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10.28.2014 Fed Day... Bookmark

Today starts the Fed's two day meeting concerning monetary policy. We all know QE will be officially put to bed, and the market seems okay with that. But why? Everyone knows it was the QE that has allowed stocks to gain the incredible heights they've made. Why wouldn't they be in a panic about it ending?  Well one is that they know we don't need the Fed's buying bonds to keep rates low, banks are buying bonds so they have collateral to make derivative bets

Today starts the Fed's two day meeting concerning monetary policy. We all know QE will be officially put to bed, and the market seems okay with that. But why? Everyone knows it was the QE that has allowed stocks to gain the incredible heights they've made. Why wouldn't they be in a panic about it ending?  Well one is that they know we don't need the Fed's buying bonds to keep rates low, banks are buying bonds so they have collateral to make derivative bets.

But they also think the Fed's will run back in the second that the economy or the stock market stumbles. They're convinced that ending QE is a short term situation and the money spigot will open again soon. The Fed's will fuel that thinking by dovish talking about the Fed's decisions being "data dependent" hinting that if the numbers fade, they'll come to the rescue. That sort of jawboning will keep the algo's buying on every word.

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