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QE Forever!

Volatility came back last week as the world began to contemplate a less intrusive Fed. Also, it seemed that people finally began to notice that the world might not be as stable as the financial markets had been implying.  Ukraine is erupting in social unrest as a large swath of its population has taken to the street to protest government corruption, China's economy is sputtering, and Iran's nuclear ambitions remain.

Adding to and perhaps at the heart of the rocky week past, the world seems to also have taken notice that the Fed just might be serious about pulling away the punch bowl of easy and abundant money. This led our stock market to a terrible week, which was benign compared to the responses in Argentina and elsewhere, as currencies began to break down in the emerging market. The chair of the IMF, Ms. Lagarde, voiced concern that this financial market collapse could very well continue and might even throw Europe into deflation if the Fed doesn't do something.

So, it seems that investors in US stocks and Argentinian Pesos have the same trade on!  Who knew?

Will the Fed acquiesce to what are sure to become more fervent calls to save the world and reaffirm its full commitment to QE?  Or will we witness financial discipline and a newfound respect for allowing the players in the markets to work things out on their own, letting water find its level?  This week should provide us with some great clues. Pay careful attention.

I'm betting on a repeat of the past, when even hinting at reducing QE led to a rapid market decline that pressured the Fed to reaffirm its commitment to continuing to save the world. Call me extreme, but I just cannot see how QE ever ends. How can a Fed Chairman explain to all who are getting crushed financially that it's better than continued intervention?  Can you imagine Janet Yellen explaining that in her first month in office?  Seems impossible to me.

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