Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Update - Nadeem_Walayat
2.Will Deutsche Bank Crash The Global Stock Market? - Clif_Droke
3.Gold Price In Excess Of $8000 While US Dollar Collapses - Hubert_Moolman
4.BrExit UK Economic Collapse Evaporates, GDP Forecasts for 2016 and 2017 - Nadeem_Walayat
5.Gold Stocks Massive Price Correction - Zeal_LLC
6.Stock Market Predicts Donald Trump Victory - Austin_Galt
7.Next Financial Crisis Will be Far Worse than 2008/09 - Chris_Vermeulen
8.The Gold To Housing Ratio As A Valuation Indicator - Dan_Amerman
9.GDXJ Gold Stocks - A Diamond in the Rough - Rambus_Chartology
10.Gold Boom! End Game Nears As Central Banks Buying Up Gold Mining Companies! - Jeff_Berwick
Last 7 days
US Presidential Election Forecast 2016 - Trump Riding BrExit Wave into the White House - 25th Sept 16
US Economy GDP Growth Estimates in Free-Fall: FRBNY Nowcast 2.26% Q3, 1.22% Q4 - 24th Sept 16
Gold and Gold Stocks Corrective Action Continues Despite Dovish Federal Reserve - 24th Sept 16
Global Bonds: Why Our Analyst Says Things Just Got "Monumental" - 24th Sept 16
Where Did All the Money Go? - 23rd Sept 16
Pension Shortfalls Could Be 4X To 7X Greater Than Reported - 23rd Sept 16
Gold Unleashed by the Fed - 23rd Sept 16
Gold around U.S Presidential Elections - 23rd Sept 16
Here’s Why Eastern Europe Is Doomed - 23rd Sept 16
Nasdaq NDX 100 Big Cap Tech Breakout ? - 23rd Sept 16
The Implications of the Italian Banking Crisis Could Be Disastrous - 22nd Sept 16
TwinLakes Theme Park Summer Super 6 FREE Return Entry for Real? - 21st Sept 16
Has the Silver Bullet Run Out of Fire Power? - 21st Sept 16
Frack Sand: The Unsung Hero Of The OPEC Oil War - 21st Sept 16
What’s Happening With Gold? - 21st Sept 16
Gold vs. Stocks and Commodities, Pre-FOMC - 20th Sept 16
BrExit UK Inflation CPI, RPI Forecast 2016, 2017 - 20th Sept 16
European banks may be more important than the Fed this week - 20th Sept 16
Gold, Silver, Stocks and Bonds Grand Ascension or Great Collapse? - 20th Sept 16
Mass Psychology in Action; Instead of Selling Gilead it is Time to Take a Closer Look - 20th Sept 16
Hillary - Finally Well Deserved Recognition for Deplorables - 20th Sept 16
Fascist Business Model: Reich Economics - 19th Sept 16
Multiweek Correction in Gold and Silver Markets Continues - 19th Sept 16
Stock Market May Turn Ugly This Week - 19th Sept 16
China Is Digging Itself into a Deeper Hole - 19th Sept 16
Yellen’s Footnote 8 Would Put Interest Rates on Autopilot - 19th Sept 16
Central Bank Digital Currencies: A Revolution in Banking? - 19th Sept 16
UK Government Surrenders to China / France to Build Nuclear Fukushima Plant At Hinkley Point C - 19th Sept 16
Stock Market Correction Already Over? - 18th Sept 16
American Economics - 18th Sept 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

QE4, The Fed's Fantastic Failure

Interest-Rates / Quantitative Easing Dec 16, 2012 - 02:51 PM GMT

By: Clif_Droke

Interest-Rates

Question: When is an unprecedented economic event tantamount to a non-event? Answer: When another Fed intervention is announced.

The U.S. Federal Reserve bank announced this week the commencement of a new round of Treasury purchases to the tune of $45 billion a month to replace the expiring Operation Twist. This is in addition to the recently launched QE3 program that committed the Fed to buying $40 billion a month in mortgage-backed securities. The grand total of these central bank interventions amounts to some $1 trillion a year in government debt markets.


