The Fed Has Juiced The System In 55.5 Of The Last 60 Months
Phoenix Capital Research | Nov 12, 2013 02:21AM ET
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.
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