Tomorrow is a big day for our country, no we’re not talking about the election results, we’re talking about the Federal Reserve’s announcement of QE2. How will it be structured, how much, and the time frame; will all have a direct impact on the markets. Currency, stocks, bonds, and of course commodity markets will all move for the next 72 hours not because of any natural market force, but because of what the Federal Reserve has to say around 2:15 p.m. tomorrow. For those of us who love the founding father’s ideals of a free market system, it certainly is a sad state of affairs, but none the less, this is the market we have. So for now we wait.  By Thursday we should have a very good idea on how things will trade for the remainder of the year and into next year.
After today the Federal Reserve will more than likely have to deal with gridlock, so the markets will be looking to the Federal Reserve to get their liquidity fix. A recent survey of Blue Chip economist believe that the Federal Reserve will purchase $1 Trillion in Treasuries over the next 12 months giving a small boost to GDP.  In our opinion, this is simply creating more bubbles in the future, specifically a treasury bubble. Right now the Federal Government needs more debt purchased then ever before. Has anyone considered that maybe QE2 is nothing more than a plan to meet the demand for treasuries… Is it possible that Keynesians who advised the Federal Reserve to create a housing bubble are now pushing for an even bigger bubble? In our opinion, creating demand through the creation of money will always end badly for the citizens of that country. Of course in the dollar’s case, the entire world uses it.
So how are things going to play out as the Federal Reserve creates an artificial demand for U.S. debt? believes that in the short term we may see market madness with a dollar rally due to this new demand from the  Federal Reserve, but in the end the stability will only be as valuable as the paper it’s printed on. The long term problem for the United States is that they will need to find others to finance its’ debts and entitlement obligations. More than likely the United States will not, forcing the Federal Reserve to offer up QE3, QE4, and eventually QE pick a number. So looking at future trends, it is our opinion that no matter what they announce tomorrow or how the markets react, the trend for more money creation is inevitable.
Again, don’t be surprised if the Federal Reserve disappoints the markets tomorrow. If they do, assets prices will more than likely contract only giving Bernanke and friends more running room for early 2011. Not to mention giving the smart money a huge buying opportunity in companies that are in the path of future trends.
By the way, as we have been writing this trend alert on election day, it’s note worthy that the dollar has fallen below 77 on the dollar index.
Tomorrow certainly is setting up to be a very interesting day.

Don’t forget to vote at, our latest poll has just been released. Nothing like feeling the pulse of the smart money.