Another Batch of Quantitative Easing - "Let The Good Times Roll"; But There Are Caveats, And Keep Your Stop-Losses Current...

    Investor Risk Appetite has risen with every hint that the US Federal Reserve stands ready to inject further liquidity into the economy via the purchase of financial assets.

     The Strategy, which will be the Second Batch of Quantitative Easing, and is therefore known as QE2, is the primary cause of the Dollar’s 7% Fall over the past month.

     And from the dollar’s decline traders can follow a well-thumbed bullish strategy map: the weak greenback boosts dollar-denominated commodities and helps US corporates, 50 per cent of whose earnings are made abroad. US equity futures are up 0.3 per cent.

     The trick for investors is to work out how much of QE2 is now factored into the market, or whether recent gains in riskier assets can be justified by the Fundamentals.  And, Hell, I really Hate Following Cos based on the Fundies (My Empirical Intuition goes out the window!).

     Sure, the Early Positive Indicators from the Third-Quarter Earnings Season may go some way to justifying recent optimism, but can such profits be maintained when the underlying economic data remains so tepid?

Also, global investors seem to be so in thrall to Wall Street’s moves that they are blinded to the fact that a rising S&P 500 based on dollar weakness is an advance built on US companies eating their international competitors’ lunch.

Oh yeah, the dollar’s tumble is wrenching the globalisation consensus. The “Currency War” is again rumbling.  Still, were a long way from the Unreliable Accounting Practices of, say, The BRICKs!