Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Implications for Stock Market - Nadeem_Walayat
2.Odds of Winning Walkers Crisps Spell & Go olidays K, C and D Letters - Sami_Walayat
3.Massive Silver Price Rally During The Coming US Dollar Collapse - Hubert_Moolman
4.Pope Francis Calls For Worldwide Communist Government - Jeff_Berwick
5.EU Referendum Opinion Polls Neck and Neck Despite Operation Fear, Support BrExit Campaign - Nadeem_Walayat
6.David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - Mike Gleason
7.British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - Nadeem_Walayat
8.Gold Price Possible $200 Rally - Bob_Loukas
9.The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - Michael_Swanson
10.Silver Miners’ Q1’ 2016 Fundamentals - Zeal_LLC
Free Silver
Last 7 days
David Cameron Questioned on Out of Control Immigration at TEN TIMES Conservative Election Pledges - 30th May 16
Bitcoin Price Skyrockets And Is Now Up More Than 100% This Jubilee Year - 30th May 16
This Is Not The America My Parents Immigrated To In 1957 - 30th May 16
“Debt, Not The Economy, Reaches Escape Velocity” With Graham Mehl - 29th May 16
EU Referendum, Black Vote LEAVE or REMAIN? Which is Worse for Racism for Britain's Ethnic Minorities? - 29th May 16
Billionaire Gross: Jubilee Debt Relief as Prelude to New Global Economic Order - 29th May 16
Wargaming North Korea - Assessing the Threat - 29th May 16
EU REMAIN Population Forecasts - England 4.1 million Explosion, London Migration Crisis - 28th May 16
A Guide to the Trump-Sanders Debate - 28th May 16
Gold And Silver – At Significant Support. New “Story” Developing - 28th May 16
The Next Systemic Lehman Event - New Scheiss Dollar & Gold Trade Standard - 27th May 16
Energy and Debt Crisis Point to Much Higher Silver, Metals Prices - 27th May 16
Gold Junior Stocks Q1 2016 Fundamentals - 27th May 16
These Crisis Markets Are Primed to Deliver Big Gains, Platinum Never Cheaper! - 27th May 16
Operation Black Vote BrExit Warning for the Wrong EU Referendum - 27th May 16
UK Immigration Crisis Hits New Extreme, Catastrophic ONS Migration Stats Ahead of EU Referendum - 27th May 16
Many of the World’s Best Investors Made Their Fortunes This Way…And You Can Too - 27th May 16
The Ugly Truth About Stock Market Manipulation and Gold Prices - 27th May 16
Gold Price Looking Vulnerable While Gold Stocks Correct - 27th May 16
The 5 Fatal Flaws of Trading - 27th May 16
The Next Big Crash Of The U.S. Economy Is Coming, Here’s Why - 27th May 16
A New Golden Bull or Has the Market Gone Too Far Too Fast? - 27th May 16
It Feels Like Inflation - 26th May 16
Negative Interest Rates Set to Propel the Dow Jones to the Stratosphere? - 26th May 16
S&P Significant Low has Occurred – Not Likely! - 26th May 16
Statistics for Funeral Planning in UK Grave - 26th May 16
Think Beyond Oil And Gold: Interview With Mike 'Mish' Shedlock - 26th May 16
Hard Times and False Mainstream Media Narratives - 26th May 16
Will The Swiss Guarantee 75,000 CHF For Every Family? - 26th May 16
Is There A Stocks Bear Market in Progress? - 26th May 16
Billionaires Are Wrong on Gold - 26th May 16
How NOT to Invest in the Gold Market - 26th May 16
The Black Swan Spotter...Which Saw the Oil-Crash coming; now says the “Invisible Hand” will push Brent to $85 by Christmas - 26th May 16
U.S. Household Debt Still Below 2008 Peak - 25th May 16
Brexit: Wrong Discussion, Wrong People, Wrong Arguments - 25th May 16
SPX is at Strong Resistance - 25th May 16
US Dollar, Back From the Grave? - 25th May 16
Gold : Just the Facts Ma’am - 25th May 16
The Worst Urban Crisis in History Could be Upon Us - 24th May 16
Death Crosses Across The Board Are IRREFUTABLE Stock Market Sell Signals - 24th May 16
Bitcoin Trading Alert: Bitcoin Price Stays below $450 - 24th May 16
Stock Market Crash Death Cross Doom Prevails - 23rd May 16
Did AMAT Chirp? Implications for the Economy and Gold - 23rd May 16
Stocks Extended Their Rebound On Friday - Will They Continue Higher? - 23rd May 16
UK Treasury Propaganda Warns of 3.6% Brexit Recession, the £64 Billion Question? - 23rd May 16
Stock Market Support Breached, But Not Broken! - 23rd May 16
George Osborne Warns of 18% Cheaper House Prices - BrExit for First Time Buyers - 22nd May 16
Gold Bull-Phase I Continues to Confound (The Trek to “Known Values”) - 22nd May 16 r
Avoiding a War in Space - 22nd May 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

QE and the Stock Market - The "Taper" Is Here... This Is What You Need to Know

Stock-Markets / Stock Markets 2013 Dec 19, 2013 - 03:17 PM GMT

By: DailyWealth

Stock-Markets

Porter Stansberry writes: We knew it would happen eventually... so now what?

