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Trump's QE

Trump’s QE is not like the Quantitative Easing of the past,
it's better, and it’s having the same effect on the markets. 

Originally Posted on 11/27/2016 @3:38pm

by Steven Warrenfeltz

✟

Don’t let the title mislead; This post is about economics, not politics.

Trump’s QE is not like the Quantitative Easing of the past, but it’s having the same effect on today’s markets. 

Quantitative Easing (QE) has shifted the mindset of market traders and financial media, leading them to believe that governments can manipulate the 'free market' without consequences; they can't.

Quantitative easing is a ponzi scheme employed by the U.S. Federal Reserve since the 2008 financial crisis to purchase distressed financial debt/assets from banks and institutions to support the economy.

It is a ponzi scheme because the Federal Reserve creates money out of thin air to pay for the debt/assets, then after they pay for the debt it shows up on their balance sheet.  See the Federal Reserve's current debt  here.

Federal Reserve Chairman Ben Bernanke's latest form of QE, which he dubbed "QE3," where he directed the Federal Reserve to buy eighty-five billion dollars in bonds of mortgage-backed securities every month.

This is crony capitalism, where the government is helping troubled favorites, in this case banks and other financial institutions, by keeping them safe from declaring bankruptcy.

True Free-Market Capitalism is about keeping the government out of the process, and let the bad banks fail, fail and let those who are strong enough to survive, survive and buy up the good of those who have failed.  If that would have happened, the Federal Reserve would not be 4-trillion in debt and the financial system wouldn't be a house of cards because the failures of the past are still in our current financial system.

Trump’s QE is better.  

Trump's QE is better because it fueling market to move higher based on Trump's campaign promises and the markets expectations of him as a great free market capitalist. 

Trump's words have encouraged traders of better days ahead, so have those who will be in his administration, in addition, the great expectations are coming from market traders and financial media. 

For Trump’s part, he’s made promises to increase military spending, cut corporate & personal taxes, reduce regulations, expand oil exploration and pipelines, and renegotiate trade deals.

Steve Bannon, the new Chief Strategist for Trump stated the following in this excerpt from a post-election interview with the Hollywood Reporter:

“I'm the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it's the greatest opportunity to rebuild everything. Shipyards, ironworks, get them all jacked up. We're just going to throw it up against the wall and see if it sticks.”

Source: Hollywood Reporter - Ringside With Steve Bannon at Trump Tower as the President-Elect's Strategist Plots "An Entirely New Political Movement" (Exclusive)

These words have given market traders reasons to expect that the future will be filled with growth.

Quarterly Charts provided courtesy of StockCharts.com

As of Nov. 27th, 2016, the official U.S. Bureau of Labor & Statistics (BLS) inflation rate is 1.6%.

But, since the election, the reason for the bond sell off is due to the Market's "Expectation" of higher inflation, which hasn't happened.

The initial expectation of inflation getting higher has brought about a bond sell off.  Bonds sell off in a higher inflationary environment because if the interest rate on a bond is lower than the rate of inflation, the bond is not worth holding.

The result is; bonds lose value causing interest rates to rise.

This also explains why gold and silver prices rose in April & May of 2016 during the Federal Reserve’s talk of Negative Interest Rates. These actions tell investors; "It’s better to hold something with no interest rate (gold) than an asset with a negative interest rate (bonds)."

Normally, high inflation or just the expectations of higher inflation should give gold and silver a boost.

But, the precious metals are down due to everyone's expectation of the Federal Reserve to raise interest rates on December 14th.

Furthermore, Trump’s QE based on his words and expectations has given the market reason to expect higher growth in the future which has caused the markets to sell safer assets like bonds, gold, and silver for higher risk assets, namely stocks.

Who's in the Market Now?

There is a lot of momentum behind Trump’s QE.

The chart below indicates that although the price of the Dow Jones Industrial Avg. (INDU) is going higher in price, the top indicator called the RSI (Relative Strength Index) is Overbought, and the bottom indicator MACD is showing the same indications.

Furthermore, even as the price goes higher, the volume of trades are decreasing.  But why? 

The reason for the decrease in market volume is due to who makes up the majority of traders in the market at this time of the year.

Those who take over the majority of trading at the end of the year are the retail investors, everyday people, like you or me, who are in the market seeking to increase their nest egg.   

Over half of American own stock, and millions of Americans trade stock individually, it is the individuals who trade stocks who make up the bulk of retail investors and their numbers move markets, just not with the volume of the professional institutional traders and that is exactly who is moving the market now.

The majority of professional traders, those who have MBAs and other college degrees and who work for banks, hedge funds, and other Wall Street firms take their bonuses and families on vacation either before or slightly after Thanksgiving.

The majority of traders in the markets before Thanksgiving are professional market traders employed by banks and institutions, those who make big trades with more frequency.

Conclusion

In conclusion, as of this writing, we don't know if Trump's QE is going to pan out or not.

Although if Trump fulfills his promises things should be looking better for the United States of America, and MAGA (Make America Great Again) will be alive and well.

The Week ahead for Gold and Silver

The dust apparently has not settled yet in the markets, and although some technical lines are showing up on the charts, the way prices are moving these lines could be broken in an instant.

So, like last week, I've decided not to post my analysis this week for Gold, Silver and the U.S. Dollar because they are continually breaking key support and resistance levels.

I hope you and your family had a Happy & Safe Thanksgiving, and I hope to post next week's blog with price charts.

God Bless, Steve

Thank You for Your Time!

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