miércoles, 3 de febrero de 2016

miércoles, febrero 03, 2016
The FED Can’t Save Us Now – QE4

Chris Vermeulen
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Federal Reserve

 With the fall in crude oil prices, the average American’s gas expense is now more affordable. Similarly, the transportation sector should normally benefit from lower crude oil prices. Most of the companies in the transportation sector should post strong results, as crude oil prices are expected to remain low for most of 2016 (according to the EIA).
 
As the stock markets reward clarity in earnings, the participants are known to reward high valuations to such companies. Under normal conditions, prices of such stocks should rise. However, the chart below shows a different story. The Dow Transportation Index, which was regularly making new highs, made a dash to the upside when crude oil started falling (as indicated in the chart).
 
Whenever, we have such “disconnects”, it leads to a larger fall (similar to the one we had in 2008).

During that crash, the Dow Transportations Index followed the drop in crude oil prices. Are we going to see a repeat of 2008? Yes, all signs are pointing in that direction.
 
Chart 1
Dow Transports vs Crude Oil Price
 
Why are we referring back to the 2008?
 
After any crisis, the economy goes through a corrective phase during which time the excesses of the crisis are washed away. This is generally a painful period, but it is the only solution. The excesses before the beginning of “The Great Depression”, took many years to correct. It was followed by a long-term growth throughout the world, which was followed by a very strong bull market.
 
The US had similar excesses in the 2007-2008 period, during “The Great Recession”, but the FED panicked and did not allow the excesses to be washed away.
 
The FED has been wrong all along in its perceived solution of the financial crisis:
 
Many experts have criticized the FED for the 2007- 2008 financial crisis, and rightly so. The crisis was due to the easy monetary policy of the FED and the need to earn quick profits by the large financial institutions in order to support the “lofty valuations”.
 
With all of these resources, at hand, it is surprising how the FED wanted to solve the problem with the very same instruments, which, in fact, caused the crisis. Since 2008, they maintained an “easy monetary policy”. All of the financial institutions have used the “easy money” in order to strengthen their balance sheet and earn returns by pumping money into the stock markets. The famous Albert Einstein once stated “Insanity: doing the same thing over and over again and expecting different results”, is very reflective of the FED actions.
 
The FED has blown the problem into an unmanageable proportion:
 
In 2008, the problem was manageable, with only a few large financial institutions having balance sheets full of bad debts. Rather than solving the problem, the FED has blown it into such large proportions that now it needs insolvency of the nation in order to sort out the “excesses”. Who has been the beneficiary of all of this excess liquidity? The Stock Markets….
 
Chart 2
 
Looking at the chart above, it seems that the FED was working as a personal banker to the stock markets and supporting it each time the markets went down. The market participants brought the SPX down by 5%-7%, causing the FED to “panic” and announce another QE as well as a rate cut. After the recent drop, there are whispers of a likely QE4. by the FED, and reflecting on their history, it does seem like a possibility.
 
This will end with ‘The Great Reset’:
 
If you thought that ‘The Great Recession’ was bad, wait for ‘The Great Reset’. The Chinese stock market is a good example of how QE might work in the short-term, but in the long-term, it is not the solution.
 
The US markets are nearing the same period within the stock market. The QE4 and other announcements by the FED, will not be able to stem the forthcoming slide with in the stock market thought it may provide a temporary lift last a few months, but the downside pressure and weight the market is carriing I think will overpower QE4 eventually. The world will have to go through ‘The Global Reset’ in order to wash away the excesses.
 
Conclusión:
 
If the stock markets are going to tank and the commodity markets are already scraping the bottom (led by crude oil) where does one invest? Over the next five years, the best investment in terms of currency is likely to be ‘Gold and Silver’, which are currently out of favor.
 
Watch My Video About What Is About To Happen Next: www.TheGoldAndOilGuy.com
 
Chris Vermeulen

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