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
INVESTING IN HIGH RISK TECH STOCKS - ALL OR NOTHING - 16th May 21
Is Stock Market Selling Madness About Over? - 16th May 21
Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
Budgies Birds of Paradise Indoor Grape Vine Singing, Chirping and Flying Parakeets Fun 3D VR180 UK - 16th May 21
Wall Street Roiled by Hot Inflation Data: Is This REALLY “Transitory”? - 16th May 21
Inflation Going Stag - 16th May 21
CHIA Coins After 1st Week of Plotting 140 Plot 14tb Farm. Crunching the Numbers How to Win - 15th May 21
Tips to Create the Best Cross-Functional Teams - 15th May 21
Gold: Lose a Battle to Win the War - 14th May 21
Are You Invested in America’s “Two-Hour Boom” Fast Shipping Stocks? - 14th May 21
Gold to Benefit from Mounting US Debt Pile - 14th May 21
6 Solid Signs You Should Have Your Smart Device Repaired Right Away - 14th May 21
Ways to Finance Your Business Growth - 14th May 21
Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
How Much CHIA Coins Profit from 100 Plot 10tb Farm? Hard Drive Space Mining - 13th May 21
Stock Market Bulls Getting Caught in the Whirlwind - 13th May 21
Legoland Windsor Mini land and Sky Train Virtual Tour in VR 360 - UK London Holidays 2021 - 13th May 21
Peak Growth and Inflation - 13th May 21
Where’s The Fed? Watch Precious Metals For Signs Of Inflation Panic - 13th May 21
Coronavius Covid-19 in Italy in August 2019! - 13th May 21
India Covid Apocalypse Heralds Catastrophe for Pakistan and Bangladesh - 13th May 21
TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
Gold Price During Hyperinflation - 12th May 21
Stock Market Extending Phase Two? - 12th May 21
Crypto 101 for new traders – ETH or BTC? - 12th May 21
Stock Market Enters Early Summer Correction Trend Forecast Time Window - 11th May 21
GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
Cathy Wood Bubble Bursts as ARK Funds CRASH! Enter into a Severe Bear Market - 11th May 21
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Reflation Trade Is Overdone, No Pickup in Inflation

Economics / Inflation Oct 16, 2010 - 05:23 AM GMT

By: Bryan_Rich

Economics

Best Financial Markets Analysis ArticleIn recent weeks, the dollar has been the centerpiece of speculation surrounding the outlook for global economies, rising protectionist threats and the resurgence of global asset prices. And it all derives from Fed policy.

Bernanke’s speech yesterday and the latest statement by the FOMC clearly confirm that the Fed is DEFINITELY prepared to roll out another wave of its “quantitative easing” program — expanding the money supply with the hope of stimulating demand … igniting inflationary pressures … and ultimately creating incentives for employers to hire and invest, and for consumers to borrow and spend.


This perceived guarantee of more QE has served as a market catalyst for another “reflation trade,” similar to that which was widely embraced in 2009. As a result we’ve seen a sharp rise in global stocks, commodities and currencies … and a sharp fall in global interest rates and the U.S. dollar.

The big questions: Is it warranted? And … will it last?

Fear spread during QE1 that the U.S. would become the next Zimbabwe.
Fear spread during QE1 that the U.S. would become the next Zimbabwe.

For that answer let’s take a look back at 2009. When the Fed announced its first QE program last March, that marked a bottom for stock markets, a top in the dollar and gave way to a nine-month rally in risk assets of record proportions.

The widespread sentiment then was that the Fed’s policies had given everyone the green light to jump on-board a tide of asset prices that was on an indisputable path higher — a no-brainer trade. The experts were dead certain on imminent destruction of the dollar and hyperinflation … the biggest economy in the world, turning into Zimbabwe.

The Fed ultimately expanded the assets on its balance sheet from $800 billion to $2.2 trillion.

Meanwhile, when it was all said and done, the net result for the dollar was nil. As quickly as it declined for much of 2009, it recovered nearly all of those losses into the first of 2010.

As far as the economic impact of QE1? Futile.

If we look at the cornerstones of economic activity in the U.S., consumption and investment, it turns out all of that “money printing” did little toward achieving the desired result.

Despite more than $1.7 trillion pumped into the financial system, consumption has NOT recovered. And investment in the U.S. is still down in the neighborhood of 15-20% from its peak levels.

As for unemployment, the other part of the Fed’s mandate, it still hovers a fraction shy of 10% based on narrow and distorted official measures, but as much as double that if you measure unemployment more comprehensively.

So what about inflation? Of course, all of this money printing had to create mass inflation, right?

If consumers don't shop, prices won't rise.
If consumers don’t shop, prices won’t rise.

Well, without the appetite to spend, borrow or invest, there is no pickup in inflation.

In fact, inflation has actually fallen in the period since the Fed rolled out its first round of quantitative easing. The year-on-year core inflation rate was running 1.9% when the Fed rolled out QE1. Now it’s less than 1%. Even if you dispute the measure, you cannot dispute that the measure has fallen almost in half.

Of course, that’s why, out of desperation, they’re trying it again. Had the first round achieved the desired effect, we would have no discussions about a QE2.

Yes, market participants are still holding onto the hope that, this time, the Fed can reflate and take them along for the ride. But history gives us no reason to believe this time will have a different result in producing the desired effect for the Fed.

For these reasons and others I’ve laid out here in Money and Markets in recent weeks, it’s fair to expect this “reflation trade” to end abruptly, as it did last year, and for the focus to turn back to the real risks to global economies, unsustainable sovereign debt, broken economic models and a long road of deleveraging and rebuilding.

Regards,

Bryan

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 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