Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
U.S. Escalation in Ukraine Is Illegitimate and Will Make Matters Worse - 1st Feb 15
The German 10 Year Bund Effectively a Call Option at 30 Basis Points - 1st Feb 15
Australian Stock Market Index ASX200 Technical Analysis  - 1st Feb 15
Stock Market Major 4 or Primary IV Wave - 31st Jan 15
Gold And Silver Price Probability for A Lower Low Has Increased - 31st Jan 15
U.S. Bond Market Has Reached Tulip Bubble Proportions - 31st Jan 15
The 3 Big Reasons My Apple Stock Price Prediction Is Still Coming True - 31st Jan 15
199 Days of Hell - Unintended consequences: Oil and the Worst Battle in History - 31st Jan 15
Kaminak Yukon Gold - 30th Jan 15
U.S. Asset Price Deflation Coming Up? Food Prices Drop? CPI Negative? Credit Deflation? - 30th Jan 15
An Often Overlooked Predator: State Governments and Income Taxes - 30th Jan 15
Bullard Says Rates at Zero Interest Rates Not Right for U.S. Economy - 30th Jan 15
Why the European Central Bank's Massive Economic Experiment Will Fail - 30th Jan 15
Gold Price Short-Term Bottom Due, Higher into February - 30th Jan 15
Silver and Other Precious Metals To Manipulate - 30th Jan 15
Socialism Is Like a Nude Beach - Sounds Like a Great Idea Until You Get There - 30th Jan 15
To Create Unlimited Market Liquidity or Not; That Is the Question - 30th Jan 15
Seen the Energy Downturn Movie Before, and Not Worried - 30th Jan 15
It’s Not Time to Sell Everything – Yet - 30th Jan 15
13 Investment Themes for 2015 - 29th Jan 15
The Raging Currency Wars Across Europe - 29th Jan 15
The End of Currency 'Safe-Havens' - 29th Jan 15
Ron Paul on U.S. Fed, Central Bankers Monetary Psychopaths - 29th Jan 15
Why Microsoft Stock Will Provide Major Investing Returns - 29th Jan 15
Exploring the Clash Within Civilizations - Mind the Gap - 29th Jan 15
Saudi Arabia Changes Kings, But Not its Oil Policy - 29th Jan 15
Crude Oil Price Bulls vs. Resistance Zone - 28th Jan 15
Acceleration Of Events With Rising Chaos – US Dollar Death Foretold - 28th Jan 15
The Fed and ECB Take the West back to when the Rich Owned Everything - 28th Jan 15
Washington's War on Russia - 28th Jan 15
Cyber War Poses Risks To Banks and Deposits - 28th Jan 15
Lies And Deception In Ukraine's Energy Sector - 28th Jan 15
EUR, AUD, GBP USD – Invalidation of Breakdown - 28th Jan 15
“Backup-Camera Envy” Is Driving This Unstoppaple Investment Trend - 28th Jan 15
The Great "inflated" Expectations for Gold, Oil, Commodities -- and Now Stocks - 28th Jan 15
How to Find the Best Offshore Banks - 28th Jan 15
There’s More to the Gold Price Rally Than European Market Fears - 28th Jan 15
Bitcoin Price Tense Days Ahead - 27th Jan 15
The Most Overlooked “Buy” Signal in the Stock Market - 27th Jan 15
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Learn to Trade

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

© 2005-2014 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

Free Report - Financial Markets 2014