I just wanted to share a great read from David Rosenberg.
One thing to note here is the the Nikkei rallied 20% over the course of the following two months after they announced their quantitative easing.
However, Rosenberg later points out that the market gave back the whole 20% move over the course of the following two months. We have already seen about a 20% rally from the lows so we now sit in a tough area trading wise.
Did we already see our bear market rally or is there another leg up before we give it back? This is a very tough call here. If the bubbleheads on Wall St buy into the idea that the Fed has saved us we could rally on. Never underestimate the stupidity of the bulls.
Remember, Bernanke never would have decided to buy treasuries if things were getting better. He obviuosly saw a ghost when he looked at the economic data. The regular "recession" playbook has failed so he must have concluded that drastic measures must be taken in order to try and save the economy.
Don't be fooled by this rally. Things are deteriorating. The Fed's drastic move proved it yesterday. An economic collapse is very much on the table. Gold soared over $70 today. John Paulson who I consider to be the best hedge fund manager out there just bought a large piece of a gold miner.
The smart money is diversifyfing because they are concerned that the dollar could collapse as a result of the Fed's actions.
Be very careful here and stay hedged if you are trading. Rosenberg is advising clients to stay in fixed income and I couldn't agree more.