Written by Gary
Weekend Market Commentary: There Is Talk Of More QE
UPDATED: 0945 EST 2014-10-04
More QE anyone? Yup, Ms. Yellen is saying that there is 'substantial slack' still persisting in the labor markets. But does this signal that the Fed is considering more QE?
Some analysts think it is a distinct possibility of keeping interest rates zero and considering another dose of 'Financial Viagra' to keep the markets afloat. Are these Keynesian Central Banker geniuses about to sink the US economy?
There a lot of investors betting there will be some sort of economic assistance forthcoming from the Fed in the months ahead believing they just can't sit by and watch the markets sink into oblivion. USD Fed's Evans speaking at Economics Conference in Chicago on Monday said, 'Will be quite some time before [it is] appropriate to raise rates'. But is he preparing the financial community that there is more 'aid' to come?
The averages headed south on poor economic news all this week thereby raising hopes among some investors that more 'financial Viagra' in the form of QE 5 may be forthcoming.
Federal Reserve Chair Janet Yellen has used what she called her "dashboard" of jobs data to justify the Fed's easy money policies and to argue that there's still considerable slack in the labor market five years after the recession's end. Only three of the monthly indicators that she flagged are back to where they were in the four years leading up to the last economic downturn, according to calculations by Bloomberg.
click on graph for larger view
ComStockFunds.com agrees in their article, This is What Happens When the Fed Tightens!, that raising interest rates would have a disturbing negative effect on the financial community along with when the Fed 'unwinds' their 'Balance Sheet'. But whatever the Fed does to keep the markets from collapsing will NOT be good.
The Fed has tried to stop QE strategies before but were unsuccessful. During the first two QE programs, they set a date when the programs would end. Once those dates were announced, the markets began to unravel which resulted in the Fed starting another QE. They essentially had to start a new QE in order to keep the "wealth effect" alive.
Further, they say, 'The negative stock market's reactions to the unwinding of their balance sheet, or even just any indication of rising interest rates will be a problem for the stock market.'
The financial press and media were at first concerned about the Portugal, Argentina, and Ukraine problems as well as the Russian sanctions, but the overriding problem was the potential for reversing the monetary easing. We had a taste of the Fed possibly raising rates a little earlier than expected when the Employment Cost Index rose 0.7% for the second quarter. This was the largest increase for the past 6 years. After this was released the Dow Jones Industrials erased all the gains for the year by dropping over 300 points. We have consistently warned our readers about the ramifications of the unwinding of the Fed's loose monetary policies of the past few years.
Personally, I think the Keynesian brainiacs at the Fed do not know what they are doing, so anything is possible, but another QE probably won't happen until March of 2015 at the earliest. But what is alarming most analysts and investors alike is the prospect of the Fed raising interesting rates and the prospect of inflation Vs. Deflation.
Tomorrow in we will discuss why The Cause Of Raising Interest Rates may be a problem for the World, financial community and you personally.
What are your thoughts? I would love to hear from you.
"The stock market has recovered so sharply for so long, you have to assume somewhere along the line we will get a significant correction. Where that is, I do not know." - Alan Greenspan, July 30, 2014
The markets are still susceptible to climbing on 'Bernankellen' vapor, use caution!
"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation inequities, they should try to be fearful when others are greedy and greedy only when others are fearful." - Warren Buffett
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Written by Gary