I'm not sure what's more amazing.... the fact that stocks managed to gain nearly 2% yesterday on news of the Fed's quantitative easing, or that the market is looking for yet-another gain today.  See, QE isn't a measure being taken because things are going well. In fact, the drastic measure is being taken on primarily because things are going very poorly, economically speaking.  Yes, the downward pressure being put on yields has traditionally been a booster for the economy. The economy isn't a jigsaw puzzle though, where each piece fits in a certain place. The economy is a Rubik's Cube, where solving one side of it most likely scrambles the other five sides. And Yes, there are a few folks who can actually solve Rubik's riddling toy; most folks can't though. Likewise, there probably are a few folks who can actually 'solve' the economy. I don't get the feeling Tim Geithner or Ben Bernanke happen to be one of those people. Who knows though? Maybe (hopefully) I'm wrong, or maybe the economy will 'solve' itself despite them.  In any case, I thought it would be worth spending a little time today to lay out in detail what the bulls and bears are saying about QE2, the long-term and short-term impact it will have on the economy, and most important, the impact it will have on stocks.  After that, we'll hit the highlights from the community over the past week.    Bulls and Bears Face Off This is going to be a real simple presentation. I'll start with a list of what the bulls are gladly saying, and then I'll move on to a list of bearish views. I'll wrap-up with some thoughts of my own, but the talking points largely speak for themselves.  What the bulls are saying:  1. Lower interest rates should help some more homeowners refinance, if they can qualify. Businesses should also be able to borrow at a lower cost. As such, the money saved can be used to consume other things, hire more people, etc.  2. Lower interest rates should weaken the dollar, in turn making U.S. exports even more attractive to overseas buyers, while also crimping imports of foreign goods into the U.S. (those American dollars will instead flow to American companies).  3. Whether the intended impact of quantitative easing is real or only perceived, it could have a positive echo effect for the economy as well as the stock market. In fact, it already has - just look at how well stocks did on Thursday. QE may end up creating a self-fulfilling prophecy.  4. This degree of quantitative easing may have failed Japan a couple of decades ago, but it did yank the U.S. economy out of the Great Depression.  5. Like it or not, corporate earnings are getting better. That may not help those who are unemployed, and that won't do anything to abate growing government deficits, but it does make stocks more valuable. But how long can the earnings growth last? Hey, profits started growing again well before any of us felt comfortable even talking about a recovery (i.e. they've survived worse). Why would the trend stop now when things are marginally better?  What the bears are saying:  1. Lower interest rates aren't the problem; borrowing is cheap enough as it is. What homeowners and businesses need is the ability to get credit - at any interest rate - at all. Banks need to get off the $1 trillion they're sitting on rather than not lending it.  2. As if the cash injections the Fed has already made don't pose enough of an inflation risk, another effort to push interest rates lower exacerbates the looming inflation possibility. It hasn't happened yet, though that's more the result of tepid demand than anything else. Once it turns, it's going to be a tsunami.  3. Unemployment is still stunningly high, and 'real' unemployment is even higher. With nearly 20% of the U.S. labor market unemployed or underemployed, cheap loans aren't the problem.... people need jobs if they're expected to become consumers again.  4. Bernanke's $500 billion-to-$1 trillion bond buy-back is about 1/10th the size it needs to be to work. This jolt isn't big enough to shove the train back on the track. It will simply flush another few hundred billion down the drain, ultimately at taxpayers' expense, and driving the country toward bankruptcy in the process.  5. This degree of quantitative easing may have worked to pull the U.S. out of the Great Depression a little less than a century ago, but it didn't work very well for Japan in the modern era.  What I'm saying:  I hear and understand the arguments from both sides of the table. I have the same response about both parties - they each have a track record of being wrong as well as being right.  Here's the reality.... nobody really knows where this (QE2, looking inflation, unemployment) is all going.  That's not a bad thing or a good thing - it's just the truth.  The problem is, investors tend to make decisions based on the facts that 'feel' right, while ignoring other information that conflicts with their outlook. It's a phenomenon called cognitive filtering, where an individual or group clearly sees the data that's aligned with their conclusions, but dismisses any data that contradicts their conclusions.  And, exactly 100% of the world's population is capable of misleading themselves through this art of cognitive filtering. More to the point, we all have to work at being able to turn the filter off.  That's one of the core strategies I employ in the Rhino Report with economic data. To take my bias out of the interpretation of key economic information, I've 'systemized' it so I can focus on what has worked historically - going back for decades - rather being fooled by the media's bias and short-term misinterpretations of economic data.  