In my previous article (What if the Fed Really Tapers QE?) I focused on what would be the likely outcome of limiting the QE program on several key markets (gold, real estate, stocks and bonds). Today, we will provide you with an analogous analysis for a completely different scenario.
In the following part of the article we will discuss what’s likely to happen if the Fed simply continues the QE program and informs about it in a direct way.
In short, you will find details in the table below – the above scenario is listed as #1 in the table below (last week’s analysis focused on scenario #4).
The first case seems most probable based on the recent minutes (from 30th-31st of July; the minutes were published on the 21st of August). The Fed is likely to continue the programs, and communicate the message openly without any misinformation. Such scenario is indeed the likeliest one since despite negligible positive signs the economy has not improved sufficiently. The decision will put upward pressure on real estate, since holding on to Mortgage Backed Securities by the Fed should keep up the boost (however inefficient it may be).
In this scenario, the banking system will be covered from liquidity problems, and indirect subsidies to the banking system will be continued. The stock market should therefore grow. What happens to Treasuries? It depends mostly on inflationary expectations. In the short run we should say that Treasuries would gain because one of the main buyers, the Fed, would keep them. Nevertheless, there is a possibility that they will lose value if the market expects this type of policy to lead to inflation. In this case, the Treasuries could go down. However, possibly the Fed would step in again with some other tool to counter that (such as with the “operation twist”). There are limits to such steps, of course. However, as we mentioned last time, we do not see very high inflation on the horizon. So far…
Gold should be on its upward track within a few months (if not sooner), because upon the continuation of the intervention it will probably be considered a good dollar alternative, an anti-system hedge with the proper backup in the physical market.
Summing up, if the Fed continues the QE program and it is communicated directly, gold is likely to move higher within a few months. The full version of this report includes our analysis of 8 different scenarios (as you can see on the above table). We recommend that you stay prepared almost no matter what the Fed does by reading the entire Market Overview report. You can sign up here.
Matt Machaj, PhD
Sunshine Profits‘ Market Overview Editor
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All essays, research and information found above represent analyses and opinions of Matt Machaj, PhD and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matt Machaj, PhD and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Matt Machaj, PhD is not a Registered Securities Advisor. By reading Matt Machaj’s, PhD reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Matt Machaj, PhD, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.