Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
This Past Week in Gold - 24th Oct 16
Can Gold Continue To Rise, Since The Usd Is Moving Higher Too? - 24th Oct 16
Why are Americans Avoiding the Stock Markets; Fear or Lack of Money? - 24th Oct 16
The US Is NOT a Low-Tax Jurisdiction - 24th Oct 16
Stocks, Crude Oil and EURUSD Trend Forecasts - 24th Oct 16
Stock Market Another Month to Go? - 24th Oct 16
Large Sell-off in Stock Market Looming - 24th Oct 16
Ungovernability - 24th Oct 16
Stock Market Boredom Before The Storm - 24th Oct 16
Establishment Mainstream Media Elite Buys US Election for Hillary Clinton, Time Running Out for Trump - 23rd Oct 16
Inflation About To Explode Higher - 22nd Oct 16
Still waiting for SPX uptrend to kick off - 22nd Oct 16
Will a Rising US Dollar Crush Gold’s Fledgling Bull? - 22nd Oct 16
Why The Global Economy Will Disintegrate Rapidly Back to Olduvai Gorge - 22nd Oct 16
GLD Bleeds Out; Weekly Gold Update - 22nd Oct 16
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's insane Housing Market Will Tumble and Crash in 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16
Is Obama Juicing US Government Spending To Get Hillary Clinton Elected? - 16th Oct 16
Seek Your Independence: Anything Else Will Destroy You - 16th Oct 16
SNL - US Presidential Debates, 1st, 2nd, VP - Like You've Never Seen them Before! - 16th Oct 16
End of Economic Growth Sparks Wide Discontent - 16th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

LEARN to Trade

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


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."


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.

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 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


21 Dec 13, 23:15

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