So what's my view of the landscape with my cognitive filters turned off? Call me an incurable optimist, but I remain modestly bullish; I think the economy is going to keep growing - albeit tepidly - despite the disruptions discussed above.  Likewise, I'm looking for this mild bull market to persist for months, if not years.  Oh, I have no doubt we'll see significant corrections in the meantime that will feel like the whole thing's coming unraveled at the time. The pullbacks we've seen so far have just been short-term trends though, and ultimately long-term buying opportunities even if they were deemed the beginning of the end when they were unfolding. In fact, I've got a feeling such a correction is around the corner, with yesterday being something of a blowoff top.  Let's just not fall into the trap of assuming the current or future trend is the direction things will be pointed a month from now, or even a year from now. [That goes both ways mind you.... bullishly or bearishly.]  That said, I'll concede that the bulk of my decision is based on two key bullish arguments above ..... earnings ARE getting better, and the market IS going higher again (not so much today, but over the last several weeks).  If the earnings trends falter, I'll rethink things. But, the backdrop of economic turmoil has always been there, and the market has survived worse.  I specifically make that point to prevent us from using the market's current short-term trend - whatever it is that day - as 'proof' that the economy is decidedly leaning one way or another. We've been making those half-sighted assumptions for months, and it's caused nothing but trouble. We have to respond to what stocks ARE doing rather than what we think they SHOULD be doing. And to nip the "this time is different" counter-argument in the bud, investors were saying the same thing in 2008, 2002, 1990, 1987, and so on. None of those instances were ever permanent disasters either, yet each was viewed as the end of the financial world at the time. While the nature of the beast - but not the beast itself - is a little different this time, assumptions that the current problems are insurmountable are just cognitive filtering being turned on again.  And if you want to see how the Rhino Report takes cognitive filtering out of the interpretation of economic data (and why it helps your bottom line), you can sign up for a risk-free trial.  Helping you get more out of the market, James Brumley Editor - Small Cap Network    From The Community  - Latest Commentary - News and Media Coverage Pushing "Engineered Human Skin" Stock M.E. Garza has the scoop on an incredible bioengineering technology and the company behind it. Regenicin (OTC:WDST) is looking to take the technology to the next level in the U.S., and a significant update may be in the works as early as November 9th.  Setting Thresholds and Making Friends: HEAT, WWWW, CATM  Lots of cash? Very little debt? Yep, that's SmartHeat Inc (NASDAQ:HEAT). Dennis Askew details just why - and how - this Chinese heating technology company is poised to pounce on any acquisition opportunities against a backdrop of growing earnings. No wonder the chart is starting to test higher highs now. If the $7.40 level breaks, look out above.  Won't Get Fooled Again Scott Brown over at the Dark Horse Hedge puts QE2 into perspective with some real numbers, adding some of the more pertinent (and not so pertinent) potential side effects of the Fed maneuver. He's also adding Arrow Electronics (ARW) and subtracting Deluxe Corp. (DLX) in the virtual portfolio. Check out the article for the full details.  Thursday's Stocks to Watch (& Why): ZSTN, MNKD, CIDM, & LQMT Yes, it's a day after the initial trading thoughts on ZST Digital Networks, Inc. (NASDAQ:ZSTN) were published, but the stock just passed the key technical milestone James Brumley discussed, and is no starting to behave as expected. There's still quite a bit of upside left ahead.  Something's Brewing: RNN, DNDN, and SNTS in View While yesterday's cross above the 200-day moving average line for Santarus, Inc. (NASDAQ:SNTS) could have been chalked up to luck, today's follow-through adds a big layer of credibility to the move. With a second day above the 200-day average - and a higher high no less - SNTS is likely to be off and running.  - Newest Picks -  Can't Compete With Solar Energy - SandRidge Energy, Inc. (NYSE: SD) (short): Jeff Owen is already off to a great start with his beat against SandRidge Energy (up 14%).  Property Decrease - Sell Mission West Properties Inc. (Nasdaq: MSW) Short: Another bearish bet, Mark Kingston is looking for things to get worse for this REIT.  Buy Long Arrow Electronics, Inc. (NYSE: ARW): As was mentioned above, Scott Brown at the Dark Horse Hedge is going long on Arrow Electronics.    We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Email the Editor If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC  4653 Carmel Mtn Rd  Suite 308 #402  San Diego, CA 92130   Share the SCN Newsletter If you find the Small Cap Network Newsletter informative and profitable, please forward our newsletter alert service to like-minded friends and associates who share similar market interests.   Ensure Newsletter Delivery To ensure newsletter delivery, you can add any additional email addresses you may have to the Small Cap Network Member List. 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