Again, your ignorance is on full display for everyone to see. The stock market has had a 92% adjusted R-squared with global Quantitative Easing. This means that central banker actions have explained 92% of the variation of the stock market since 2010. In 2017, the world experienced the peak of QE, which resulted in a massive PE expansion in stock markets. In Q4'17, the Fed began Quantitative Tightening, the first central bank to do so. As their QT started to accelerate, we saw the first cracks in the stock market in the US. This is no accident. In 2018, global QT will accelerate, further deflating global stock markets. All of this was predictable, and in fact, I have written about this effect since last summer. I had a recent back and forth with Rarebird on it. Presidents don't cause stock markets to move up and down. Central bankers are the 900 pound gorillas in this area.
But Trump claimed credit as it was going up, so it's only fair that he gets flack about it going down. That too was predictable, but it's all just a partisan charade. Anyone with a brain doesn't make investment decisions based on what Presidents do. Only idiots who love to lose money do that.
If you are truly interested in learning about what QT will do to the stock market, here's an excellent article on it from the Financial Times:
The End of Global Quantitative Easing is Fast Approaching
Investors have become accustomed to the benefits of “QE infinity” on asset prices, and are cynical about the ability and desire of central bankers ever to return their balance sheets to “normal”. They will have to adjust to a new reality fairly soon.
There are several features of these projections that are worth highlighting:
* The global central bank balance sheet is likely to continue rising throughout this year, though only at about 1 per cent of GDP, or roughly half the average liquidity injection since 2011;
* All of the increase in the global balance sheet in 2017 will be driven by the ECB and the BoJ, while the Fed and the PBOC might subtract small amounts;
* During 2018, the global balance sheet might shrink by about 1 per cent of GDP, because the implied shrinkage in the Fed’s balance sheet might be larger, on our assumptions, than the continuing, but falling, injections from the BoJ and ECB;
* During 2019, the rate of shrinkage of the global balance sheet might increase to about 1.3 per cent of GDP, as the Fed allows all of its maturing debt to run off, the ECB stops its QE, and the BoJ reduces bond purchases further.
The main conclusion is that the huge expansion of global balance sheets may be coming to an end in the next year or two, and there could be a modest shrinkage in the aggregate if the Fed pursues the path that it is now debating, and if the ECB begins to withdraw support next year. Markets will have to learn to get along without massive bond purchases from their friends in the central banks. The consequences of this major change in central bank support will be discussed shortly in an upcoming column. |
