QE4 Is Coming...

Technical Analyst, Trader, & Founder of Technical Traders Ltd
February 18, 2017

market analysis

The Congressional Budget Office (CBO) keeps two sets of books.  There is the official book which is presented to the public and the other book, the one on debt which is never released. Included in the debt book, are Social Security, Medicare and Medicaid. Washington D.C. politicians prefer it this way as it conceals their real costs. The general public is only concerned about the “official debts”, however, they should be concerned about our total debt structure.  The official indebtedness is $211 trillion.  Today, the U.S. is financially broke.   

The Fed is no longer attempting to raise short-term interest rates. It is simultaneously maintaining its bloated balance sheet!  It is attempting to perform a magic trick whereby it can keep all of the benefits of its earlier rounds of monetary expansion (i.e.: quantitative easing or QE) while increasing the next round of (http://www.investopedia.com/terms/q/quantitative-easing.asp)  “artificial stimulus” of ultra-low interest rates to negative interest rates.

The Fed will continue to contain this crisis with the same tools as well as new tools which are now available to them but were not implemented in 2007. Chairwoman Yellen's recent testimony to Congress says it best: "Fed on course to raise interest rates at an upcoming meeting." 

What this means is that the Federal Reserve will just continue to play the same old game. Any interest rate hike will surely bring the stock market substantial pain!

S&P 500 and quantitative easing chart

Why The Stock Market Is Going Higher, According to Goldman

The bull market in stocks is here to stay. Goldman Sachs released a research report with four reasons why stocks are poised to go higher.

“The reasons reduce to some simple observations. First, the economy is getting better, meaning that good economic news will buy stocks; second, stocks will continue to outperform bonds, which means stocks will attract a good flow of investment cash; third, companies will raise dividends, making stocks more attractive for those interested in an income stream; fourth, interest rates may remain low, benefiting stocks”.

A recent positive reading of the Citigroup Economic Surprise Index suggests that economic releases have on balance been beating consensus. The general economic data has been more constructive than economists'. speciation’s. Citigroup Economic Surprise Index just passed 50 for the first time since 2013. When economic reports have come in so consistently better than expected, stocks have already reacted. It has been best to expect some caution, which is where we are today. The improvement in economic conditions would typically suggest higher inflation.

The trend is up, but there could be volatility around the previous highs.

Helicopter Money: Are Central Banks Edging Closer To Dropping Cash From The sky?

Central Bankers are looking at radical measures to stimulate economic growth. Economists argue that Central Banks are running out of runway to lift fragile economies after the 2007 crisis.  Even with the unconventional means that they have adopted, so far, they have not worked out as planned. President Trump is proposing a $1 trillion infusion to upgrade American infrastructure, a new wall to be built along the Mexican border, more military spending, and a series of sweeping new tax cuts — all of which, while pledging to keep large entitlement programs intact.

Economists are now discussing more radical measures, such as ‘helicopter money’ (https://en.wikipedia.org/wiki/Helicopter_money). This is a term adopted by the economist Milton Friedman, in 1969, to describe the idea of a Central Bank printing money and dropping it on to its’ citizens to kick-start the economy. Global Central Bankers continue to spend their way out of contracting stagnant economies resulting in large budget deficits. The deficits that these policies have produced are “unsustainable” and have led to countries facing fiscal crises. A second response has been to expand the Central Bank’s balance sheet as a way of providing liquidity to the private sector.  Implementation of these monetary policies can temporarily assist the economy by reducing the impact of economic and financial crises, however, it is more difficult for them to create real growth ( (https://www.bloomberg.com/news/articles/2017-02-16/ecb-widely-agreed-less-stimulus-could-risk-inflation-progress?cmpid=yhoo.headline&yptr=yahoo). Fiscal policy can redistribute income to avoid large drops in aggregate demand.

Goldman Sachs Research said this policy "aims to boost nominal gross domestic product by increasing overall spending on goods and services".

