Deja QE2, All Over Again: 2s5s Declines To August 2010 Levels

People are now in the midst of analysig production data, corporate results and sure over the board it sure doesent look good.

Or how about Toyota car sales down 37% in July and record overall low care sales in Japan and as Reuters observes, factories in Asia and Europe all but stagnated in July, according to business surveys that showed the weakest rates of growth since major industrial powers were struggling through the 2009 recession.

And sure based on these numbers the stock market is bound for decline. But my view that aint gonna happen. The Stock market today in not about fundamentals - its all about stimulus, fiscal stimuli.

Now in anticipation of furter stimulus - call it Q3 or whatever this decline in the stockmarket soon will become history.

As we pointed out last week, the broad flattening in the Treasury curve, and especially in the short-end continues, with the 2s5s just dropping to 97.6 bps earlier closing below the 104 support line on Friday. Why is this important? Because as Citi chief technical strategist Tom Fitzpatrick wrote in a note released to clients, this is a "concerning development" as it is one of those "other" metrics watched by the Fed in determining when "intervention" is required (not like Goldman's note from Friday had anything to do with it). He adds: "2/5 broke below this level first week of August last year, the result of increasing guidance that QE2 was on the way. Here we do not have any such guidance and instead the curve reflects increasing concerns with the U.S. economy/slowdown." We may add that since cause and effect do not really matter much, it is only a matter of time before the Fed assumes that the market is pricing in not economic weakness but precisely another QE event and reacts accordingly. Citi concludes: "2/5 decline may continue, and could be a negative augur for stock market." It will be... until the Fed proceeds to do what it does best: monetize. Which, assuming today's debt deal passes before midnight, it will just have gotten permission to do. To the tune of about ~$2.5 trillion.
http://www.zerohedge.com/news/deja-qe2-all-over-again-2s5s-declines-august-2010-levels