflation, and will piss off countries that hold our debt (like China). Hence the talk of currency wars.

It should also drive up the stock market and commodities (more overall dollars in circulation should mean "stuff" is worth more of those dollars - i.e. inflation), but right now it seems to be "sell the news" (i.e. this was already priced in).

The fed wants inflation, since it makes people (and businesses) less keen to have their cash in savings, where they will earn less than inflation, and more keen to invest (take risks for higher returns).

[Grieve]

And yes, theoretically it will push mortgage rates down even more, although again, it may already be priced in.

[Grieve]

Well I was wrong about this one bigtime. At least so far. Back in AAPL. Gold is soaring - only $8 off the all-time highs right now. Glad I hung on to my gold plays.

[Breand]

$600 Billion and the market just yawned.

<!-- m --><a class="postlink" href="http://www.cnbc.com/id/39990450">http://www.cnbc.com/id/39990450</a><!-- m -->

Perhaps you or Breand can explain this to me. As I understand it, Mortgage interest rates are based on Long term bonds. So Buying long term bonds will / should lower the 15 and 30 year mortgages. But I just landed a interest rate at 4%, which is historically extremely low.

How does the government buying Bonds help the economy?

Its not going to motivate banks to lend. I'm reading the banks are sitting on trillions of dollars?
Its not going to boost home building. I mean 4% 30 year and 3.75 15 year is pretty sweet.

So how does this help?

2nd Question. Does this add to the deficit, or reduce it? This is the question I really have that I don't understand. Aren't they in effect printing money to buy back debt? If so will the deficit go down? or is it going to increase by 600 more billion?

The 600 billion was priced in already, altho today is showing that the 600 bill and the election has the markets going further. One could argue that the market is pricing in inflation today now that the 600 billion is official. (which is why gold/silver is skyrocketing and the USD is plummeting today as well.)

The 4% you got was also priced into the expected decision by the Fed. However it should go even lower, which is why I'm waiting to refi.

The government thinks buying bonds will help the economy (it won't in the long run) because by pushing interest rates extremely low they think it will force people to spend their money and take out new loans since there is no reason to save when interest rates aren't keeping pace with inflation. They basically want to get the economy going by putting people further into debt, which again will never work in the long run.

It won't add to the deficit. Basically the Fed decided to print more money instead of going further into debt with other countries. They are creating inflation to reduce their indebtedness. They are snapping their fingers and making money, then using that money to buy U.S. Treasury debt. Which BTW, as of today Bernanke just PERJURED himself in front of Congress when he said he wouldn't monetize the debt:

<!-- m --><a class="postlink" href="http://www.youtube.com/watch?v=WA9Rm77rq-4#t=01m13s">http://www.youtube.com/watch?v=WA9Rm77rq-4#t=01m13s</a><!-- m -->

What WILL happen is we will be forced to increase our interest rates as everyone refuses to continue buying our shitty Treasuries as the Fed just proved today that they are willing to monetize it. This is why we had 17% mortgage rates in the early 80s.

[Dustie]

I am happy with the 6.3 percent I've made on my TIPS that I bought in May. I did think that inflation would have come in stronger though.

[Grieve]

If this guy is right, now is the time to go all-in with stocks:

http://bullcross.blogspot.com/2010/11/hu...-year.html

Yet that isn't even the most important aspect of this week. Whatever happens--correction or continuation of the melt-up bubble--one thing is very clear. 2011 is going to be one huge blowout year for equities. If we get a correction, then it will be one of the best buying opportunities since the March 2009 lows. However, if the S&P breaks above 1230 and the QQQQ breaks above $55, then we're going to see some massive moves in equities.

In fact, break above $55 on the QQQQ and we'll see Apple $500, Google $800, Amazon $250, Research in Motion $120, Microsoft $40, IBM $200 and Intel $33 sometime within the next 18 months. A break above $55 on the QQQQ will send technology stocks skyrocketing as the QQQQ will see absolutely no significant long-term resistance all the way to $83.

He's basically saying the dow will be at 17500 within the next 18 months...

[Grieve]

I am happy with the 6.3 percent I've made on my TIPS that I bought in May. I did think that inflation would have come in stronger though.

That's certainly nothing to sniff at, and beats the S&P and Dow. But the nasdaq is up 10% over the same period, and gold is up 15%.

I don't think inflation will kick in until mid to late next year.

[Breand]

While I'm not so sure there will be a generic increase across the board for stocks, I certainly think commodity based stocks are a very good bet for the next year or so. In the event we get more inflation that expected, best to have stocks in companies that sell actual goods people need.

Just sold my PIR for a 50% gain in 2 months.

[Vanraw]

17500 for the dow in the next 18 months??? Wow, that sounds like a bubble to me . I wonder what would actually drive it.

Previous bubbles, Internet Bubble peaked at around 11700, Banking fiasco bubble peaked at around 14100. Both of these peaks were based in invalid values.

So when I hear someone say 17500 in the next 18 months, in a economy that so far is slow to recover, I have to ask what he is smoking. Im actually thinking the DOW is starting to get over heated. If we hit 14000 I think I will dump most of my equities and weather the storm or cry in my soup if Im wrong.

[Grieve]

I was listening to CNBC on my way home from work, and I'm beginning to think that what the Fed did was actually pure genius. It doesn't really matter how much they are pumping into the system right now - the market now knows that the Fed is committed to printing as much money as it necessary to force a recovery. Someone on Fast Money asked "what happens if the job numbers tomorrow are bad", and the reply was "who cares?". The Fed is going to keep on injecting money into the system until they improve.

It's a little like when the bank bailouts came in the depths of the financial crisis. There were still a LOT of terrible things that could happen to the banks (still are), but it didn't matter. The government had given the signal that they would do whatever necessary to save them. After that you couldn't short them, and that was the start of the 80% stock market climb ever since.

I think that will happen now as well. How can you short the market when you know that the Fed is going to keep pumping money in as needed? Whatever the long term inflation risks (and they are legion), in the short to medium term, the market (and commodities) are going to soar.

I'm all in!

And Maul, yes, that would be a bubble. Who cares? We're all going to ride it up, and calculate that we can jump off just before it pops!

[Vanraw]

And Maul, yes, that would be a bubble. Who cares? We're all going to ride it up, and calculate that we can jump off just before it pops!

Ah yes... Ive played this "guess the peak" fools game before. Many times. When it pops it pops fast and hard.