This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Fed Policy Hurts Main Street, Creates Bubble Stocks

Stocks in this article: AMZN DAL DD GD IR

NEW YORK ( TheStreet) -- This afternoon we learn the status of QE3 and QE4, the latest two rounds of quantitative easing programs instituted by the Federal Reserve last September and December. QE3 is an open-ended program where the New York Federal Reserve Open Market trading desk purchases $40 billion of agency mortgage-backed securities each month. QE4 adds another $45 billion of longer-maturity Treasury notes and bonds each month.

The stated intent of these purchases is to bring down long term interest rates, not to artificially prop up the stock market. Yields are higher, not lower and thus Fed policy has failed. Instead of bringing down interest rates, cheap money has been used to speculate in the stock market resulting in the ValuEngine valuation warning. The stock market bubble includes stock specific bubbles.

The weekly chart for the Treasury 10-year yield shows that the lowest yield was 1.377% set in July 2012, before QE3 and QE4 were implemented. With a current yield of 2.616% this yield is up 123.9 basis points.

Chart Courtesy of Thomson/Reuters

What the FOMC states after its meeting ends today will likely determine whether or not the 10-year yield holds its 200-week simple moving average at 2.557%. As the chart shows, this yield fell below the 200-week in October 2007 just before the FOMC cut the federal funds rate to 4.50%. It wasn't until Dec. 16, 2008, that this rate was cut to 0.00%. This corresponded to the low 10-year yield at 2.016% shortly thereafter. Note that in each period where this yield rose, the 200-week SMA held as support in April 2010 and February through April 2011. This makes the current test extremely important as Treasury traders react to the Fed statement.

My hope is that Fed Chief Bernanke will begin to taper QE purchases before he leaves office in early 2014.

Federal Reserve policy has hurt Main Street USA in several ways.

The 0.00% federal funds rate has shut out savers on Main Street. Savers are those who do not invest in the stock market and depend upon interest on bank CDs for living expenses. Since the end of 2008, savers have had to trim the principal of their nest eggs, as there is virtually no interest income to pay for necessities.

1 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs