Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Bernanke Makes a Pact with the Devil

Stock-Markets / Quantitative Easing Oct 31, 2010 - 01:28 PM GMT

By: Uncommon_Wisdom

Stock-Markets

Best Financial Markets Analysis ArticleMonty Agarwal writes: When Fed President Hoenig declared last week that Bernanke is making “a pact with the devil,” he wasn’t kidding.

Nor was he talking about a little side deal that would someday be forgiven in money heaven.


Rather, he was referring to an unprecedented decision by Bernanke and Company — coming THIS week — that could change the course of history: A new round of Fed money printing with immediate impacts on markets and unforeseeable consequences for the dollar.

Meanwhile, just 48 hours from now, we will also be smack in the middle of another major event — the most important midterm election of our lifetime.

Each of these events represents potentially revolutionary changes for our country, our economy and YOUR money.

Each is going happen THIS week!

Look. Five weeks ago, when we first presented the findings of our internal Weiss poll, we already had a pretty good feel for these revolutionary changes on the way.

Then, three weeks ago, when we shared with you the results of our national Weiss-Zogby poll, we had an even clearer vision.

And now, as the hours tick by, and the events are nearly upon us, it’s time to bring you up to date …

Revolutionary Change #1 Shift to Fiscal Conservatism

We’ve known that, regardless of which party gained control of the House or the Senate, there would be a major shift toward fiscal conservatism in Congress, making it almost impossible for Washington to pass major new spending or stimulus legislation.

Our polls showed us that, in a hypothetical three-way race, a maverick, anti-spending outsider would beat both a Republican and Democratic opponents hands down.

Moreover, voters were opposed to bank bailouts by an overwhelming margin of 12 to one.

And now, within about 48 hours, those voters are going to make themselves heard!

Likely impact: As we have stressed repeatedly, this shift to conservatism is fundamentally NEGATIVE for the U.S. economy and the U.S. stock market. Both have relied heavily on government stimulus for support.

But it could be also be temporarily negative for gold, foreign currencies, commodities and other alternative investments that have been so popular lately.

Revolutionary Change #2 MORE Mass Money Printing

This revolution started months ago. And now it’s about to resume!

Indeed, we have strongly suspected all along that the Federal Open Market Committee (FOMC) was getting ready to announce a second major new round of mass money printing, or “quantitative easing” (QE2).

The problem:

Yes, the Fed CAN print the money and inject it into the system. But it CANNOT control where that money goes. So if lenders and investors have concerns about the U.S. or see more promising opportunities elsewhere, most of that money is diverted to other, alternative markets.

This is why it’s a pact with the devil. And this is why it’s bound to backfire.

Likely impact: QE2 is fundamentally neutral — or, at best, only mildly and temporarily positive — for the U.S. economy. But it is strongly POSITIVE for a wide range of alternative investments, including precious metals, key foreign currencies and certain commodities.

Key Short-Term Factors That Are Now More Evident Than Just Days Ago

As we stand at the precipice of the week in which these revolutionary changes are going to strike, several short-term factors have also come into clearer focus:

First, regarding the election, the market is now more vividly aware of the likely shift toward fiscal conservatism that we first alerted you to weeks ago. More national polls have been released. These polls have added more weight and confidence to the results of our own polls. And based on all the new poll data, analysts from all three sides — Democrat, Republican and Tea Party — are now in agreement that …

(a) The House will almost definitely be controlled by Republicans.

(b) The Republican side of the aisle will almost definitely include a strong and vocal Tea Party caucus. And …

(c) Even if Democrats retain a slim majority in the Senate, they will most probably heed the will of the majority of their constituents and oppose major spending or stimulus legislation.

In short, the market now knows what we knew weeks ago!

Second, regarding the Fed decision, the market has also zeroed in more closely on the range of likely possibilities, as follows:

(a) Based on the Fed’s own pronouncements, it’s now widely expected that the FOMC WILL announce QE2 on November 3rd. If there is no QE2 announcement, a lot of people are going to be VERY surprised.

(b) The likely QUANTITY is still being hotly debated, but my surveys and research tell me the market is expecting somewhere between $50 and $100 billion in Fed bond purchases per month.

Likely impact: The low end of the range could be a disappointment; the high end will be greeted as a pleasant surprise.

(c) More important than the quantity, however, could be the specificity of the announcement. In other words, will the FOMC specify ahead of time the total amount of QE2? Or will it be vague and keep the market guessing as to how long the money printing will continue?

Likely impact: A vague announcement will be a disappointment. A more specific pre-announcement will be greeted positively.

That’s the market’s perception of the near-term outlook. Now let me give you mine:

It’s the bulls who have been in the catbird seat in recent weeks. It’s the bulls who’ve been riding this wave and leveraging the expectations for QE2.

So right now, the burden is on THEM to get confirmation regarding their expectations for QE2. To stay on track, the bulls now NEED the Fed to pre-announce a very substantial QE2. If they get what they need, gold, currencies and commodities should be off to the races again. But if the number is on the low end, or if the Fed’s announcement is vague, we could see intermediate corrections in many of these markets.

Bottom line: The long-term fundamental outlook is very clear to us. The short-term outlook is potentially tricky and volatile, and, accordingly, I want to ensure that you have the facts you need to protect yourself and profit.

Regards,

Monty Agarwal

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


© 2005-2022 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