QE3

Is it time for QE3 already?  With a few more weeks of QE2 left things are not looking good for the equity markets.  The S&P 500 is down almost 8% from its peak and this has happened in just over 5 weeks.  The market is now pinned on the 200 day moving average, a very important level of support for all of you technical analysts, and the dollar index has turned around and looks like it is ready to continue its strength unless the dollar killer, Mr. Bernanke, steps in again and prints more money.

A stronger dollar is starting to improve things for the consumer.  Oil prices have plunged as you can see by the chart at the following link http://www.danielstrading.com/resources/quotes-and-charts/quotes.php?page=chart&sym=CLN11 and this is providing much needed relief at the pump. The ten year note continues its parabolic rise as the stock market craters and this will keep interest rates low for purchasers of housing http://www.danielstrading.com/resources/quotes-and-charts/quotes.php?page=chart&sym=ZNU11. Furthermore wheat and other grain prices are starting to fall which should start to alleviate further stress on the consumer at the grocery store http://www.danielstrading.com/resources/quotes-and-charts/quotes.php?page=chart&sym=ZWN11.

So why would Mr. Bernanke and his motley crew print more money when the effects of an end to QE2 are so evident?  The main reason is that the stock market will collapse without its juice and this is the only success that the Federal Reserve has had after over $2 trillion of money printing.  Our intrepid leader has stated that he will continue to print money until there are signs of an improvement and I for one believe that he will do just that.  Make the bankers and their friends wealthy while destroying the credibility of the country.  More printing will lead to another round of dollar weakness, more strength to the price of oil and grains and more pain for the consumer.

Recently Wal Mart stores reported weak numbers while Tiffanys reported excellent numbers.  The divide between the haves and have not's is widening.  Most people in the United States are not affected by movements in the stock market.  What really affects them is the price of staple consumption items and housing.  Printing more money is not helping either of these markets and is in fact hurting the consumer further.  In the meantime the investment bankers and traders are getting fat on the profits from the gains in the stock markets.

The other issue is that while Mr. Bernanke can continue to print money at will for now at some point the excess cash will cause further problems.  In the beginning you have bubbles and these burst.  Normal market operations can clear out the weak and overpriced investments and clean the slate for a recovery.  The money is then allocated to more sound investment ideas and the market once again flourishes on a more solid footing.  This has not been allowed to happen in either of the previous two bubbles.  In fact at the end of each bubble the Federal Reserve printed even more money than previously to "save" the economy.  Essentially they saved themselves and their cohorts and have pushed the economy to the brink of collapse.

Continued money printing will eventually end in ruin.  Hyperinflation is one outcome, loss of credibility in the financial strength of the United States is another and there are many more, but the point is that these outcomes will hurt far more people in far worse ways than letting the market take a hit and then recover on its own.  Enough money has been printed with little result other than making stock market bulls richer.  The general economy has not recovered and more printing will not improve it, but it will lead to a poor result.

So will the Federal Reserve print more money?  I believe that they will and they will embark on a new strategy in the very near future.  This may support the market once more but I believe that once again this support will prove fleeting and will result in a horrendous ending.  Even if QE3 is announced and the market rallies once more, I would be very careful not to get sucked in as one day when everyone rushes for the exits and the next Black Swan day arrives, you will lose far more than by leaving some gains on the table.

Keep your powder dry and look to invest your cash in a safe, secure and liquid investment by visiting http://www.fixedratedeposits.com/.