ETFs Anticipate Fed And Germans

ETFs rise in anticipation of German ESM ruling and FOMC statements tomorrow

Markets rose higher today in anticipation of Dr. Ben and the German Constitutional Court’s ESM verdict tomorrow, although today’s gains were nothing more than “hold the course” results. The SPDR S&P 500 ETF (NYSEARCA:SPY) rose .28%, while the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) gained .46%. The iShares Russell 2000 Index ETF (NYSEARCA:IWM) rose .21%, while the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) ETF was the only loser today with a .16% drop.

Tomorrow, not today, will be likely a big day for stocks and ETFs, as the German Constitutional Court will reveal its verdict on the constitutionality of the European Stability Mechanism (ESM), an emergency bailout fund designed and formed by the EU to prevent another European debt crisis. It is unlikely that Germany would reject the ESM, as it was Germany that suggested originally that the EU treaty should be modified for such a fund to exist. Italy has yet to decide on the ESM as well, however a German veto of the ESM would surely stonewall any Italian vote and the fund itself, all of which could send the EU further into panic mode. Even with a ratified ESM, I would imagine that such a fund that is no more than 700 billion Euros deep would have enough firepower to stop a debt crisis the magnitude of say, a Spain or Italy collapse, especially considering the fact that European Central Bank does not have enough money to help tiny Greece if indeed the country went insolvent. Germany is also slated to be the highest contributor to the fund, with 27% of the ESM being German contributions. So, it really is an interesting thought to see what the German court and German people decide to do tomorrow, as the potential fate of the Euro rides on their shoulders.

Long story short in terms of markets: the Germans hold the key to the ESM tomorrow, and whatever they decide will likely send markets into a tailspin or into orbit.

Dr. Ben has that same power over markets as well, as tomorrow he is expected to reveal details of a possible QE3, although we all assume from past history that if Dr. Ben does not speak a lot of “easing” words, and I mean, A LOT of “easing” words, markets will likely dump on him as they have dumped on him in the past . However, anytime the Chairman merely whispers about easing, markets seem to have a hay day, so again tomorrow could entail a trip to outer space or a journey to the center of the earth. Keep in mind too that Thursday brings more Fed action, so by Friday we should have a clearer picture of just what is going on.

In other news, our trade deficit expanded in July while German stocks rose in anticipation of tomorrow’s ruling.

Bottom Line: Tomorrow could bring a trip to the moon or trip to the center of the earth, Dr. Ben and the Germans hold the keys.

I would also like to recognize the 11th anniversary of the September 11th, 2001 attacks. Much good and bad has happened to our country in the past 11 years, however even in our darkest moments of history, there is always hope for a better future.