Wednesday, May 15, 2013

When Doves Cry

While we don't expect the Fed to actually slow QE with inflation running around 1% rather than 2%, we could believe that a "taper" of some of the equity markets animal spirits might have been their best intentions last week. After all these years - and with enough glycerin on their faces, we doubt Bernanke needs a technical brief on what an unhealthy market looks and feels like. With that said and considering the disinflationary winds that have only grown stronger, the thought of applying the brakes while core PCE flirts with record lows is enough to make the doves cry. In the meantime, they've floated another trial balloon - which in contrast to last years failed dollar breakout and whispers of QE3 frames an interesting juxtaposition. For better or worst - they (the doves) are getting boxed in by an ebullient equity market. Having their cake and eating it to will likely prove a difficult task once again.   
Click to enlarge image
Click to enlarge image

Click to enlarge image
Below is the 97' dollar breakout comparative we have been following for some perspective on the last time the dollar actually broke out. 
Click to enlarge image