Weighing The Week Ahead: Are Hopes Too High For Jackson Hole?

After weeks of anticipation, we may get the answer to a key question:

Will the Fed launch another round of Quantitative Easing?

Since the decision for QE II is linked to Fed Chair Bernanke's 2010 speech to the annual Economic Symposium at Jackson Hole, some expect a similar outcome this time. There is obvious confusion.

Stocks rallied as the Fed minutes seemed to show a greater receptiveness for more QE. Stocks sold off when St. Louis Fed President, a non-voting member whose hawkish views are well-known, said that the minutes were "stale" and that data had improved. Stocks then rallied a bit when Chicago Fed President Evans basically said the opposite. Finally, there was a significant reversal on Friday when WSJ reporter Jon Hilsenrath new investor resource page -- a starting point for the long-term investor. (Comments welcome!)

Final Thoughts on Jackson Hole

Last week I predicted that the Fed will eventually act, but perhaps with something other than another round of QE. Jon Hilsenrath's take plays this down, and he has good connections. Perhaps I am wrong. I remain open to new information.

I do not expect anything significant from Jackson Hole, so there is potential for a market disappointment. It would not be the first time that I have disagreed with Felix, and the verdict has been mixed!

Here is my rationale:

• Jackson Hole is typically not the forum for policy announcements. It is an occasion for mixing and exchanging ideas. Most speeches by the Fed Chair are of the cerebral and background variety.
• The 2010 Bernanke speech is a piece of Wall Street truthiness. In fact, there was little immediate market reaction. Stocks were lower a few days later. It was only after a big rally that those seeking a bogus correlation reached back to the "hints" from the Jackson Hole speech. In fact, there was nothing new in these hints, and the official policy did not start until November. When someone is on a mission to prove something, and has a choice of starting dates, it makes it easier to create bogus correlations.
• The jury is still out. There is no reason for Bernanke to tip his hand before getting the employment report for August.

I have a dozen links (not included) to stories speculating about this and forcefully explaining what the Fed should do. Most of them confuse personal opinion and politics with forecasting.

For those seeking investment success, the key question is what the Fed will do, not what you think it should do.

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Written By: Jeff Miller