Dont believe the WalStreet Media - Fed will not Taper

Federal Reserve really has two instruments to fulfill its function in the market;

1.       Increase or decrease money supply. (Print money/Sweep Money in laymen terms)

2.       Increase or decrease interest rate.

Let’s start with #2, interest rates are as low as they can get. Any lower and banks will start imploding. So, that option is off the table.

Now the complex #1, Quantitative Easing, is supposed to increase the money supply so there is enough money in the market to fuel recovery. Ok, somewhat working or should I say worked… why?

1. Housing is slowing down. I doubt they saw the real interest rate increase.
2. Unemployment improvement is slowing down.
3. Retail is terrible – no one is buying.
4. Emerging markets crash triggered by “taper fear” – shows there’s no fundamental growth. It can be argued that majority of growth is artificial because of QE including the stock market.
5. Most important, inflation. The reason Federal Reserve has the power to print and sweep money is to keep inflation in check. No-one and I repeat NO-ONE saw the inflation rate going down with so much money being pumped. This is in contradiction to the basic economic models. US $$ should be highly inflated given how much money the Fed has pumped into the system since 09. But, it is not happening. Why? Millions of reasons – that’s not my concern. Concern is, with emerging markets crashing and US dollar deflating, there really is no recovery. In simple terms, what are you going to do with a mountain of gold when people can’t afford tiny bit of it. Opens doorway to substitutes.

Finally, Dr. Ben has consistently said, there are no taper plans till the end of the year. He has consistently said that every time taper talk was on the table. Still, Wall Street media wants you to believe there will be a taper. This is a highly speculative.

My suggestion, if you are invested in stocks for the long haul (year plus) – stay put. But, if you are not, we are in a cyclical bear correction. We’re falling hard – I think SnP will test 1600 by the end of this month. Let’s see …