Late last night (JUN 24) the European Central Bank President, Jean-Claude Trichet, raised the alarm level on the debt crisis to "red." Trichet told the European Systemic Risk Board (really, they have a board for this) that "risk signals for financial stability in the euro area are rising and flashing red." He stated that "on a personal basis I would say yes, it is red." He also warned of "potential contagion effects across the union and beyond."
Yesterday we also had the Federal Reserve get gloomy about the economy, of course they acted as if it was a big unsolved mystery. I guess the old "fake it till you make it" line doesn't work in recoveries since all we have heard for the past 4 years is that government actions will eventually lead to a recovery.
FutureMoneyTrends.com has been warning for months that we could see a head fake coming from the Federal Reserve regarding an extension of quantitative easing (QE). Yesterday, we saw a very hesitant Federal Reserve, which is the set up for more intervention. Remember, the Federal Reserve ALWAYS attempts to set a floor to the stock market, they NEVER allow imbalances to correct. In just the last 10 years, we have seen them swoop in to save stocks during the tech collapse, housing bubble, panic of 2008, and the QE1 sell off in 2010 when investors thought QE was going to end. The stock market rallies of the past 10 years remind us of a great quote from magician Harry Houdini, "What the eye sees and the ear hears, the mind will believe." For example, in the last few years stocks have rallied big, yet the American government is still the majority owner of AIG.
More QE is already baked in the cake. The Greek Crisis will accelerate, the debt ceiling debate will move to the headlines, and the Federal Reserve will wait. They will wait for the perfect moment to come in and save the stock market under the flag of saving the economy.
Starting today and until the Federal Reserve intervenes, bad news will officially be bad news in the U.S. stock market. We know shocking, but it's true, without the Federal Reserve backing up the imbalances and fraud, bad news is no longer good news. Well, at least not until there is so much bad news that Wall Street can start pricing in more Federal Reserve intervention.
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