|Dow||-31.44 to 16,974.31|
|S&P 500||-2.75 to 1,982.30|
|Nasdaq||-15.06 to 4,549.23|
|10-YR Yield||+.039 to 2.323%|
|Gold||-$18.80 to $1,210.60|
|Crude Oil||+$0.85 to $82.27|
With my apologies to Don McLean, today was the day the QE died!
Specifically, the Federal Reserve finally put the kibosh on the third incarnation of its money-printing program — slashing it to ZERO from its initial $85 billion a month pace. The Fed still plans to re-invest the principal payments it gets from existing securities, and roll over maturing Treasuries into new government bonds. But for now at least, QE is dead here in the U.S.
What else did the Fed have to say regarding the economy? According to its post-meeting statement:
“Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing.
“Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee’s longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.”
Or if you wanted to sum it up in one word, I’d say “Meh.” Things aren’t great. But we aren’t in crisis-mode anymore, either. So crisis-era policy needs to go away. Sounds like something a certain analyst has been saying for, I don’t know, several quarters now?
|This afternoon, the Fed announced an end to QE.|
The Fed did retain a statement that it plans to keep rates low for “a considerable time,” something Wall Street was watching for. But it qualified the language by saying it really depends on the incoming data. No hawkish Fed members dissented this time. But uber-dove Narayana Kocherlakota of the Minneapolis Fed wanted to promise low rates for longer and push off the end of QE.
Markets are known for trading all over the map in the wake of Fed meetings. We’ll have to see how things settle out in the next couple of days. But the first reaction was for stocks to fall, interest rates (particularly on shorter-term Treasuries) to rise, the dollar to rise, and gold to fall. Why? Because the end of QE represents a further slight tightening in U.S. policy.
Plus, conditions are much worse in several foreign economies — from China to Europe to South America. So even as the U.S. Fed is stepping back from full-bore money printing, others are stepping up.
|“Even as the U.S. Fed is stepping back from full-bore money printing, others are stepping up.”|
Consider: The European Central Bank (ECB) has been doing everything it can to verbally debase its currency this year in a desperate attempt to spur growth. It could launch an even more aggressive wave of Euro-QE before long, too, despite the utter failure of past attempts to spur strong growth in the real economy.
The Bank of New Zealand recently dumped its kiwi currency — the most since 2007 — to weaken it against the greenback. And this week, the Swedish central bank cut its benchmark rate to 0 percent because of economic weakness and deflation fears over there.
So you still have some central banks enamored with QE and 0 percent rates, even as the Fed is indirectly acknowledging the utter futility of its efforts here! Just consider: The Fed has expanded its balance sheet to more than $4.4 TRILLION from around $800 billion pre-crisis. It placed a particular emphasis on buying mortgage backed securities, saying that would boost the housing market.
So why did applications for mortgages to buy homes just fall to their lowest level in basically the last 19 years? Oh and how about the latest homeownership figures that were released by the Census Bureau yesterday? They showed that the homeownership rate in this country sank to 64.4 percent in the third quarter from 64.7 percent a quarter earlier. That’s the lowest since 1995!
In other words, the Fed’s so-called, whiz-bang interest rate and QE policies — directed specifically at housing and mortgage markets — have delivered Jack Squat for Main Street, even as they’ve helped Wall Street immensely!
Now, let’s hear your take. Is the Fed’s exit from QE a good thing because it means the economy can finally stand on its own two feet? Or is it a bad thing because it could tank the stock market?
Do you think QE has done any good for anyone in the real world, or only the bankers at Goldman Sachs (GS, Weiss Ratings: B+)? And what do you think will happen if we turn off the QE taps — but everyone else around the world keeps them wide open?
Jump over to the Money and Markets comment section and throw your hat in the ring. Your fellow investors will appreciate it, trust me!
|Our Readers Speak|
In the wake of yesterday’s column on my “Alibaba” (BABA, Weiss Ratings: Unrated) indicator, some of you weighed in with a positive take on the stock.
Reader Richard said: “My comment is on Alibaba. I think their share price will rival Google’s (GOOG, Weiss Ratings: C+) in less than FOUR years. They are bringing small businesses all over mainland China to the internet. Many of my friends are small business owners and have already increased their profit margins and plan to expand their businesses in January 2015. All this is due to Alibaba.com.
“I know China is challenging the entire world. Alibaba will help China achieve their goals.”
Reader Lord B. added: “On the BABA front, I read one commentator who likened it to buying shares of Wal-Mart Stores (WMT, Weiss Ratings: B) when it was an IPO. How many times has it split since then?
“So I bought a few shares at less than $90. If he is correct, in 10 years I could be sitting on a real nest egg to leave my children.”
But could the wild volatility in Alibaba be signaling trouble for the markets? Reader JRJ said: “A quick, scary stock market drop like what happened a couple weeks ago can happen at any time.
“Longer term, we live in a country where most citizens look to government to solve all problems. That means government has the authority to do anything, to supposedly help the economy. The Fed has your back and will devalue the currency, as necessary, to keep real assets appreciating in fiat terms.”
Finally, Reader Howard admitted to being somewhat perplexed. His comment: “It is a good question to ask right now, with everything that is going on. How do you feel being fully invested, partially invested, not invested or money out of sight from taxing authorities? It’s a hard one to answer.”
Difficult indeed, Howard. We’ve seen a very sharp correction, and a very sharp rally — all in the span of just a couple of weeks. I’ve done my best to share what I think will happen and how to react. If anyone else has thoughts to share, do it here!
|Other Developments of the Day|
Let’s see. The Centers for Medicare and Medicaid Services agency that oversees health care spending may have leaked information to Wall Street traders — which allowed them to profit ahead of everyone else.
And the SEC, which overseas market fairness, apparently has a system whereby important company filings are shared a few seconds early with high-paying hedge funds and other fast investors. That allows them to profit ahead of everyone else.
That’s just great. Nice to see Uncle Sam looking out for the little guy, eh?
Ebola-related quarantines remain a hot topic, and now nurse Kaci Hickox is planning to violate rules laid down by the state of Maine.
Maine wants her to stay home for 21 days since she worked as a nurse to Ebola-infected patients for Doctors Without Borders in Sierra Leone. But she believes neither Maine, nor New Jersey where she was first quarantined, have the right to force her to stay home. Your thoughts?
Facebook (FB, Weiss Ratings: B-) face-planted earlier today after projecting fourth-quarter sales that missed the most optimistic estimates. It also said it would have to spend gobs of money on new hires and other things to support new products.
Just one example of possible overspending: The company recently shelled out $22 billion to buy WhatsApp, a mobile messaging company. The company generated a “whopping” $10.2 million in sales in 2013, and lost $138.5 million doing it. Hmm. Remind anyone else of Pets.com’s business model?
An unmanned rocket exploded late yesterday in Virginia, destroying hundreds of millions of dollars in equipment and supplies destined for the International Space Station. No word on the cause, but the effect was for shares of Orbital Sciences (ORB, Weiss Ratings: B+) to lose more than 14 percent at one point.
The company uses refurbished Soviet Union-era engines to power its rockets as part of a $1.9 billion contract to shuttle supplies to the station.
Until next time,
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