Note: This was originally published Thursday, August 4, 2011.
Taking back the QE2 rally...we have now lost half the rallyin the S&P 500 that occurred from the Jackson Hole speech by Mr. Bernanke at the very end of August, 2010, to the highs at the end of April of this year.
There is, unfortunately, no immediate panacea for the issues we're facing:
1) subpar growth
2) too much debt, and
3) little room for traditional policy responses to the problem (stimulus).
So, what happens next? In the next 18 hours a couple things will matter:
1) any supportive statements overnight from central bank/government officials. (See: ECB Says Lenders Are Hoarding Cash)
2) nonfarm payrolls for July, which may not matter as much as some are hoping. With consensus anywhere from 50-80,000 jobs, anything in that range will likely be a nonevent; 0 jobs or worse would elicit more selling, while a notably strong number — well north of 100,000 — might elicit a rally, but sentiment is so negative it's not clear how long that will last.
Still, don't kid yourself: traders down here believe fiat printing kills you.
There has NEVER been this much debt in the world in aggregate... NEVER...there is too much Total debt in the world. What has been the effect of that? It saps growth...the remedies used did not create jobs, though they it did stop deflation and spiked stocks and commodities.
The only solution is ultimately to either reduce debt by austerity...or cause inflation, reducing the value of debts...or a Brady Bond type plan.
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