The U.S. stock market was down again Tuesday. All "risk" assets sold off as a result. Gold was down $25, currencies sold off, US Treasurys were up.
What was the "wall of worry" that the markets were climbing today? This time, investors were worried that the Federal Reserve minutes weren't dovish enough to declare the start of the next round of easy money that the markets are now addicted to.
Boy – this is a joke that billions of our dollars are at the mercy of the dolt traders who are always finding things to be worried about. Unfortunately, they are worried for the wrong reasons.
In my opinion, QE 3 isn't a matter of IF it will happen, but WHEN it will happen.
The markets were of the belief that the Federal Reserve will start the new round of easing in April. If they don't do that, they will have one last opportunity in June. According to them, if it doesn't happen in June, it will not happen as elections will be too close for them to do this.
That logic, in my opinion, is where they are wrong. Here is the reason why QE 3 is imminent.
We have seen a few months of reasonable jobs growth. The 250,000-plus jobs numbers that the markets are now banking on are an anomaly at best. The jobs growth is on an unsustainable path unless we see a significant spurt in the growth (read GDP) in the United States.
The recent jobs growth can be attributed to the lag effect of 2010 when businesses had held of on any hiring. The lack of any growth in payroll has taken a toll on employee and something had to give. So once we are through a spurt of growth in payrolls in the United States, we can only see sustenance of hiring if the economy is growing rapidly to support the continuation of hiring.
Call me unpatriotic, but I am not able to see any specific industry that is growing by leaps and bounds today. Yes, we aren't falling, but real sustained growth? We are far from that.
If the growth will continue to remain tepid, we will see the new hire numbers slack off and if that happens, the Federal Reserve will be compelled (misguided though) to step in and intervene with more quantitative easing.
I believe we will see the odds improve significantly if we get one bad new hire number. I do believe we will see the Federal Reserve step in by midyear to introduce a new mechanism of fresh money.
I don't buy the fact that if they miss the June deadline that the QE will be off the table for this year.
Even if we have elections at the end of this year, if the economy really takes a turn for the worse, I cannot imagine that the Fed will stand on the sidelines because of elections. They will step in and if it is not June, soon after that.
We will see more yo-yo effects in the US markets as time progresses.
Do you want to be a part of that? Or would you rather invest in markets that are clearly growing not just oscillating between worries and glee, for no rhyme or reason?
I know where I am investing.
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