The United States Federal Reserve has been effectively printing money for a decade using Quantitative Easing (QE) measures in order to prop up an erratic stock market. This has time and again prompted the bulls of wall street to happily purchase stocks in times that may not be the most fundamentally accurate . The often-seen attitude of Wall Street bears can be summed up as basically:
“Stocks will rise no matter the circumstance”.
One can generously grant clemency to this claim by changing your favourite stock index time-frames from daily charts to… perhaps decades? Traders do not typically have a decades-long swing trade in mind from my experience, so perhaps going by the mantra that the stocks will always rise is not the ideal approach.
There are, however, limitations on just how much the Fed can do to prop up a flagging economy. The current postulation from the Fed is that they can and will continue QE measures well into the future, but many economists do not share this unrealistic line of reasoning.
The dent in the armour of Wall Street bull’s reliance upon QE is the fact that the Fed may have considerable difficulty expanding its balance sheet beyond $10 trillion. Printing money in perpetuity is both unrealistic and unlikely.
Fundamental values of US stock will eventually reassert themselves over current speculative values in what is often gently called a “correction”.
A correction of this size will be less of an editorial and more of a complete rewrite.