Look for the Jackson Hole bounce this week

08/22/2011 8:23 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

Traders looking for at least a bounce after renewed selling are starting to talk about August 26. That’s the date of for this year’s meeting of the world’s central bankers hosted by the Federal Reserve in Jackson Hole. Theory is that Fed chairman Ben Bernanke will announce a big move of some sort at the gathering.

The theory is rather vague on the content of any big policy announcement. Could be another round of Treasury purchase by the Fed—the wished for QE3 program of quantitative easing. Could be program of direct buying by the Fed of other assets—maybe mortgage-backed securities again. Maybe a jobs initiative from the Obama administration. Yeah, and maybe Republicans in Congress will announce their support for a new big stimulus program focused on infrastructure.

In a column on Saturday August 20 in the Financial Times headlined “Fed needs to brig out its big guns at Jackson Hole” Dan McCrum laid out even more radical steps such as direct loans from the Fed to small businesses. (The Fed did make such loans during the Great Depression.)

If this strikes you as wishful thinking—and it certainly strikes me that way—it doesn’t mean the hope for some dramatic move to counter the global economic slowdown won’t lead to a bounce. In the last few days global stocks have fallen hard and fast and once again you can argue that the market is oversold. That would make it ripe for a bounce on nothing more convincing than hope.

The hope is likely to run especially strongly since at last year’s Jackson Hole meeting Fed chairman Ben Bernanke did hint at the program of bond buying that became the Fed’s second round of quantitative easing. That hint set off a 28% rally that hit a high on April 29

If we do get a bounce as August 26 approaches enjoy the opportunity to rearrange your portfolio. Just don’t forget that the hope is likely to turn into disappointment at any actual announcement from the conference.

(There is another reason to expect a bounce on something like this timetable. The theory in the Jubak household is that the market rout is a plot to keep me tied to the computer during our vacation in Italy and as of Friday London. But we’re due to land in New York on August 30. My family says you can expect a rally shortly after I’m back at my desk.)

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