I have no doubt that the implementation of QE 4 will be introduced into the stock markets. I believe that the FED will commence injecting $50 billion to $100 billion per month into the markets. After seven years, this “short term” emergency measure has now resulted in a permanent fixture of the FEDs’ ‘NEW’ monetary policy.
There is a limit as to what monetary policies are capable of resolving. We must go back in time in order to realize that our problem is a ‘structural’ fiscal policy problem and it is only when we realize this that can we look towards the solutions, at hand. Our current financial problems cannot be resolved by Central Banks. These ‘accommodating’ monetary policies of Global Central Banks were never really necessary. The global legislative governments needed to address these problems as far back as 2008.
“Black Friday” which occurred on June 24th, 2016 was just the beginning. Once again, Global Central Bankers will scurry to lower their interest rates! A recent article talked about how the market is reading all the data wrong.
The present ‘currency wars’ will continue to heat up more and more and consequently money printing will now escalate while the global debt will continue to rise exponentially. This is just the type of ‘crisis’ that will push gold prices even higher while investors seek out the most sought after ‘safe haven’ that has been in existence for well over 5,000 years.
Gold, will once again, as it did in 2008, offer the most security against stock market meltdowns and currency risks which surround us and have now become part of our daily economic fabric. I have been alerting my subscribers, since last year, of the fact that I was anticipating the timeliest entry point into this ‘asset class’.
It has become most obvious to me that Global Central Bankers have lost touch with ‘reality’ as they continue to lower interest rates and turn towards NIRP.
IS THIS THE POINT OF NO RETURN?
The sole reason why the Global Central Bankers implemented ‘negative interest rates’ was to get money out of the banks and place it into the hands of consumers in hopes that they would spend more and therefore help to inflate the economy. If this plan had been successful, consumers would have leveraged these low-interest rates into a positive rate of return. However, this did not occur!
In general, ‘the velocity of money’ begins to increase after a successful ‘economic recovery. However, since 2007, the ‘velocity of money’, within the U.S., has been further ‘decreasing’ which implies that consumers have not been spending their money seeing as the “stimulus” money, which in fact, never reached them.
The basic idea was to have the banks directly provide consumers with money, which would, in turn, encourage and enable them to spend it. However, the money failed to reach the ‘working classes’. The FED created this “wealth effect” which resulted in the “artificial inflation” of stock prices.
The FED infused bank investment portfolios with cash rather than government securities. This cash was invested in the stock market rather than filtering down to “Main Street”.
The “Consumer Distress Index”, Main Street, was a quarterly measure of the financial condition of the average American consumer. This was the first index to provide a comprehensive snapshot of the American consumers’ total financial picture, over time. While the index is no longer updated, recent data can still provide insight into the financial well-being of consumers. The index was based on a 100-point scale, as can be viewed in the chart below:
What you can extrapolate, from the below chart, is that the consumer is ‘financially unstable’ and needs to take immediate action in order to address their ‘financial problems’. As of today, the consumer is in the midst of a “financial crisis” and is in need of direct intervention so as to regain ANY “financial stability”.
The following chart below displays where all of the “Quantitative Easing” money was distributed. The “Quantitative Easing” (QE) money was used to artificially “inflate” stock market prices. The FED was caught up in its’ own wrong doings. Each and every time that the stock market showed signs of weakness, the FED would step in to support prices by announcing the implementation of more QE. As you can see, very clearly, in the below chart, there is a positive correlation between QE and the rise in the SPX!
In short, the recent price action of the US stock market, economic data, and Brexit results clearing indicate tough times ahead. What will the FED do? No doubt they will try to implement some new form of QE which will try to hold the stock market up and funnel through in the hands of the already wealthy. It seems that is all they are good at doing really.
But will the FED be able to save the market this time? I think not because for the first time in 7 years the data is showing similar and in many cases much worse data than we say in 2001 and 2008.
The good news is that we can not only avoid losing money buy actually become the wealthiest we have ever been if/when the next bear market happens and I tell my readers exactly how we will do that. The reality is, it does not matter when the next bear market takes place whether it is 2016- 2018, or beyond, the key is that we know how and when to get positioned for these life changing moves as the market unfolds.
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By Chris Vermeulen