The Federal Reserve has been in the money printing game in one form or another since November of 2008, when its first asset purchase program began. We are six years into this experiment and it is still a highly debated topic among the so called "financial experts" of the world. Whether they are economists or market commentators on financial networks such as CNBC or Bloomberg, everyone has an opinion on this program. So I will chime in as well, as the fed is slowly winding down QE3 (quantitative easing). As stated above the initial QE program began in late 2008 after the equity markets were sent reeling from the Lehman Brothers epic collapse. Back then the S&P 500 INDEX (INDEXCBOE:SPX) hit a multi-year low of 741.02 and eventually bottomed out in early March 2009 at 666.79. The first QE lasted until June of 2010 and clearly had an affect on the markets, as they had an amazing assent of 83% during its duration. The markets peaked in April of 2010 as investors geared up for the end of cheap money and they subsequently declined by 17%. Nearly heading back into bear market territory. There was definitely some sort of connection between the money printing and rising equity prices. Then came along the implementation of QE2. While it did not officially begin until November 2010, it was all but announced by then Fed Chairman Ben Bernanke at the Jackson Hole symposium in August. This second round of money printing again gave the markets the drug they wanted, as it rallied higher but not as much as its first round of cheap money. As QE2 was coming to an end the S&P 500 INDEX (INDEXCBOE:SPX) had another case of withdrawal as it declined 21% from its peak in May 2011 to a low in October 2011. Now some were definitely seeing the link between cheap money and rising markets. You might be wondering what halted the decline in 2011? It was the announcement of Operation Twist, another form of money printing by the fed. Just as you have seen the pattern of how the markets perform with money printing (drugs) and without. So too did the FOMC, as this time they fended off any market tantrums by not only extending Operation Twist, but by giving more cheap money in the form of QE3 which was announced in September of 2012. Oh and did I mention that it was open ended this time, meaning no one but the fed knew when it would end. As Ben Bernanke's tenure as Fed Chair was winding down, he decided to give the markets a time frame for QE3 and in December 2013 it was decided that instead of going cold turkey by ending cheap money all at once, it would do it gradually with a taper of 10 Billion per month. During this run of money printing corporate America has taken full advantage, by using it to buy back shares, borrow money to issue special dividends or use it for acquisitions. Basically anything to boost their share price. This in turn has helped markets advance higher and make record all time highs. One has to wonder what will happen once the drug is finally taken away. If history is any guide then this market, which has not had any meaningful correction since 2011, could be in for a rude awakening. Parm Mann Follow me on twitter:@ParmMannTrader
Markets fail because people aren't serious, they sell what doesn't exist and that create chaos, it's a world of irresponsibility.
Ah quantitative easing, an initially painless way to fix an incorrect business model short term. That is, just as long as nobody looks at the man behind the curtain. Aside from truly changing the number of people with jobs (that is not lowering jobless claims, which is more due to people dropping out of the job market), it is impossible to make the economy more than just a paper giant.
I don't really think that is the reason why. If you look at a graph of the stock market, and correlate it with overall world growth in GDP, you will see a trend. Global economic conditions have been falling in the past few decades, I think it's safe to say that with that, markets too will experience a negative growth. Doubt what you mentioned would have much of an overall impact.
If there is a "rude awakening" in store for the US markets, it will be a slowdown in growth. The taper schedule is now more or less set, and it's basically been priced into the markets at this point. The question is what the growth rate of the "real" economy will be. If Q2 was just a one-time bounceback from the drawdown in Q1, then markets will probably pull back. If Q2 is the new trend, then markets will march higher. I suspect it will be the former, but we shall see.
I love getting the conversation going and that is what makes a market...good to see some different opinions!
I don't really have much of an opinion, but I'll try to take advantage of any pullbacks in the market, no matter what their causes are. I'm a small investor, and I try to pull gains from wherever I can, despite what might be happening with the economy or markets at a given moment. These are all interesting theories as to why the markets are falling, and they all likely play a role to some degree or another.
One of the biggest bears of them all said yesterday that he's not so bearish these days. Peter Schiff sees the Fed continuing to keep rates artificially low and to keep printing money as long as they can.
