QE, Tapering and the Stock Markets

Towards year end, I have done less reading and have also been on a trip to Europe, so you do not see much update here

Most readers are waiting for an update and I have personally advised a friend or two by whatsapp that the market is riped for a correction esp HSI since the charts of a couple of blue chips [5, 941, 2628, 1199] look pretty ugly.

Tapering, how much and when it will stop

If you look back in this blog, you will find an article about how much of the T bonds in 2011 have been bought by Fed – 60%. At that time the deficit is close to 1 trillion ie 1000 billion which means only 40% or 400 billion was bought by the public [individuals and institutions],

Now the two wars once raised by Bush is close to an end, by end of 2014, most if not all troops should have withdrawn from IRAQ and Afghanistan according to the timetable of Obama, this will cut deficits caused partly by the war.

According to estimates the cut back in deficits can be as much as 500 billion, which is why Big Ben has the courage to say so and now do so. If you then look at deficits of 500 billion and a purchasing power of 400 billion by the public to finance deficits then the Fed sure has a lot of room to cut on the bond buying.

Hold it, is it that simple?

Effects on the stock market

How will this react on the economy, again this blog has an article on the effects of QE on GDP, the GDP is inflated by prices alone and not much by quantity, recent oil prices have been kept artificially high to make the economy looks better but earlier reports from Wal-Mart [also read an earlier blog on Wal-mart] already tells you that the lower rung of the economy is not doing so well.

So if you withdraw QE, GDP will grind to a halt. As the states have shale oil and gas discoveries pushing their economy plus figures massaging the stats, once they started tapering, they will withdraw to the point of hurting foreign economies that boomerangs back to their own before they will stop doing so. Wall street and Fed have always been good partners if you are talking about US interests though you see a lot of fighting between them in the states.

Many state and city governments are already on the verge of bankruptcy. Chicago if you are not aware is one of them but you dont read much in the media, why? Because they want you to believe that the economy is doing well and tapering is ongoing. Detroit has gone bankrupt and many more will due to good pensions, tapering will squeeze these cities hard as they cannot borrow as easily.

There will be a lot of disappointments in the results announcement by listed companies first in the overseas markets, then back to the states.

Thus brace yourself for a very rough ride in stock markets in the first two quarters.