Updated from 8:54 p.m. ET to include information on a federal judge's approval of a $410 million settlement in a case involving Bank of America.
NEW YORK (
) -- There's no big economic data on Tuesday, earnings season is starting to wind down, and Europe fatigue is a real danger these days, so we'll take this opportunity to discuss what may very well be the real reason the
will pop the cork on another round of stimulus.
The delicate psyches of the ultra-rich.
offered up an interesting take on the subject this weekend, basically arguing the changes in the economy in the past 30 years in terms of income inequality and the increased importance of the financial industry have forced the central bank to be more sensitive to the health of equities.
"We believe the dependence of the economy on the activities of people with very high incomes and very high levels of wealth is one reason the Fed is so concerned about keeping stock prices high," the firm wrote. "If stock prices tank, they drag the economy down along with them more than ever before, which is why we think QE1 and QE2 were just the start of the Fed's asset purchases."
pointed to a
The Wall Street Journal
that cited data from Moody's saying the top 5% of earners account for 37% of consumer spending, and a statistic from the
that the richest 1% of Americans own more than half of the individually held stocks in the United States.
Ben Bernanke has been fairly upfront about the benefit of quantitative easing on stocks but he's always careful to stress that this is intended to be a byproduct of the economy getting going, not the goal of the central bank's bond-buying efforts. His detractors will argue that the only tangible impact of the $600 billion spent on QE2 though was the stock market's ascent.
The evidence isn't all that kind to Bernanke. The economy has stabilized but unemployment remains above 9%, housing is a mess, and we're still a few bad datapoints away from rekindling fears of a double-dip recession. The QE3 chatter is getting progressively louder but it's difficult to understand why. The yield on the 10-year Treasury bond is sitting at a meager 2%, and the market already has the clarity of knowing rates will stay miniscule through at least mid-2013.
The idea that QE3 is going to stimulate banks to lend more and get the economy rolling again is a hard sell. The buying of mortgage-backed securities, as Bernanke hinted at last week, would be a wrinkle on previous asset-purchase efforts but to what end?
"We do not believe the Fed would take this action mostly to shore up employment,"
wrote in explanation. "Borrowing costs are already extremely low, yet the economy is sluggish, and the housing market is moribund. We doubt even an additional 50 basis point decline in mortgage rates would do much to boost employment."
Food for thought at the very least.
is neutral on U.S. stocks at the moment, putting its model portfolio
a few weeks ago on the logic that Europe doesn't have a solid plan to address its sovereign debt crisis yet and that more stimulus is coming on both sides of the Atlantic.
"The likelihood of more money printing is why we advise all investors to own some hard assets and inflation-protected bonds in their portfolios," the firm said. "The fiat money in most developed countries is not a reliable long-term store of value as policymakers increasingly use it to move markets in particular ways."
As for Tuesday, Italy is the big worry now and there's a vote tomorrow that puts Silvio Berlusconi's continued run at prime minister in jeopardy. The only economic data of note comes at 7:30 a.m. ET with the small business sentiment survey for October from National Federation of Independent Business.
High Frequency Economics
is looking for a small improvement to 90.2 from a reading of 88.9 in September.
reports its third-quarter results after the close, and the average estimate of analysts polled by
is for the game developer to earn 2 cents a share in the September-ended period on revenue of $558.4 million.
Shares of the company, whose franchises include Warcraft and Call of Duty, hit a new 52-week high of $13.75 during Monday's session, and the stock is up roughly 8% so far in 2011. Wall Street is extremely bullish ahead of the report with 19 of the 22 analysts covering the shares at either strong buy (9) or buy (10).
The report comes with Activision set to release the latest Call of Duty title,
Modern Warfare 3
, on Tuesday as well. Sterne Agee, which has a buy rating and $15 price target on the stock, previewed the results Monday, saying it expects an in-line quarter and guidance and for the product release to be a positive catalyst in the near-term for the stock. Its targets for
Modern Warfare 3
are pretty high.
"We expect first-day sales of MW3 to exceed last year's 5M units sales for Black Ops," the firm said. "For the December quarter, we expect unit sales of MW3 of 18M units or up an estimated 10% year over year."
Sterne Agee's got four reasons it sees the stock moving higher from here.
"We like ATVI shares given our belief 1) there is near-term earnings upside; 2) the title slate will become more diversified in the next 18 months; 3) the company will continue to aggressively pursue stock buybacks; and 4) current valuation is compelling," the firm wrote.
The rest of Tuesday's earnings roster includes a morning lineup featuring
A.C. Moore Arts & Crafts
Church & Dwight
International Flavors & Fragrances
James River Coal
Tomorrow's late reporters include
Silicon Graphics International
Weight Watchers International
on Monday was fairly quiet with
moving higher on a solid earnings report, and
rallying on light volume after its algae-derived jet fuel additive was put to practical use by
Bank of America
may also be in focus as well after a federal judge
related to overcharging customers for debit card overdrafts.
Written by Michael Baron in New York.
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