Are markets selling off in anticipation of more QE?
We鈥檙e finally getting some action on Wall Street! The Dow has lost more than 200 points in the last two days. Gold is down more than $50. And oil closed below $100 yesterday.
Could this be the sell-off we鈥檝e been waiting for? Maybe.
Why do we expect a sell-off? Because we鈥檙e still in a . And in a correction, prices tend to go down. Deflation is the underlying trend鈥ot inflation. Debt gets marked down鈥efaulted on鈥nd written off.
By our reckoning, the beginning of the correction actually began more than 10 years ago when the NASDAQ cracked wide open in January 2000. Since then, the US economy and stock markets have gone nowhere, in real terms.
Who noticed? The feds poured on so much liquidity 鈥� beginning in 鈥�02鈥ith a huge flood in 鈥�08-鈥�09 鈥� everything was swamped. Trash floated.
But households drowned鈥hey were shackled to sinking incomes, while the cost of living rose with the tide.
And their costs are still rising. On the radio last night we heard about how hard $4 gasoline has hit America鈥檚 lower and middle classes. These people live on tight budgets. If their fuel costs go up $20 a week鈥hey feel it.
LONDON 鈥� Consumer prices in developed economies rose in March at the fastest pace since October 2008, driven by energy and food inflation.
A couple of reports in The Financial Times have focused on how they cope. One tells us that they aren鈥檛 driving to malls the way they used to.
鈥淥nline shopping jumps in US as cost of fuel curbs trips to malls,鈥� says the headline.
No report from the malls yet鈥ut online sales are said to rising at a 7% rate.
Meanwhile, 鈥淎mericans ditch TV is move to save money,鈥� says another headline.
鈥淟ower and middle classes are giving up their televisions and unplugging their landline telephones鈥︹�� it begins.
Hey, there鈥檚 some good news. The TV has probably done far more damage than drugs and alcohol. And certainly a lot more damage than terrorism. Yet, the feds spent $2 trillion fighting terrorism (according to anotherFT report). How much did they spend fighting TV?
But let鈥檚 think more about what happens to investors.
If we鈥檙e in a Great Correction鈥�
鈥nd if liquidity from the feds is the only thing that keeps the correction from dragging prices down鈥�
鈥hen, you鈥檇 expect prices to go down whenever the feds ease up, right?
Well, get ready. When the feds stop pouring on liquidity, the correction reasserts itself. That鈥檚 what happened last summer. QE1 ran dry. Stocks fell throughout the summer鈥eading Ben Bernanke to announce in August.
What鈥檚 happening now? Is the market anticipating another QE end? Are prices headed down until another QE is announced?
We鈥檒l find out鈥�
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