Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18
More on that Gold and Silver Ratio 'Deviant Conundrum' - 13th Jun 18
Silver Shares? Nobody Cares - 13th Jun 18
What Happens to Stocks, Forex, Commodities, and Bonds When the Fed Hikes Rates - 13th Jun 18
Gold and Silver Price Setting Up for A Sleeper Breakout - 13th Jun 18
Tesla Stock Analysis - 12th Jun 18
What Happens Next to Stocks when Russell Goes up 6 Weeks in a Row - 12th Jun 18
Gold vs. Stocks: Ratios Do Not Imply Correlation - 12th Jun 18
Silver’s Not-so-subtle Outperformance - 12th Jun 18
Why You Should Brace Yourself for Big Financial Changes - 11th Jun 18
Inflation to Skyrocket When Fed Reverts to New QE & Interest Rate Cuts - 11th Jun 18
Stock Market Topping Pattern or Just Consolidation? - 11th Jun 18
Study: What Happens Next to Stocks When the Put/Call Ratio is Very Low - 11th Jun 18
G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - 11th Jun 18
SPX Unshackled - 11th Jun 18
When Trump Met Fibonacci And Won - 11th Jun 18
FREE Theme Park Entry with Cadbury's Choc's! Legoland, Alton Towers, Chessington.... - 11th Jun 18
Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - 10th Jun 18
End of the World Stock Market Chart! - 10th Jun 18
All US Homes Are Overvalued - 10th Jun 18
Thorpe Theme Park London Car Park Exit Nightmare - Drivers Beware! - 10th Jun 18
Gold Price Summer Doldrums - 9th Jun 18
How to Prepare for Economic Uncertainty with Gold and Silver - 9th Jun 18
5 "Tells" that the Stock Markets Are About to Reverse - 9th Jun 18
Billionaire Schools Teacher in NAFTA Trade Talks - 9th Jun 18
Land Rover Discovery Sport ECO Mode Real World Driving MPG Fuel Economy - 9th Jun 18
Crude Oil Bullish Weekly Reversal vs. Bearish Monthly Reversal - 8th Jun 18
Fed’s Interest Rate Hike is Short term Bearish for Stocks - 8th Jun 18
The Deviant Conundrum Called Silver - 8th Jun 18
Pleasure Island Theme Park Cleethorpes, Last Day Trip Before it Closed Down - 8th Jun 18
America’s One-sided Domestic Financial War - 8th Jun 18
Debt Consolidation Advice: When and Why to Consolidate - 8th Jun 18
Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - 8th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

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

© 2005-2018 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

6 Critical Money Making Rules