Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Fed Will Still Provide Massive QE in 2014 - But

Interest-Rates / Quantitative Easing Dec 21, 2013 - 11:20 AM GMT

By: Sy_Harding


The Federal Reserve announced this week that it will provide $75 billion of quantitative easing (QE) in January, a massive amount, and will provide large though diminishing amounts of additional stimulus for months thereafter.

Yes, that is what it said, even though the headline news was that it will begin tapering back QE in January, by providing $75 billion rather than the $85 billion it has been providing monthly this year. If it continues to taper at the same pace it will provide an additional $65 billion of stimulus in February, $55 billion in March, and so on.

In September, 2012, just over a year ago, when the Fed announced it was increasing its stimulus program to $40 billion a month of QE purchases, the thought of $75 billion would have seemed incredibly massive. And that was when economic growth (GDP) was running at less than 2%.

So after stumbling several times this year just in reaction to hints the Fed might begin to taper soon, markets have apparently rethought their previous concerns about tapering.

They like that the Fed will still provide $75 billion of QE in January, and significant amounts monthly thereafter even though GDP growth was at 4.1% in the third quarter. That’s a lot of perhaps unnecessary extra liquidity going into the economy for several more months, potentially continuing to mostly go into paper assets instead.

The positive reaction to the tapering news was enhanced by Chairman Bernanke’s assurances that even though it will slowly reduce the degree of QE stimulus next year, it will continue to hold interest rates extremely low even longer than it previously indicated, probably well into 2015.

I was wrong, as were the majority of analysts, in expecting the Fed to delay tapering until its March meeting.

However, the announcement and the market’s reaction does not change my ongoing intermediate-term forecast, that the combination of favorable seasonality and the Fed’s support will keep the market positive until March or April.

But the market’s reaction does raise the risk.

Most economists and analysts, me included, were expecting a short-term correction, needed to alleviate the overbought technical condition, and to cool off excessive investor bullishness before the upside would resume into the spring. Otherwise the market and sentiment would become too bubbly.

The Dow pulled back only 2.2% in its decline of the last two weeks, finding support at its 50-day moving average and then launching this week into this rally up to new record highs.

So for the time being, I have to love the market’s positive reaction. Our Seasonal Timing Strategy remains in its favorable season and 100% invested in the Dow, and our non-seasonal Market-Timing Strategy remains on its October 23 buy signal.

However, without a short-term correction of any degree first, it does raise the risk.

Although the pullback alleviated the previous short-term overbought condition above the 50-day m.a., the minor pullback did nothing to lessen the longer-term overbought condition above the 200-day m.a., and the quick rally up to new highs is probably further over-heating the already high level of investor bullishness and optimism.

So we love it short-term, and it also plays into our forecast that 2014 will not be anything like 2013 (which may result in a volatility shock to investors who have become so confident after such an unusual year as 2013 has been).

Next year is the second year of the Four-Year Presidential Cycle. Since 1934, the average decline within the second year of the cycle has been 21%, more than the 20% threshold of a bear market. But the declines tended to be worse when there was no correction in the first year of the cycle, and when the market, investor sentiment, and valuations had become quite extreme as a result.

That’s the bad news for next year.

The good news is that since at least 1918, there has been a significant rally from the low in the second year of the cycle to the high the following year, a rally in which the Dow gained an average of 50%.

So we believe next year is going to also be an unusual year, but for very different reasons.

Rather than another unusual one-direction year like this year has been, next year should have a very important top, followed by an equally important bottom.

The Fed’s taper decision and the market’s spike-up reaction does not lessen the prospect for such a scenario, but enhances it.

But for now, let’s enjoy the rally.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2013 Copyright Sy Harding- All Rights Reserved

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.

Sy Harding Archive

© 2005-2019 - 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