Bianco's conference call (2): the hope rally

According to Bianco (and others) it is strange that while Europe is perishing, the macro of the US disappoints, China is not to the rescue, there are almost no bears.

Since the 70s there were not as many people who saw a correction, not a bear or bull market. They don’t want to be surprised by the hope rally because internationally coordinated a mountain of money (the now so normal one trillion or more) will be thrown to the PIGS and MBS. Everybody knows, only not when and how many zillion.

Hilsenrath has solemnly promised in the Wall Street Journal: there will be action from the FED and he knows: he is the official allowed messenger of the FED to bring the gospel of QE etc.

And so everybody knows that Bernanke like Obi One Kenobi will save the universe from disaster with unconventional means. This will succeed, also for the fifth time.

We have to wait a bit, but when the implied inflation from TIPS gets below 1.8% Obi One Kenobi sets the signal for QE3 on green according to Bianco, but not earlier. 1,50% should be even more fantastic because at QE2 Bernanke reasoned that that meant 43% probability of deflation and that was too much.

Some more help is possible, the BRIC’s can do something and especially is necessary: the equity markets (S&P500) has to fall a bit more.

When Bernanke already now promises QE3 at the end of July he risks that the S&P500 rises to 1450 at the end of July and he will bes een as a bigger bubble blower than Maestro Greenspan.

 Will we get more Operation Twist? There are too little short dated bond left on the balance of the Fed (PV: with all those billions the balance sheet really seems to be too small). You could go on for at the most two to three months and that is not enough, not worth the effort for Helicopter Ben.(see chart below).

Meanwhile the US economy seems to grow according to trend (Chicago Activity Index etc.) and according to the Citigroup Surprise Index that could go down a bit. Not a recession, no not at all, but no way a meaningful decline of the unemployment rate. No decline of the unemployment rate is utterly unacceptable for the FED so QE3 is an imperative, a done deal.

But do we get it now? Has the market enough patience to wait, especially on the European rescue

Of course not.

So we will see lots of volatility when the markets moves from the euro disaster scenario to the hope rally.