Looking ahead

With another round of QE coming, there will be an expectation of inflation.  With China raising rates, there's not much doubt about it.  Why raise rates if inflation is not a threat?  Yet, by having the yuan pegged to the dollar, the Chinese cannot avoid inflation.  It will be imported from the US.  On the other hand, they are resisting strengthening of the yuan, which if it were coordinated with already rising interest rates, could get inflation under control.  Hence, their efforts to control inflation will not be successful.  Fear of rising interest rates in China may be unfounded.  It's going to take more than that.  Rising interest rates are only a window dressing.

Nothing seems to have come out of the G20.  If anything, things may be sliding downward.  There is a competitive currency devaluation scenario.  That is why commodities and precious metals are soaring.  This is a reflection of all that printing press activity going on here and elsewhere in the world.  The US weakens the dollar, but this is not acceptable to our trading partners.  They respond by weakening their own currencies in order to protect their markets.  Now you can add in the possibility of an all out trade war. If competitive currency devaluations don't work, that may be next.  It may start here.  However, the Democrats by losing, will not be able to force this.  If they had large majorities in Congress, this could be a bigger threat.  The Republicans are not as likely to turn to this.

Politically, Obama needs something.  If he doesn't do something soon, he will be a goner in the next election.  He is in danger of losing his base.  They want quick and decisive action on jobs.  Protectionism is a nonstarter.  (see above)  Another stimulus is unlikely, yet it might help him with his base if he proposes one.  But this will go nowhere unless it is a very hard to refuse type of stimulus that has some real chance of producing jobs.  If it is just another political ploy, he will fail again.

Overall, the country is drifting.  Nature abhors a vacuum.  Something will fill it.  We just don't know what it will be yet.  Nothing has materialized yet, so I expect the most recent trends to continue.