There Will Be No Qe4
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Today’s FOMC meeting was a stunner to the markets. The Federal Reserve has been saying they will raise interest rates for months now, but nobody actually believes them, because, as everyone knows, the economy isn’t anywhere near as strong as the FED says it is. For the past 6 years, the FED and the markets have been playing a little game, and it goes like this:

FED: “We view the economy on the whole as gaining strength, but there still isn’t the underlying fundamentals we want to see for us to remove QE.”

Market: “Wink, wink, gotcha FED, more QE coming……”

In reality, however, the market knows full well that the economy isn’t gaining strength but that the FED needs to maintain the appearance that their QE is working, but hasn’t quite fixed the economy yet, thus more QE for the forseeable future. For this reason, the market has come to the conclusion that the FED will stimulate forever, or for a very long time.

Even though the FED said point blank they were removing QE, the market didn’t believe it, then the FED removed QE. Now the FED has said they will raise interest rates, but the market is in denial, like before. Why? Because the market knows that raising interest rates would be cataclysmic for the economy and market. Thus, they assume the FED would never do that. The market is wrong, and today it found out just how wrong it is.

Not only do many market players disbelieve rate increases will come, they think there’ll be QE4. Why? The same reason they didn’t believe the FED would remove QE, the markets and economy could not stand on their own feet without it. So, now we’re seeing rising volatility, fear entering the markets, and confused investors. Yet the FED has stated very clearly what it would do from the outset.

Investors are confused because they misunderstand the FED’s mandate. They wrongly believe the FED’s purpose is to stabilize the markets and economy, when in fact the FED’s mandate is to protect the interests of its owner, the big banks. The FED was formed 100 years ago by the heads of the big banks, the FED is NOT a government agency, nor does it answer to the government. The FED’s board of directors is a who’s who of upper management of the biggest US banks. FED policy is dictated by them, not the FED board.

When you understand this, everything suddenly makes sense. It explains the volatile markets since FED inception, it explains irrational decisions by the FED over the decades, and why the FED’s top priority in a crisis is to bail out the banks, but give nothing to investors who’ve lost everything. It also explains why the FED’s QE, which is nothing more than printed money, ends up in the hands of the richest people in the world, not the people who desperately need it.

Once you understand this, then consider that banks are the largest institutional traders in the world, and thus a big part of their profits comes from trading the markets. They profit from market up’s and down’s. So, it’s in their best interests to take the market up, then bring it down, both makes them money, and since they can view every trading account under their management, as well as bid and sell order, they have an enormous advantage over everyone else. This might explain why the J.P. Morgan trading desk hasn’t lost money one single day for years.

Once the big banks have blown the market up as far as it can go, and they determine there is more money to be made taking it down, down it will go. And that’s where we are now, the FED has signaled it will no longer support the market, and to those who understand the true mandate of the FED, they now know that the market is going to crash. For those who mistakenly believe the FED will do whatever it takes to sustain the market, they will lose most of their investments.

This is why there will be no QE4. QE4 would lift the markets further, but because everybody is already in the market, there’s little to gain in profits for the banks by doing this. They can make trillions by crashing the markets now, and likely already have their short positions in. Not only this, but the FED will be able to say, “I told you so,” and they did, they told the market a year ago what they would do, it’s the market’s fault for not believing them.

At Financial Advisors Vancouver, we’ve studied the FED’s actions over decades and have seen this pattern repeat itself time and time again. We are not surprised by the FED’s decisions and we believe they will do exactly what they said they will do. It’s this kind of experience that gives an edge to Financial Advisors Vancouver, and its clients.


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