The markets have been extremely quiet the last
few days. With the exception of the hard selling that occurred on
Thursday it’s been a snooze fest.
The reason for this is that no one wants to
commit heavily to a position at the moment. We’re all well aware of
the negatives the market is facing, namely declining earnings, a
weakening economy, the decreasingly marginal effect of Fed
intervention, etc.
However, no one wants to commit heavily to
shorting the markets because they’re all too afraid that the Fed or
“someone” will step in to prop up the markets should any
significant drop occur.
This has happened repeatedly in the last year:
every time the market began to crumble and take out support,
“someone” stepped in a started buying. And soon stocks were back
off to the races.
At this point we all know that the “someone”
is the Fed. Numerous Fed officials have pointed to the rising stock
market as a sign that Fed intervention has been “successful.”
Moreover, the Fed has barely left the markets
alone since 2008.
If
you go back to the first announcement of QE 1 in November 2008, there
have only been two periods in which the Fed wasn’t engaging
in direct monetary interventions its balance sheet between the end of
QE 1 and the launch of QE 2 (June 2010-November 2010) and from the
end of QE 2 until the launch of Operation Twist (June 2011-September
2011).
A
total of 60 months have passed since the Fed announced QE 1. The Fed
was not engaged in major monetary interventions in only six months
out of these 60. Put another way, the
Fed has been actively intervening to the tune of billions of dollars
in 90% of ALL months since it began QE 1.
Even during the brief periods in which the Fed
wasn’t officially engaging in a major monetary program, it still
routinely expanded its balance sheet during options expiration week
every month.
If you remove those weeks from the periods in
which the Fed wasn’t officially engaging in a program, you’re
left with a total of just 4.5 months in which the Fed wasn’t
actively pumping the markets.
That’s 4.5 months out of 60, or less than 8%.
However, this is not to say that this Fed
intervention is not creating tremendous opportunities for stock
pickers. After all with the Fed juicing stocks to this degree, there
is no shortage of mis-pricings in high quality companies.
For more market insights and commentary, visit us at:
Best Regards
Graham Summers
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