D-Day for the US Federal Reserve’s QE 3.0

This is the day where the Fed will likely be announcing QE 3.0 or another asset purchasing program under a new format, template or name.

Wall Street has been bleeding profusely and the sentiment can be captured by this comment by Harvard’s Kenneth Rogoff

From Bloomberg,

Federal Reserve policy makers are likely to embark on a third round of large-scale asset purchases, moving “more decisively” to secure the U.S. recovery, said Harvard University economist Kenneth Rogoff.

“They certainly should do something right away,” said Rogoff, a former International Monetary Fund chief economist who attended graduate school with Fed Chairman Ben S. Bernanke. It’s “hard to know” if Bernanke would immediately be able to gain the support of Federal Open Market Committee members, Rogoff said in an interview today on Bloomberg Television.”

This validates what I earlier wrote

Besides, who would like to see a market crash with them on the helm, and not be seen as “doing something”? Today’s politics, embodied by the Emmanuel Rahm doctrine has mostly been about the need to be seen “doing something” even if such actions entail having adverse long term consequences. Actions by the ECB, SNB and BoJ have all revealed and exemplified such tendencies. Even the debt ceiling bill was forged from the need to do something to avert an Armageddon charade.

Danske Bank’s Research team also sees a FED QE today: (bold emphasis original)

Developments have moved significantly in the wrong direction for the US economy over the past months. We believe this will be enough for Fed to launch new stimulus measures at its meeting today. The main arguments are the following:

1. Growth will be significantly lower than Fed forecast in June.

2. Unemployment is very far from target and not coming down.

3. Fiscal tightening in coming years leaves Fed as the only entity to support growth

further and counter the significant drags on the US economy.

4. Action is needed to fight the current confidence crisis in the markets.

Of course, I see this as a setup meant to save the tripartite cartel of welfare state-central bank and banking system.

Now here is how I think the market’s possible reaction to a QE 3.0 (or its variety)

For the market to respond positively to the Fed’s QE 3.0, this will likely be another huge “shock and awe” delivery type. Otherwise, they may end up like the ECB’s sputtering Bazooka (perhaps they used the 2^nd world war type-L.O.L!) where the stock market fell hard despite actual bond purchases.

Today gold will most likely fall from its lofty record perch. Gold may fall because of profit taking from the "buy the rumor sell the news" dynamic, a smaller than expected QE delivery package or NO QE.

But the difference will be in the degree of decline. Profit taking off a significantly packaged QE will still be substantial perhaps back to the 1700 level, but this would come amidst a backdrop of sharply rebounding global equity markets. Some will misread this as eroding "fear premium". It isn't.

However a market perceived insufficient QE, or a “NO” QE would translate to bigger fall for gold prices along with another round of crashing equity markets.

As of this writing US futures are modestly up while Europe’s 3.5% decline has been reduced to less than 1%.

This is the day.

Here is a 1980s MTV 'This is the Day' from a band called The The.

The lyrics appear suited for the Wall Street cartel and the Bernanke Team,

THIS IS THE DAY -- Your life will surely change.
THIS IS THE DAY -- Your life will surely change.
You could've done anything -- if you'd wanted
And all your friends and family think that you're lucky.
But the side of you they'll never see
Is when you're left alone with the memories
That hold your life together like
Glue...

Again, it's time to profit from political folly.