This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

QE3: Bad News Is Bad News Again

NEW YORK ( Real Money) -- Given how the market rallied for months following the announcement of QE1 and QE2 it isn't at all surprising that we had a euphoric response to Helicopter Ben's QE3 last week. The big question now is whether it is different this time or can the market run for months like it did previously?

Although the it's-different-this-time argument is always dangerous, there are a number of reasons to believe that this may be the case.

First and foremost, the reason we have QE3 is because the first two rounds of QE obviously failed to achieve their goals. The Fed printed huge amounts of cheap money that boosted the stock market, but didn't fix the economic issues that were the primary problem, especially the stubborn high unemployment rate.

The other thing that is different this time is that the measures are open-ended. The Fed is going to keep on buying mortgage backed securities for as long as it takes. The problem is that if that doesn't work, it is pretty much out of ammunition. There isn't much more that monetary policy can do and obviously our politicians are useless when it comes to fiscal policy.

For quite some time the market has benefited from the dynamic that bad news is good because it will force the central banks to act and good news is good as well because thing are improving. But now that we have open-ended quantitative easing, from both the Fed and the ECB, we are going to shift back to a more traditional environment where bad news is bad and good news is good. The economic reports will likely see more normal reactions.

The central bankers no longer have the capacity to adjust to bad news with more announcements. They have already addressed the potential of future negatives by making their plans open-ended. Maybe they can increase the size of their programs, but they have already fully committed themselves and are unlikely to offer up anything else very soon.

So does this mean that the market is on the verge of topping out?

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free

Markets

Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs