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Frequent Contributor

How will the market will react minus the lifesaving QE drugs

Concerns that the World's #1 economy (U.S.) is going to throttle back "quantitative easing," and that the World's #2 economy (China) is experiencing extreme "liquidity" problems has had investors scrambling for shelter yesterday (slight bounce higher this morning). With many investors now thinking QE3 will be in history books by March of 2014, the trade is becomingly deeply concerned about how the market will react minus the lifesaving QE drugs.

 

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On top of this, recent spikes in the Chinese funding rates are also causing some fear. Supposedly the Chinese government is trying to dry up liquidity by refusing to inject "cash" into the system. All in order to stop some of the black market lending or shadow banking that has been on the rise. From what I have heard, because of this, short-term lending rates have jumped to above 10%, at one point they were rumored to have touched on 25%, and are triple what they were two weeks ago. The problem is by doing this the Chinese government might actually end up doing more damage than good to their already stumbling economy.


Bottom-line, some of the bigger traders are now more nervous about how we are going to proceed. Personally I think this will end up being just another blip on the radar screen as we transition into a new "phase" of dynamics. But we have to remember, markets do NOT like "change," in fact change cause "fear," and fear causes "liquidation." As for US stocks, taking small bites on the breaks seem prudent for long-term players. However, commodities remain a different story. I am afraid "money-flow" is continuing to look for more ways to get out of the building, rather than ways to get back in the building.


US Stock market fell yesterday by over 2.3%, making it the biggest down day of the year and the biggest percentage drop for the Dow since Nov. 7, 2012, the day after President Obama was reelected. Just since the end of Fed Chairman Ben Bernanke's comments on Wednesday afternoon the Dow sell-off alone has wiped out more than $120 billion of investors' capital. Do you realize in the past two days, the Dow and the S&P 500 have lost all of their gains for May and June combined...? Ouch!


I personally don't think this means the US stock run-up is over. The S&P 500 is still up over 11% for the year and 135% since the recession lows set back in March of 2009. But it may suggest the start of a new "phase" in which the fortunes of the stock market are tied more closely to the fundamentals of the economy.


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5 Replies
Honored Advisor

Re: How will the market will react minus the lifesaving QE drugs

Ben just wants to have the love we all feel for him reaffirmed.   If we need another fix, he`ll give it to us.  Bottomline, no adminstration wants to preside over a depression.

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Senior Advisor

Re: How will the market will react minus the lifesaving QE drugs

I wouldn't think you would want it either.

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Honored Advisor

Re: How will the market will react minus the lifesaving QE drugs

As far as the economy goes Bernanke is doing the best job that he can, given the tools in his toolbox.  A depression would be a horrible thing in this day and age 70% of people are on prescription drugs, 50 million on flat out public assistance.  My uncle said years ago and it`s even more true today "a depression would be worse than the 30`s because then 30% were living on farms, gardened, butched, lived without electricity, canned".  Even a toughie like me starts going a little nuts if the power is off more than a day, imagine these softies stacked up in the cities if the pharmacies run out of their pyschotropic drugs in the middle of a blackout?   I wouldn`t want to see it.

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Honored Advisor

Re: How will the market will react minus the lifesaving QE drugs

BA, 

I was reveiwing the "last hard time" book a couple of weeks ago and you are so right.  

The administration at the time tried everything they could think of -------- many of those work programs we benefit from today in parks and roads.  But at the time, nothing worked.  It is a different time but a depression is a hole you don't crawl out of for a while.  And as before, a generation is lost to ruin or "depression".

 

My dad's family lived along hiway 50 and cars stopped often for food of any kind.  But there were lots of farm families with something to share(chickens, eggs, beans, bread).  Today ????????

 

Bernanke has got to convince us to work our way out of this instead of borrowing at some point -----or it will be start over time I am afraid.

 

The stock market last week gave us a reality check as to how much our economic numbers are being carried by the stimulus.

 

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Senior Contributor

Re: How will the market will react minus the lifesaving QE drugs

how does teh FED keep the mkt up?

corp profits for most are all time highs.

 

most corps are doing very well.

 

no one notices.. 

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