The Stock Market React To The End Of Quantitative
By Michael Snyder
October 28, 2014 "ICH"
It is widely expected that the Federal Reserve is
going to announce the end of quantitative easing
this week. Will this represent a major turning
point for the stock market? As you will see below,
since 2008 stocks have risen dramatically throughout
every stage of quantitative easing. But when the
various phases of quantitative easing have ended,
stocks have always responded by declining
substantially. The only thing that caused stocks to
eventually start rising again was a new round of
quantitative easing. So what will happen this
time? That is a very good question. What we do
know is that the the performance of the stock market
has become completely divorced
from economic reality, and in recent weeks there
have been signs of market turmoil that we have not
in years. Could the end of quantitative easing
be the thing that finally pushes the financial
markets over the edge?
After all this
time, many Americans still don’t understand what
quantitative easing actually is. Since the end of
2008, the Federal Reserve has injected approximately
3.5 trillion dollars into the financial system. Of
course the Federal Reserve didn’t actually have 3.5
trillion dollars. The Fed created all of this money
out of thin air and used it to buy government bonds
and mortgage-backed securities.
sounds like “cheating” to you, that is because it is
cheating. If you or I tried to print money, we
would be put in prison. When the Federal Reserve
does it, it is called “economic stimulus”.
overall economy has not been helped much at all. If
you doubt this, just look at
what all of this “easy money” has done is fuel the
greatest stock market bubble in history.
As you can
see from the chart below, every round of
quantitative easing has driven the S&P 500 much
higher. And when each round of quantitative easing
has finally ended, stocks have
course the chart above tells only part of the
story. Since April 2013, the S&P 500 has gone much
from another planet looked at that chart, they would
be tempted to think that the U.S. economy must be
expanding like crazy.
course that is not happening.
binge has been solely fueled by reckless money
printing by the Federal Reserve. It is not backed
up by economic fundamentals in any way, shape or
that quantitative easing is ending, many are
wondering if the party is over.
example, just check out what CNN is
saying about the matter…
this bull market, all good things must come to
Federal Reserve is expected to close a chapter
in history this week and announce the conclusion
of its massive stimulus program. Known
as quantitative easing, the program is widely
credited with driving investors back into stocks
in the aftermath of the financial crisis.
think to some extent quantitative easing has
provided an assurance to investors that (has)
kept them optimistic,” said Bruce McCain, Chief
Investment Strategist of Key Private Bank in
Cleveland, Ohio. “Now we’re going to
have to see whether investors can ride without
knows that quantitative easing was a massive gift to
those that own stocks.
So how will
the stock market respond now that the monetary
heroin is ending?
deflationary pressures are already starting to take
hold around the rest of the globe. The following is
an excerpt from a recent Reuters
months of focus on slack in U.S. labor markets,
the Federal Reserve faces a new challenge: the
possibility that weak inflation may be so firmly
entrenched it upends the return to normal
soft global inflation backdrop, from sliding oil
prices to stagnant wages in advanced economies,
has triggered debate over whether the Fed and
its peers merely need to wait for a slow-motion
business cycle to improve, or face a shift in
the underlying nature of inflation after the
uncertainty has become the Fed’s chief concern
in recent weeks, likely to shape upcoming policy
statements and delay even further the moment
when interest rates, pinned near zero for nearly
six years, will start rising again.
Federal Reserve and other global central banks were
not printing money like mad, the global economy
would have almost certainly entered a deflationary
depression by now.
But all the
Federal Reserve and other global central banks have
done is put off the inevitable and make our
long-term problems even worse.
fixing the fundamental problems that caused the
great financial crash of 2008, the central bankers
decided to try to paper over our problems instead.
They flooded the global financial system with easy
money, but today our financial system is shakier
In fact, we
just learned that 10 percent of the biggest banks in
failed their stress tests and must raise more
European Central Bank says 13 of Europe’s 130
biggest banks have flunked an in-depth review of
their finances and must increase their capital
buffers against losses by 10 billion euros
said 25 banks in all were found to need stronger
buffers — but that 12 have already made up their
shortfall during the months in which the ECB was
carrying out its review. The remaining 13 now
have two weeks to tell the ECB how they plan to
increase their capital buffers.
do not realize how vulnerable our financial system
truly is. It is essentially a pyramid of debt and
credit that could fall apart at any time.
the “too big to fail” banks account for 42
percent of all loans and 67
percent of all banking assets in the United
those banks, we essentially do not have an economy.
of being careful, those banks have taken
recklessness to unprecedented heights.
moment, five of the “too big to fail” banks each
than 40 trillion dollars of exposure to derivatives.
Americans don’t even understand what derivatives
are, but when the next great financial crisis
strikes we are going to be hearing a whole lot about
banks have transformed Wall Street into the biggest
casino in the history of the planet, and there is no
way that this is going to end well.
collapse is coming.
It is just
a matter of time.