Saturday, 19 September 2009

Why has the Stock Market Rallied So Strongly? Here’s an Answer

... since the launch of the Fed’s Quantitative Easing, aka Monetization, program, the value of the Total Securities Held Outright on the Fed’s Balance Sheet has increased by $917 billion- from $584 billion to $1.5 trillion. This has been accompanied by an almost linear increase in the S&P 500 Index
The Fed, and more recently the Treasury, have recently announced that they will end QE and stimulus programs in October now that we are out of recession and in recovery. Perhaps the stock markets will hold up for a while (though we are kind of due for a correction), since we should continue to see improved GDP numbers for the 3rd quarter of this year, but the 4th quarter numbers may not be so pretty. It’s likely the Q4 retail numbers and consumer spending numbers will be abysmal. We don’t expect the stock markets to hold up past Jan/Feb of 2010, at the very latest.

There's still the rather large problem of defaults on Alt-A loans, commercial property losses, and credit card debt losses to add to the picture. The markets seem to have been bailed out with "funny money" at present. How well will they fare when these other problems come to the fore ? There will have to be another crunch in the near future.

[Posted at the SpookyWeather blog, September 19th, 2009.]

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