My Thoughts on Bernanke and Jackson Hole

So the Buffett donation to Bank of America (BAC) was quite an act, especially the deal that Uncle Warren got in doing so. But that really doesn’t carry much weight in comparison to the anticipation of the Jackson Hole Speech tomorrow from our other vocal Uncle Benny.

In the mean time, I thought I’d give you my thoughts on the whole circus that will take place at 10am eastern time in a nice bullet point fashion….

• There’s a lot of political headwinds that will make doing another round of quantitative easing (QE3) much, much more difficult. The public is much more aware of the fact this time around, and would require the Fed to increase their balance sheet quite a bit. 
• With that said, don’t count out some kind of easing, since Bernanke (didn’t get the name ‘Helicoptor Ben’ for nothing) is an appointed official, and his boss, has no issues with expanding the debt of America freely. 
• If Ben blows away this opportunity to address some very pressing concerns in the U.S. and global economy, he knows that we are likely to take a beating tomorrow for it. And frankly, Ben has a pretty good track record of not disappointing when it comes to these occasions. 
• Had we held the early morning gains that we had, and even built upon them going into the close, I would be much more nervous about holding long positions into the press conference tomorrow morning. But with today’s selling, we didn’t get a true rally into Jackson Hole speech. 
• Analysts seem to be extremely bearish on this meeting, and most people, with a ‘gun to their head’ believe that the market will drop afterwards. Which makes the contrarian play, very alluring. 
• SPY calls have kept their value very well today, despite all the selling, leading me to believe that holders are expected to be rewarded for the patience tomorrow. 
• VIX breaks the 20-day moving average tomorrow, I think you may see a very strong rally come about. 
• We’ve seen patches of short-covering here and there, but nothing substantial, and nothing close to what we saw to the downside for much of August. I am still of the belief that we have yet to see a large short-covering rally, and until we get that, I have a hard time that the bears will see a major move lower in these markets. 
• My Conclusion: If Bernanke is out of “silver bullets” why would he have used the last one at the previous FOMC Statement. If keeping interest rates low through 2013, was his last bullet, I can’t imagine him not wanting to save it for Jackson Hole. I expect him to make some waves tomorrow, it just depends on how the market reacts to it.