Talk about mixed messages! The Federal Reserve is continuing to show signs of dissention in the ranks. For an organization that has such sway over the capital markets you would think they would try and have a more unified message to at least let everyone believe they are all on the same page. Almost looks like our beloved leaders in the House and Senate. From one view you hear that economic conditions are such that they don’t feel a tapering is a viable step at this point. From one of the most prominent members you get that there is a better than even chance that some tapering might start as soon as October.

We have been very clear here that we think it’s time for a tapering and an end to QE3. Our reasons aren’t complicated and we like to error on the side of simplicity even though the reality of the situation is that it is very complicated.

Since we are in the minority we will take another approach. Simplistic but it makes sense. If we start tapering it is a clear sign that the Fed believes the economy is strong enough to stand on it’s own. If the economy is strong enough to stand on it’s own isn’t that a positive sign?
A positive signal from the Fed? The smartest people in the room. Stocks respond to positive news correct? It’s very simple then.

This week we will have some important economic data from China and new home sales. We will also see the durable goods orders, which has been trending downward. It’s important to see this number have some growth. While it’s a lagging indicator it still is very important and we will go with a slight contraction. The Chinese data will probably come in a little higher and that will set a positive tone for the beginning of the week.