Well maybe there are ruffles on the glassy surface of the market sea and we can look forward to leaving the doldrums. This morning’s economic data – NY Fed Manufacturing Survey and Industrial Production – confirmed what Ned Davis’ model had already told us, that the US is well back into recession. Of course, the force of denial is strong but the inevitable incoming tide of revisions will eventually overwhelm it.

In that context, it was amusing that the strong report from the NAR on homebuilder confidence was greeted with cheers, even though it has been strong – and wrong – for many months. We did get a surge in housing last month, so the complete lack of predictive value in the self-serving NAR report is completely forgotten.

The Greek tragedy continues, but the US dip-buyers are oblivious to the risks that it poses. It is far from clear that Europe’s banking system can withstand the shock of a Greek default, even without direct financial impact the loss of confidence will be crippling.

All eyes are on the Fed meeting this week, of course. Will she or won’t she? Doesn’t matter from an economic point of view, the storm clouds can now be seen in the distance. Time to secure for a blow. A note sent out by B of A lead analyst Savita Subramanian has it right:

Biggest risk to global equities? Another round of US QE

While most are focused on the risks around a withdrawal of liquidity, we believe the biggest hit to confidence could be the opposite: if another round of US QE is necessary to prop up the economy. While the market could have a knee-jerk rally on an indication of forthcoming stimulus, we think this would likely be short-lived and could end in the red. QE fatigue is already evident: each subsequent round of QE has seen diminishing risk rallies. Another round of QE would imply that $4.5tn was not enough. And it would also likely have a very negative read-through for QE programs currently underway in Europe and Japan. This is not our base case, but is the risk that seems to be getting the least attention.

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