The QE2 Sets Sail Soon

You didn't have to go any further than figuring out the Dow crossed 11k again despite our lousy economy to know that irrational exuberance is in the air.

Following Friday’s disappointing jobs report, market participants are now virtually certain that the Federal Reserve will announce that it will resume buying assets at the conclusion of its November meeting and do so in a sizeable way, according to an exclusive CNBC Fed Survey.

Nearly 93 percent of the 70 respondents, including economists, fund managers and traders, believe the Fed will boost the size of its portfolio, up from 69 percent in the survey two weeks ago. 

Of those who expect the Fed to move, 86 percent look for an announcement in November, up from 38 percent in the last survey. Market participants forecast that the Fed will announce plans to purchase $500 billion in assets at the conclusion of the upcoming meeting, the first time the question has been asked. 

Despite the $500 billion average, expectations for the November announcement span a range from $100 billion to as high as $1.5 trillion. But the larger numbers are outliers, with 83 percent of respondents saying they expect the Fed to announce incremental targets for its portfolio size on a monthly or quarterly basis, rather than a single, so-called “shock and awe” strategy as it did in 2009. 

The market's expecting more Fed divine intervention and in a big, big way.  Long-time readers have seen me discuss the inflation-deflation-hyperinflation cycle before, and this may be the event that triggers the beginning of that third stage, especially since we're in a biflation area now where commodities and basic staples like food and gas are rising in price, while durable finished goods like TVs and cars are dropping.

The market is definitely expecting the Fed to become the biggest holder of US treasuries in a couple of weeks.  What that's going to do to the market, I'm not 100% sure.  What I do know is that it's going to be impressive, and not in a good way.

The market is now pricing in a lot of Fed intervention, perhaps trillions of it.  Dropping another money nuke on the dollar like that may cause a hell of a chain reaction.