Last week the ECB did it, and now the Fed will start up a
Large Scale Asset Purchase program or LSAP or QE. What was really interesting was the how open
ended the program is. The Fed expressed “grave
concern” over conditions in the employment market and that without this program the U.S.
economic recovery will continue to lag.
I was watching the press conference and someone in the press corp asked,
"by doing this doesn’t it lower the savings rates?" That is true people who are
trying to save its very difficult because of the rates being as low as they
are, but Bernanke made a good point that the positive side effect of this action is
intended to stimulate employment by extending credit at low rates for businesses
and for them to invest and grow their businesses, thus employing people who can obtain income
and then inject that into the economy. Ultimately the Fed sees this as a tool to create the conditions where employment can be extended to those who are out of work.
So let’s take a look at the chart that shows the impact of
the previous quantitative easing. So far the times that the Fed has launched a large scale operation of this magnitude the markets have responded positively. That should tell us that the market in some way shape or form views the intervention as having the ability from moving players on the sidelines into more riskier assets like equities.
The technical picture should be pretty clear by the chart below. The SPX went through a cup and handle and has broken from the base this pattern is usually a highly predictive pattern and suggests that the market should rise over the next 6 months, although the change this time around with QE is the Fed did not indicate when they would stop purchases and left the time frame pretty open until unemployment starts to turn around.
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