Sunday, May 26, 2013

Stock Market: QE3 - Don`t Fear The Exit

(Drivebycuriosity) - Last week the U.S. Federal Reserve Bank signaled that the end of their stimulus programs, now QE3, might be near. Since spring 2009 the central bank has been buying U.S. government bonds valued many billions of dollars to rekindle the economy. The stock market responded nervously and the Dow Jones Industrial Average, the Nasdaq and the S&P 500 all ended lower for the week.

The pessimists (bears) claim that the whole stock market rally since spring 2009 is just a bubble blown up by the Fed`s stimulus that pumped too much money into the markets. Hence they assert that the end of the monetary stimulus programs would also be the end of the rally.

I don´t subscribe to this naive and bearish theory. Yes, the massive stimulus was necessary to kickstart the economy and to ignite the upswing. It also was necessary to kill the extreme fear that paralyzed investors and consumers after the financial crisis.

Now the economy and the bull market are running on their own power, driven by the healing job market, the comeback of housing and rising company profits. We don´t need QE anymore.

The Fed, which is highly considerate for the economic situation, especially the job market, will abandon their bond buying program gradually and will be alert not to kill the recovery. The end of the stimulus should keep the commodity speculation at bay and hence keep a lit on the oil prices.

Don`t Fear The Exit.

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