Tuesday, September 18, 2012


Yet another Quantitative Easing program out of the Fed. I'm not really even sure what to make of it.

On one hand, I think the US economy is doing remarkably well compared to other countries and regions. Housing is finally bottoming. Inventories have been worked down to very lean levels, prices have begun to stabilize, and home-builders are reporting solid growth of new orders for the first time since 2006.

On the other hand, jobs remain weak and below rates seen in typical recoveries. There still remains a record number of Americans who are either unemployed, or underemployed.

Bernanke and crew definitely seem unhappy about the second scenario, and looks like that is the primary cause of QE3.

For investors, its important to remain balanced and not overly leaning in either direction. Yes, the stock market is at multi-year highs, and closing in on a multi-decade triple top formation, but it all doesn't seem ridiculous when you consider that corporate profits are higher than they were in 2000 and 2007/08, the last 2 times the S&P reached 1500 levels.

This is how a base is carved out. Typically at the start of the base, stocks are overvalued, and towards the end of the basing pattern, stocks are undervalued, as earnings catch up to and exceed valuations. I believe we're currently in the middle of such a period, that started in 2000/2001. That means the odds are we're more than halfway thru this bearish cycle.

While I do not wish for QE to infnity, I believe the Fed thinks it is doing the right thing, by keeping the foot on the accelerator until the economy gains some traction. Let's hope it gets the results it is looking for, because I'm ready for the stock market to begin its next 10x increase so I can retire :)

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