For weeks I’ve been claiming that QE3 just doesn’t make sense here. And it still doesn’t. With the stock markets riding high and the dollar doing reasonably well, even though economic numbers are weak, it just isn’t that bad right now. I likened QE right now to shooting blanks at decoys. It simply made no sense.
As I watched the markets respond to the announcement, I admit I was a bit flabbergasted. Really? They’re doing this now? Well, yes, they are. But they’re not emptying their clip on this yet.
A couple of days ago the German court ruled that Germany will not breach their laws by pitching in to the European Stability Mechanism. This, of course, buoyed the euro and Eurozone indices. If you’re encouraged by their actions and don’t want water doused on your embers, don’t read the Market Watch article, “What investors need to know about the German court ruling.” You won’t like it.
In what must have been a coordinated effort to boost western economies, the FED followed with their QE3 announcement today. The Washington Post spun it this way:
The Federal Reserve on Thursday opened a major new offensive in the battle to reduce unemployment, launching its most extensive effort to stimulate the economy in the past two years.
Now, I have to admit, that sounds wonderful. But, is that what we’ll really get? This time we get a few interesting promises along with the announcement.
Not only will the FED purchase $85 billion a month in bonds through the rest of 2013, but we can look forward to at least $40 billion a month after that, until the economy recovers. Furthermore, low level interest rates are now guaranteed into 2015.
Continuing to comment as though this would cause the economy to recover, they also promised to continue efforts into the strengthening economy. This whole announcement is basically a promise to continue to increase the money supply in an effort to stimulate the velocity of money, which is expected to trickle down to more jobs and greater economic stability.
Upon the announcement the markets shuddered, shook, and then took off. Stocks across the board climbed, although the beloved AAPL seems to have already had the announcement priced in. Gold and silver surged nicely, which many gold dealers and commentators were calling for.
What’s the conclusion? We’ll offer some more thoughts tomorrow. However, it is interesting to note that this announcement focuses on mortgages. In other words, the FED still has some fuel left to throw on the economic fire. We’re afraid it’ll lead to a burnout. But, for today, there’s a lot of green in portfolios.
For your prosperity,
J. Keith Johnson
The Gold Informant