Well, this is it… the most important week of the year, and potentially a week that will have ramifications for years and years to come.The election will almost certainly bring a new era of divided government at a time when the consensus is that the government has gigantic problems to work out.
The Fed is expected to commence quantitative easing again, but the issue is so contentious that some think a new Civil War could result from this (seriously).
And then beyond that, there are a host of other events that will provide insight into which way the economy is breaking.
After four years in control, the Democrats are almost certainly going to lose the House of Representatives to the Republicans.
Things aren't quite so grim for Democrats in the Senate, although... they're still pretty grim.
The GOP needs a net gain of 10 seats to take control of the Congress' upper body, and right now they're more in line for 6 or 7.
But it will be damaging either way. Majority Leader Harry Reid looks like a goner, thanks to Tea Partier Sharron Angle.
Other big names like California's Barbara Boxer and Wisconsin's Russ Feingold are in trouble.
Arkansas Senator Blanche Lincoln is toast.
On Wednesday we get the most anticipated Fed announcement in ages.
For weeks and weeks, the talk among traders has been QEII, QEII, QEII, and now we're supposed to get it.
Of course, there's still considerable debate about how big it will be.
Prior to a couple of weeks ago, everyone assumed that it would be well over $1 trillion (shock & awe, as it were), though expectations have come way back in recent days.
The current line of thinking is that it will be incremental with plans to buy a few hundred billions in Treasuries over the coming months, just to see where that gets us.
The market behaviour has been interesting to watch as expectations have come down. The big losers have been Treasuries, whereas stocks have held up OK. That being said, everything but the dollar has been rallying party hard on QE, and there's this expectation that perhaps the air could be let out of the market as soon as we get the announcement.
For historical perspective on the Fed's next move, see here.
The Fed's announcement on Wednesday is just the beginning of the excitement, really.
Bloomberg notes that there will be a 33-hour window within which all of the world's major central banks will make policy announcements.
The Bank of Japan will certainly announce some kind of new easing move. Citi's Chief Economist Willem Buiter says the BoJ ought to do a 100 trillion yet Helicopter Drop.
It would not be surprising to see the Bank of England and the ECB bring more ammo to the currency war.
With austerity taking place in the UK, the BofE will definitely feel pressure to ease, while the ECB is facing both a strong currency AND yawning yields in the PIIGS again -- hence more pressure to ease.
On Friday, we get the next huge economic report, and a serious indicator of which way the economy is breaking in Q4.
Current estimates are for net job creation of 60K, all coming in the private sector.
This is obviously really mediocre, and there will be a lot of interest in what happens at the public sector level.
The layoffs at the state & local level -- which may be popular for fans of small government -- have been a big drag on the economy. Some signs of stabilisation would be welcome on this front.
On Friday, Obama takes off for a big trip around Asia to meet counterparts. Given the obsession with currency wars, etc, expect markets to be hanging on a thread at every little comment.
On Friday, when you're taking a well-deserved drink, here are some things to think about :
- OK, the GOP won big. What's next? If the Tea Party won big, what does that mean for banks and bailouts? Is the complexion of Congress really so changed that banks will be left to the wolves in the event of a new solvency crisis? Is there any room for cooperation on stimulus (most likely on the tax-cut side)?
- What did equities, the dollar, Treasuries, and commodities do after the Fed? Did equities hold up while the others collapsed? What's happening to correlations?
- How did foreign central banks respond to the Fed? Did they bring out their own guns, or are the European banks still pretty gun-shy about sovereign bailouts and more QE?
- How's the economy looking in Q4? What do we know about how October went courtesy of the ISM and the jobs report?