Between a slowing world economy, geopolitical instability and the Ebola virus, we are in shaky times right now. But don't believe anyone who tells you this is why the stock market is suffering. The reason the stock market is suffering is very simple: money printing, or rather lack thereof.
Less than a year ago, the Federal Reserve was pumping $85 billion a month into the economy in order to boost the market. We're now down to $15 billion a month, and even that is scheduled to come to an end this month. We're taking away the patient's medication.
It's not difficult to see the correlation. A year ago, the stock market was soaring — and, I would add, was impervious to any bad news around the world. Today it's looking sickly and lethargic. It's hard to replace $85 billion a month. When it doesn't come from the Fed, we have to depend on foreign capital and other sources to step in and keep the stock market going. It's getting to be too much to ask for.
So no, it's not economic or geopolitical news around the world. Those issues are only a trigger, like a sudden loud bang that sends a person with a heart condition into convulsions. Don't blame the noise, blame the heart condition.
I was asked in an interview recently what investors should hope for in the stock market. It's very simple: action by the Fed. That's what's been pushing stock prices up for the past six years. And that's what the market needs now to boost prices and increase investor confidence.
Interestingly enough, just hours after I made that comment, St. Louis Fed President James Bullard gave the market a bit of relief. A known hawk — meaning he favors less money printing — Bullard suggested that the Fed might delay the end of its third round of quantitative easing (QE3). Even this little tease was enough to help the market rally, as investors have jumped with excitement about the possibility of a longer QE high.
Without ramping up the money-printing machine, however, the stock market is going to be in trouble. I've been saying it for months. When QE1 ended, the stock market fell. When QE2 ended, the stock market fell. And now that QE3 is ending, the stock market is falling again. There's no way around this. My Aftershock co-author David Wiedemer has been fond of saying lately that what the market really needs is QE-squared or QExplosive.
Oh, and the problem with the stock market certainly isn't Ebola. Let me be clear: Ebola represents a horrible human tragedy in West Africa. But it has almost zero impact on the world economy. In the few areas of West Africa that do have some global significance — such as Nigeria, or the Firestone rubber plantation in the heart of Ebola-plagued Liberia — Ebola has been successfully contained. Ebola is not going to spread — in any serious way — to Europe or Japan or the rest of the developed world with much stronger medical systems and it's not going to disrupt global economies. I should also add that any perceived costs would be easily offset by lower oil prices recently, which will help the profits of airlines and other companies that could be affected.
It's not Ebola. It's not the sluggish world economy. It's not the situation in Iraq, or Ukraine or anywhere else. It's the lack of printed money.
About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $300 million under management. He is a regular contributor to the Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles.
© 2021 Newsmax Finance. All rights reserved.