ECB Non-Action Speaks Louder Than Words

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Overnight markets were higher, with European equities gaining ground, both before and after the ECB basically did nothing, to the tune of a couple percent (debt markets were a little bit heavier). Though Draghi did say that he was ready to act, I would have expected markets to react rather negatively to the inaction today, but that was not the case. Perhaps that indicates that there is maneuvering behind the scenes for more ECB easing. If they don't do something soon it will not only be a big problem, it will mean the ECB is the odd man out, as most likely the Bank of England is ready to act, along with the Fed.

More Fed Aversion to the Mean

We will learn more about how Bernanke views the situation tomorrow when he testifies before Congress, but the Fed's current favorite leak conduit, Jon Hilsenrath, ran a column in yesterday's Wall Street Journal that made it pretty clear Ben & Co. are leaning in the direction of QE3. The only real question is, what form will it take? I don't have a strong opinion about that, nor do I think it matters all that much, though obviously the bigger and bolder it is, the more impact it is likely to have.

As for our market, by midday the indices had gained around 1.75%, with stocks higher pretty much across the board. The afternoon saw another push to the upside and the market closed on the day's high, gaining 2%-plus.

Beige Book Doesn't Add Much Color

Away from stocks, the dollar was weaker, oil gained 1% and bonds lost ground. The metals were initially higher, led by silver, which added about 4% to gold's 1%-plus before they pulled back to 3% and 0.25%, respectively, in the wake of the release of last month's Beige Book. Supposedly, the "takeaway" from that meant that QE3 was less likely, as absurd as that "logic" is.

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About Bill Fleckenstein