8/22/12 2:26 PM – Fed Minutes Suggest QE3 Yes Vote Likely at 9/12 Meeting

The Federal Reserve minutes from their 7/31/8/1 meeting revealed that, “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”

So, we should have a definite answer on QE3 (a third round of “quantitative easing,” i.e. “printing money” aimed at reducing interest rates and spurring economic growth, not to mention financing the huge federal deficit) at the close of the September 12-13 meeting. Since I doubt we will get sufficient economic news by then to paint a picture of a “substantial and sustainable strengthening” in the economy, it sounds like we will get announcement of another round of easing in roughly three weeks.

Although the market has already priced in some expectation that this would happen, this seems to remove one of two big risks to the stock market. The other risk is not getting strong European action on the crisis there within the next month.

This should also be good news for gold and silver, for treasury bonds whose price has dropped some in the last two weeks and for risk assets in general, including stocks and commodities.

In the few minutes since the announcement, stocks have made little progress, which is interesting. It could be that another dip is needed before another rally, the same as the pattern now for weeks. And, the patterns on the major indexes have been rather toppy lately, so we’ll see. That’s what keeps this job so interesting and why no one can trade the market short term without losing money. If anyone tells you he does short-term trading . . . run! I post this mainly for informational purposes. At a minimum, a prudent person invests with months in mind, not days.

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