Monday, November 20th, 2017 MST

Will quantitative tightening tank the stock market?

Investors who are betting on stocks continuing to go up need to study this graph closely.  If the device you are using makes the graph difficult to read, forward to a PC or iPad.  The graph reveals a striking correlation between the Federal Reserve printing money and stock market action.

As a reminder, the Fed is generally credited with saving the world’s financial system with its quantitative easing programs, which ballooned the Fed’s holdings from $900 billion to $4.4 trillion in six years and flooded the financial system with cash.  As the graph shows, stocks enjoyed a meteoric rise during that period.

Now, though, the Fed has embarked on a quantitative tightening plan with the goal of shrinking the Fed’s holdings by some $3 trillion in five years, which will drain cash from the system.  If the plan is carried to fruition (hardly likely, in my estimation), stocks could easily give up all their gains since 2009, at least much of them.  Worse, quantitative tightening could precipitate a severe recession.

Now just may be an opportune time to move some funds from over-valued stocks to under-valued gold and silver.

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