Gold Should Rally for QE3


It’s always nice to know that stocks can actually rally. And seeing stocks
build on their gains throughout the day is a bonus.

Yesterday’s rally appears to be a mix of relief and short-covering. For
instance, I suspect the move for Citi (NYSE:C) was helped
along by shorts saying “enough is enough” and covering their downside
positions.

You’ll notice that Bank of America (NYSE:BAC) finished in
the red, though off its’ early lows. Investors are still bearish on
banks.

High Hopes for QE3

I’m a little surprised by how high QE3 expectations
have risen. Given how much flack the Fed took for QE2, and the commodity
inflation it sparked, I expected the market to be opposed to another round
of liquidity-pumping.

But that’s the semi-psychotic nature of the stock market, at times.
Investors might complain about the spending, about the monetary expansion
and the rising commodity prices.

Still, stocks like liquidity, even if it is inflationary, and even if it
creates imbalances and potential bubbles in the economy.

Thursday’s Top Performing Small Cap Stocks (CMRG, EK, LTS, HOTT, HMPR)


Only a handful of small-cap stocks managed to finish in positive territory
on Thursday, as U.S. markets fell in line with those in Europe and Asia and
finished their trading sessions with precipitous declines.

Of all the issues traded on the New York Stock Exchange and Nasdaq Stock
Market, you could count the number of double-digit gainers on one hand –
just five posted gains of more than 10 percent.

Leading the way was retailer Casual Male and downtrodden Eastman Kodak,
which holds a healthy patent portfolio that could be for sale.

Europe, Earnings and the Odds of a Recession


Growth forecasts for the U.S. are being drastically cut after yesterday’s
disastrous Philadelphia Fed manufacturing survey. Economists predicted
slight expansion, instead we got the worst reading since March of
2009.

JP Morgan (NYSE:JPM), who just cut its GDP forecasts, cut
them again. And the cuts are big. From 2.5% to 1% in the 4th quarter and
from 1.5% to 0.5% in the 1st quarter of 2012.

Citi (NYSE:C) was less dramatic, cutting 2012 growth from
2.7% to 2.1%. Citi also cut earnings estimates for the S&P 500 by
around 4%.

Tech Stock Earnings Indicate Stable Consumer Spending

For the first time in over two weeks, the U.S.
economy is back in focus. First we got 2Q earnings reports from
Dell (Nasdaq:DELL) and Target (NYSE:TGT).
Dell missed revenues slightly and offered a weak revenue forecast.

There was a time when Dell was an important measure of consumer and
corporate spending. (It’s sales mix is roughly 75% consumer and corporate,
25% government.)

And while the company did say the economic environment was challenging,
Dell has also missed important trends, like data storage and tablets. We
have to think some of the weakness in Dell’s numbers are a direct result of
Apple’s (Nasdaq:AAPL) success…

Google’s Bullish Acquisition

Last week’s S&P 500 chart is unusual. After Monday’s massive 80-point
drop, the S&P 500 bounced in a huge range between 1,120 and 1,180.
Volume was very heavy.

As we discussed over the last few days, the extreme volatility has been the
result of a virtual perfect storm of uncertainty. The S&P downgrade,
the last minute debt deal in Congress, the potential for recession and an
escalation of debt issues in Europe.

The above chart also shows the S&P 500 was above 1,340 just a few weeks
ago. At last week’s lows, the S&P 500 was off around 17%. That’s a
sharp decline, no doubt.

What the Fed Said

We certainly live in interesting times.

Today, I’m wondering if the market was worried that the Fed would announce
QE3 at the yesterday’s conclusion of the most recent FOMC meeting. I mean,
how else do we explain the 429 point ramp job the Dow Industrials put
in?

It may not have been a majority, but there were a significant number of
economists who were expecting the Fed to announce the next phase of
quantitative easing, or QE3, yesterday.

It didn’t happen…