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By Kathy Lien, Managing Director of FX Strategy for BK Asset Management
Ask any expert on the economy and the foreign exchange market and they will tell you that Quantitative Easing is bearish for the U.S. dollar because the Fed prints money to fund their bond purchases. However, aside from the dollar's decline the day of the FOMC announcement, we haven't seen much weakness in greenback. In fact, over the past 48 hours, the dollar rebounded against all of the major currencies (the GBP being the exception), which interestingly enough is exactly how it traded after QE1 and QE2.
Regards,
Kathy Lien
Managing Director
BK Asset Management
295 Greenwich Street, Suite 281
New York, NY 10007
Direct Line: 1-917-538-6971
Fax: 1-925-887-4373
http://www.businessweek.com/ap/2012-09-17/oil-holds-around-99-gasoline-at-avg-dot-3-dot-86
So the Federal Reserve announces unlimited quantitative easing. The market shoots up after it is revealed. The next day we push higher, only to reverse most of the gains. Then today, the markets are slightly lower. Where is the massive catalyst? The Federal Reserve is going to print another trillion Dollars and that was all we got in terms of an inflationary rally?
I am being somewhat sarcastic here. Obviously, the market had already factored the easing into the markets and Wall Street now knows the Federal Reserve has no bullets left to fire at this market.
The markets seem tired and unrest is circling the globe. The Mid East is a mess while China and Europe are in deep recessions. While the U.S. is not in a recession, we are not growing much. With all these positives, maybe the market can go up another 50%.
Bottom line is this: A market that has moved consistantly higher on printing of money is a market I would be very careful with. Ultimately, a crash will occur, probably not until next year though.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
Month after month and week after week, the market has popped one expectations that the Federal Reserve will do another round of Quantitative Easing. It seems as though every time the markets were on the verge of a collapse, a rumor surfaced that QE3 would be announced. Yesterday, it was...
The markets soared dramatically higher, making new 5 year highs on most of the indexes. Not only did the Federal Reserve announce QE3, but they said it would be unlimited until the economy was creating enough jobs and growth had come back dramatically. This twist on QE3 essentially shot the markets into the stratosphere for the day. The markets are slightly higher again today with the SPDR S&P 500 ETF (NYSEARCA:SPY) trading at $147.53, +0.83 (0.57%).
While the announcement took every last bear and turned them into a bull, from analysts to economist, even down to the little investor, I caution you with this small note.
The markets have rallied for the last few years because they always expected and anticipated another round of QE. Even over the last three months, every attempt at a market breakdown was negated because a rumor emerged of the next round of QE. However, now that the Federal Reserve has stated QE is unlimited, they have used their last bullet. If it is unlimited and the market expects that, there is nothing to drive the markets higher. This may have been a major tactical error on the part of the Federal Reserve.
With no possibility to have another round of QE announced (because it is unlimited now), what will be the driving force behind a continued rally in the market?
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Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