Advocates of this measure say this is a highly effective way of putting "free" money into the hands of ordinary people who will be inclined to spend it rather than pay off their debts. Cash could be transferred to people in the form of a government tax break or even as simply as sending them a check.

The "helicopter money" (http://www.telegraph.co.uk/business/2016/05/28/donald-trumps-wild-idea-about-dealing-with-debt-may-be-here-soon/)           policy raises questions about the failure of Central Banks to create aggregate demand. The government and the central bank must work closely together.

The answer is that money printing is not inflationary — it must be combined with velocity, (the turnover, of money), to produce inflation.

Helicopter money cuts out the middleman.  Adair Turner,(https://en.wikipedia.org/wiki/Adair_Turner,_Baron_Turner_of_Ecchinswell), wrote:

 “The technical case for monetary finance is indisputable. It is the one policy that will always stimulate nominal demand, even when other policies — such as debt-financed fiscal deficits or negative interest rates — are ineffective… A small amount will produce a potentially useful stimulus to either output or the price level”.

Why We Need To Start Buying Gold: Is The Next Gold And Silver 'Stealth Bull Market' Underway?

Start buying gold and silver, especially since prices have experienced a pull back. Buy the dips.

Gold is widely accepted as a global store of wealth. It makes a wider economic and social contribution that any other asset class.  “As gold has no credit risk, it is one of the safest assets a nation can hold. It is also one of the most liquid assets available so it plays an incredibly useful part in a central bank portfolio.”  In the current environment of swelled central bank balance sheets and competitive currency devaluations, we regard gold as a useful addition to portfolios.”

Federal Reserve Chairwoman Janet Yellen’s term ends in 2018. Expect more uncertainty.  Federal debt is now $20 trillion. It grew over $100 billion in the last month! No sign of it slowing down.                                                                                                           Today’s total debt as percent of GDP is 105%. This percentage will continue to get worse before getting better.  Politicians did not become wiser, after the election. They will most likely misappropriate your tax dollars the same as they always have. This past October, the federal government collected a record breaking $221,692,000,000 in taxes, but still ran a deficit of $44,192,000,000. “Gold draws broad-based safe-haven demand in the event of systematic risk such as the great recession, and the elections across Europe this year have scope to shock markets again.”

The Art Of The Game!

Trading is a game. The greatest game in the world if you know how to play it and beat it. My winning strategy is trading and focusing on my Momentum Reversal Method (MRM) and trading just the hot stocks, sectors and commodities for quick oversized gains is my expertise.

Therefore, these momentum trades are moving significantly in one direction on heavy volume. The length of time for which I may hold a momentum trade depends on how quickly the trade is moving with trades lasting 3-25 days in length and we look for a 7%- 35% potential gain. Our last trades generated us 112% return in 25 days, and 7.7% in 24 hours.

So, if you are looking for a simplified and highly accurate pulse on the markets, along with timely swing trades, I urge you to join my newsletter at www.ActiveTradingPartners.com.  Now, you can take advantage of quick explosive price movements in the market each week like clock-work. These wave-like patterns are too small for hedge funds to take advantage of and are too lengthy for day traders. This provides us with high probability trading opportunities that we do take full advantage of.

Chris Vermeulen has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and is the author of the book: 7 Steps to Win With Logic

Through years of research, trading and helping individual traders around the world. He learned that many traders have great trading ideas, but they lack one thing, they struggle to execute trades in a systematic way for consistent results. Chris helps educate traders with a three-hour video course that can change your trading results for the better.

His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility.

He is a regular speaker on HoweStreet.com, and the FinancialSurvivorNetwork radio shows. Chris was also featured on the cover of AmalgaTrader Magazine, and contributes articles to several financial hubs like MoneyShow.com.

 


Small amounts of natural gold were found in Spanish caves used by the Paleolithic Man about 40,000 B.C.
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