Jim’s Mailbox

Posted at 10:14 AM (CST) by & filed under Jim's Mailbox.

Jim,

Strap on your seat belts: The Federal Reserve ended its controversial quantitative-easing (QE) program at its meeting today.

It also plans to keep interest rates at record lows for a “considerable time,” and that environment will continue to support gold prices.

However, today’s biggest news came not from Fed Chairwoman Janet Yellen but one of her predecessors, none other than Alan Greenspan. In a speech at the Council on Foreign Relations, “The Maestro” said he fears potential “turmoil” in the economy as the Fed halts QE. “I don’t think it’s possible” for a smooth exit, he said, implying that rampant inflation and bursting asset bubbles could result. QE has failed to jump-start the real economy, he said.

“QE has been most effective in inflating asset prices, and both the markets and economy are addicted to the stimulus,” said Peter Boockvar of the Lindsey Group. History indeed shows that since 2009, the stock market has lost its gains each time the Fed has previously ended QE. With the global economy rapidly slowing, and with no correction of 10% or more in the S&P 500 in three years, stocks are overdue for a fall.

And the real danger here is that once the stock market corrects — or any number of risks from Ebola to a eurozone debt implosion cause a wider crisis — the Fed will succumb to pressure and launch a new round of QE. That’s when things could start to spiral out of control.

Where should investors turn? “Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments,” The Wall Street Journal reported.

CIGA Art M.

 

Jim,

I read today that the stimulus program was halted. I believe in QE to infinity, so do you see this as a temporary reprieve and/or propaganda to try to calm down Americans?

Thanks,
CIGA Jason

Jason,

It will be reinstated under a different name in 3 months.

Jim