More Stimulus Please

It has been an action-packed two weeks with a variety of economic/political events. Let’s get to it.

1)  The European Central Bank announced their latest attempt at solving the Euro debt crisis.  This time the ECB stands ready to buy an unlimited amount of Euro-zone governments’ bonds.  From The Guardian:
The scheme is aimed at depressing the costs of borrowing for Spain and Italy and countering the risks of a fragmentation of the eurozone and the unravelling of the single currency.  But Draghi also set strict terms for triggering the bond-buying programme, putting pressure on the eurozone’s political leaders to request help, enter austerity programmes, and agree on direct bailouts for struggling governments before the ECB will act.

For more on the ECB’s announcement:
http://www.guardian.co.uk/business/2012/sep/06/debt-crisis-mario-draghi?newsfeed=true

The ECB is saying that if a struggling country agrees to cut government spending and agrees to other restrictions, the ECB will buy an unlimited amount of that government’s bonds.  The problem, as we have seen in Greece, is that the governments in Europe have a very hard time implementing the spending cuts and sticking to the restrictions.  If spending cuts and reforms are not implemented then you have a transfer of wealth, via the ECB, from stronger countries like German, Belgium and The Netherlands to weaker countries like Spain, Italy and Greece.

As we have said from the beginning of this crisis, it is challenging to identify a scenario where this does not end badly.

2)  The August jobs report was disappointing with only 96,000 new jobs added and a downward revision to the previous two months.  The Unemployment Rate dropped from 8.3% to 8.1% but this was largely due to discouraged workers dropping out of the labor force.  

For more commentary on the fourth poor jobs report in the last five months:
http://www.nationalreview.com/corner/316233/jobs-report-what-recovery-veronique-de-rugy#

3)  Finally, the Federal Reserve meets this Wednesday and Thursday and may announce further monetary stimulus for the economy.  The Fed has already had two official rounds of bond-buying (QE) and a third round called Operation Twist. There is a spirited debate about whether the Fed will announce a QE3 this Thursday.

Here are both sides of the debate:

Why QE3 won’t be announced this week:
http://pragcap.com/why-qe3-isnt-coming-this-week

On top of all of this we are keeping our eyes on the impact of the election, the looming Fiscal Cliff and Apple’s upcoming product line, as all three events will have an impact on the stock and bond markets.