Yesterday, I explained how the Federal Reserve's quantitative-easing programs have transferred enormous wealth into the hands of the very rich.

Today, I'm going to show you what's going to happen now that the Fed is beginning to rein in these quantitative-easing bond-buying policies. This is what people refer to as "tapering."


In short, not one single sector of the stock market is completely safe... But there is a "window" of opportunity.

Let me explain...

Since the housing market collapse, the Fed has instituted three separate rounds of quantitative easing... QE1, QE2, and QE3.

The Fed also tried something called "Operation Twist," which attempted to replicate the effects of quantitative easing without printing more money.

A lot of the extra QE dollars found their way into the equity markets and have driven up stock prices. The chart below shows how the market reacted to the Fed opening and closing of the money spigot...

With trillions of extra dollars sloshing around the economy, some are bound to be dumped into equities and drive up prices. Notice that every peak and valley for the past five years corresponds with a Fed QE action.

You may think that any policy that helps your investment account can't be all bad. But asset surges predicated by dollar printing never work out well.

It's impossible to know when this Fed-induced market exuberance will end. But we know it will.

Even the Fed knows quantitative easing is not sustainable. That's why the Fed has already tried three times before to stop the charade.

And yesterday, the Fed announced that it will be reducing – or "tapering" – QE3 by $5 billion per month. Notice, in the table below, that every time the Fed stops quantitative easing, the equity markets have pulled back.

Specifically, take a look at the periods below marked with gray highlights. The market has dropped throughout each of these "tapered" periods.


​The market has obviously been indiscriminately selling whenever the Fed hints at tapering its quantitative easing.

The "tapered" periods in the table above (the rows highlighted in gray) lasted an average of 84 days. And the market lost an average of 16% over those periods.

We examined more than 2,000 large U.S. stocks and 39 industry segments to see if we could spot trends that would improve our performance (or limit the damage) as tapering begins. The results of our analysis can be found in the table below...

Clearly, in times of uncertainty, investors hang onto companies that sell the stuff people really need: utilities, food, and medicine. And they buy the things people can't stop using, like sodas and nicotine. On the other hand, construction-related industries and companies with a lot of interest-rate exposure struggled during the taper periods.

​What surprised us was that certain industries had a lot of companies whose stock actually advanced during these periods. You can see this in the column labeled "Percent Winners."

For example, if two out of the 20 companies in a given segment actually had stock-price gains during the taper periods, you'll see 10% (2/20) reflected in the "Percent Winners" column.

Looking at both metrics, our analysis exposed a cluster of industries that all sell mass consumer goods with inelastic demand: big tobacco, beverages, pharmaceuticals, and the stores that sell them. The one thing they have in common is that they can all be growth industries, even in the face of stock-market retrenchment.

Think about the products those companies sell. Marlboros, Cokes, Twinkies, Tylenol... These are not products people stop buying when interest rates rise. And you can buy them at any store on any corner in any town.

That's why, after taking in all the data, we think one of the best ways to play this is to dig into the retailers that sell these goods. Buying the right retailer is like buying a basket of all the products that people need most.

You'll notice the companies in the "Food and Drug Retailers" and "General Retailers" segments lost on average 8%-13% over the Fed's taper periods. That's not too bad compared with the overall market. But when we dug deeper, we noted that 14 companies in these segments enjoyed stock-market gains over the taper periods... and some of the gains were big.

If recent history is any indication, big gains may be hard to come by in the coming months.

But we believe we found the best place to look for opportunity, both during quantitative easing and now that we've reached the "taper."

Regards,

Porter Stansberry

P.S. In the latest issue of my Investment Advisory, we recommended our favorite "general retailer." Its stock rose 7% during the previous taper periods. It's exactly the kind of company you'll want to own as the Fed closes the money spigot. You can get all of the details with a Stansberry's Investment Advisory subscription. To learn more, click here.

Editor's note: If you'd like more insight and actionable advice from Porter Stansberry, consider a free subscription to DailyWealth. Sign up for DailyWealth here and receive a report on how to prosper despite the Fed's inflationary policies. This report will show you how to protect your hard-earned money from what Porter has dubbed the "End of America." Click here to learn more.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

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


Comments

peterpalms
21 Dec 13, 23:15
Tapering

Tapering is just a synonym for "stealing less" from taxpayers


Post Comment

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

Catching a Falling Financial Knife