(see my last post "Rally On, Bull" for my talk on this diagram)
I watched an interview with Art Cashin of UBS (see link) who believes there's a possibility that the recent emerging market sell-off could prompt the Fed to slow down their 'tapering' of QE3. In my opinion, in recent years the Fed hasn't given a hoot! about emerging markets and they won't veer off course in their meeting next week. They didn't care that they indirectly caused easy money to go to countries and assets that shouldn't have attracted money the way they have, which is a long list. And next week, they will just look at domestic economic indicators and base their decision to cut QE3 on them. Other than a weak unemployment number in December, other indicators like ISM looked positively fine.
In any case, if they do cut back on QE3 as I think they will continue to, we will have gotten a lot closer to that intersection point I drew up in my post last October (and repasted above). This is an eventuality that will happen. So much for all the optimism the analysts had for the markets this year! If you paid me a penny for every report I read in December calling for a continued rally in the developed market I'd be pretty rich. Well, at least rich enough to buy myself a Big Mac at Mcdonald's.
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