In the first days of May, as we were at the highs above 1200, I alerted readers of my blog to a coming market crash. Market participants were ignoring the fundamental realities that European sovereign debt represented throughout April. It was not more than a few weeks until we saw the "flash crash" and a drop in the S&P of nearly 150 points from my "crash call." I feel the same sort of activity occurring now. I am not convinced that QE2 is sufficient to make all the ills in the world go away. In fact, Goldman Sachs analysis points to no more than a 0.5% GDP benefit from a few trillion in QE. Why? Yields are already significantly depressed, and as such the marginal yield benefit from QE will not be sufficient in a low lending environment to spur much economic growth. Moreover, I believe that the benefit of QE is now more than priced in as Goldman has been making this QE call since August, Tepper pumped it on CNBC a few weeks ago, and the Fed Minutes yesterday made it a near certainty. Today we have earnings from Intel and JPMorgan. In the case of Intel, earnings were essentially in-line. Though the CNBC cheer squad would like you to believe this was a beat, 0.02 EPS and $100 revenue, is hardly more than an in-line quarter. Their 4th quarter outlook includes little revenue growth from where things currently stand. JPMorgan is even worse, where revenue is down significantly from last year, net interest margins are down, and the only real sizable benefit is from reduction in loan loss provisioning and employee compensation. If anything the situation with the financials is getting worse from an organic standpoint. As such we do see JPM and INTC falling today. Of course JPM and Intel are also some of the best in breed S&P 500 stocks to report. Later results are likely to be worse, not better. Yet we are rallying 1% or more in the Dow, S&P, and NASDAQ? This makes little sense. The argument that energy shares are on the rise as a result of EIA forecasted increase in demand as a result of China is also questionable given the likely decrease in demand from the world's largest oil consumer, The United States. In fact, oil and gasoline demand in this country is not substantially different than it was during the very lows of March 2009. Of course investors are completely ignoring the realities of demand as they feel that you can do no wrong in buying stocks due to the support of QE2. I find this argument a dangerous one lacking intellectual integrity in favor of "hope."
Disclosure: No Positions