Wednesday, June 20, 2012
More Twist, No QE as Stocks End Flat
The story of the day was the Federal Reserve and its actions. With very little on the economic front the market turned and waited on the Federal Reserve to deliver its rate and policy announcement. Failing to initiate a third round of quantitative easing the Federal Reserve did extend its “Operation Twist” until the end of the year. Stocks reacted in volatile fashion and during Bernanke’s testimony, but finally settling near the unchanged level as volume fell on the day. Taking a step back we saw a good day of consolidating the recent gains. Avoiding any further deterioration will be a must for us to continue on a new uptrend. Gold and crude oil did not react as if there was going to be immediate action by the fed to pump more liquidity in the market. Crude was down more than 4% at the stock market close a big tell the trend in crude remains to the downside. Gold finished down roughly 1% on the day as both commodities continue to act as if the Federal Reserve will not print any money any time soon like the equity market. It is quite clear stocks are expecting the fed to step in with further easing to support the market. At the end of the day we follow price and where it goes we do. Opinions mean very little. Listening to Bernanke during his press conference it is apparent he is looking for Congress to get its house in order. The unfortunate part of the quantitative easing is in order for it to work properly budgets must be balanced. Continuing to raise the debt burden only acts as a drag on the economy. Sure short-term bursts of debt are okay and manageable. However, massive debt spending over extended periods of time coupled with money printing is very flammable. History has provided enough evidence when money printing goes unchecked, fiat currencies always dissolve or evolve causing very painful contractions. We need our fiscal policy in order to avoid financial disaster down the road. Luckily we have price as our guide and we’ll be taking full advantage. The future is unknown and while many will try to predict what will happen know one actually knows. Using a rule based system allows us to focus on what matters and ignore the junk you hear from the financial media. Cut those losses and let your winners run.