Today the Federal Reserve announced that they would continue QE3, injecting up to $85 billion into the economy each month. This should not come as a surprise to anyone. Chairman Bernanke plainly stated July 10, 2013 “Highly accommodative monetary policy for the foreseeable future is what’s needed.”
Still, the markets were rattled this summer over the threat of “tapering”. Substantial reductions were never viable. At most, projections were that the Fed would only tapered a paltry $10 billion per month.
Quantitative Easing (QE) hasn’t produced a recovery and that’s precisely why they can’t get rid of it. GDP growth occurred at the fastest rate the year preceding QE’s initial introduction November 25, 2008. Five years into the “recovery” it’s only stimulating equities and real estate.
Consider the impact of QE3 and federal deficit spending in 2013. The combined money printing of $1.66 trillion (QE3 + Deficit) only resulted in GDP growth of $386 billion (2.3%). Clearly, this is not sustainable.
So what’s an investor to do? Follow the most reliable Wall Street adage ever uttered: “Don’t fight the Fed!”
QE won’t help the ailing economy but that doesn’t mean that it won’t keep Wall Street and real estate prices inflated artificially high. The trick, as always, is to get out before the bubble bursts.
This is a good time to watch for upward trends in the market, as has been the past three weeks. Take advantage of short term moves created by the unending stimulus. This is not a time for greed, take your profits often and early.