Financial markets were largely unimpressed with the announcement of QE4, essentially reversing what had been an impressive rally in stocks on the day of the Fed's policy meeting. This marks the second time in a row that investors have basically yawned at the commencement of another quantitative easing (QE) program, and for good reason: each successive QE has been followed by diminishing returns in the stock market. The following graph illustrates the diminution of returns since QE1 was expanded in 2009.

QE Effect on SPX

Aside from announcing a new round of bond buying, Fed Chairmain Bernanke also announced that the Fed has modified its guidance, noting its ultra-accommodative stance will remain in place until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% two years out. This improved upon the Fed's previous assertion that low rates would continue until 2015.

The purpose behind the Fed's Treasury purchases isn't as much to directly stimulate economic growth as it is to keep interest rates at rock bottom until real estate - the chief economic lynchpin - can fully recover. The Fed's hope is that the housing recovery which has been slowly gaining traction will accelerate in 2013 and beyond. There are good reasons, however, for believing this hope will prove misleading.

The above graphic shows the decreasing effectiveness of the Fed's quantitative easing programs over the last 3+ years. You'll notice that 2009 saw the biggest gain in the stock market of 50%, followed by QE2 in 2010 which saw a 30% gain in the S&P 500. This was followed by Operation Twist in 2011 which ushered in an 18% gain. All of these gains were helped by the cyclical factors behind the Fed's control.

For instance, the powerful 10-year cycle was peaking into late 2009. This accounted for much of the gains equities saw that year, along with the fact that the market was coming off a major "oversold" condition following the credit crash. Between 2010 and 2011 the 6-year cycle was peaking, which helped the market maintain is upward trend in those year. History has shown that Federal Reserve interventions are most effective when a major yearly cycle has either just bottomed and has freshly turned up, or else when a major cycle is in its "hard up" phase prior to peaking. In years when the broad market trend was down, or when no major cycle was peaking, Fed interventions aren't as effective.

The last of the major yearly cycles to peak occurred just over two months ago with the peaking of the 4-year cycle. Moreover, according to the late Bud Kress of SineScope, a major quarterly cycle is scheduled to peak in late March/early April next year. This is what Kress referred to as the "Catastrophic Cycle" in his writings. He referenced it as potentially beginning "a 1 ½-year sustained decline a la 1973-74 tantamount to death by a thousand cuts." He added that this will happen for "the first time since the beginning of the 120-year Mega Revolutionary cycle which heralded the beginning of the Industrial Revolution in the mid 1890s."

In one of his final SineScope missives before his passing, Mr. Kress also made the following observation worth mentioning: "The fourth and final 30-year mini economic super cycle peaked at the 1999/2000 turn of the century. It produced an all-time high in the S&P of 1,535 which began a 15 year secular bear market scheduled to end with the bottom of the 120-year Mega Cycle in the fourth quarter of 2014. Halfway in 2007, the S&P achieved an effective double top at 1,565 which began the secular bear market decline which has yet to be equaled."

Kress emphasized that the years 2013 and 2014 should prove to be economically disappointing ones. He pointed out that even with the Fed's constant intervention in recent years the economy has barely nudged forward since the credit crisis. Despite record outpourings of liquidity the economy has basically been treading water for the last four years. Does this not speak to the massive undercurrents of long wave deflation that are currently in force?

Indeed, the Fed's notable failure to reverse the economic tide provides strong circumstantial evidence that the long-term deflationary cycle Kress wrote about for many years is a reality.

2014: America's Date With Destiny

Take a journey into the future with me as we discover what the future may unfold in the fateful period leading up to - and following - the 120-year cycle bottom in late 2014.

Picking up where I left off in my previous work, The Stock Market Cycles, I expand on the Kress cycle narrative and explain how the 120-year Mega cycle influences the market, the economy and other aspects of American life and culture. My latest book, 2014: America's Date With Destiny, examines the most vital issues facing America and the global economy in the 2-3 years ahead.

The new book explains that the credit crisis of 2008 was merely the prelude in an intensifying global credit storm. If the basis for my prediction continue true to form - namely the long-term Kress cycles - the worst part of the crisis lies ahead in the years 2013-2014. The book is now available for sale at: http://www.clifdroke.com/books/destiny.html

Order today to receive your autographed copy and a FREE 1-month trial subscription to the Gold & Silver Stock Report newsletter. Published twice each week, the newsletter uses the method described in this book for making profitable trades among the actively traded gold mining shares.

By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife