Today, the FOMC voted on a second round of monetary stimulus dubbed QE2. This will include $600 Billion of treasury purchases lasting until the end of 2011. This equals to about $110 Billion per month, with purchases of $850-900 Billion through June; this sum being reinvested in mortgage securities. It's a hefty sum that was well anticipated on this blog, going against some popular analysts who expected lighter Fed action. I say the pressure is on.
Bernanke is pressed for action, and he clearly laid out his expectations for economic growth. He stuck by his word, and together with the FOMC, QE2 was voted in. The hope is that this will continue to accompany low interest rates to encourage lending, boost asset prices, and spur inflation. The consequence is that if this doesn't work, there will be a confirmed asset bubble (which we are already in), and higher prices brought on by no real market demand, which can bring us down to deflation as consumers struggle to afford the price increases.
Following the waves of quantitative easing, one can almost feel exhausted for the Fed - the feeling is mutual. There is only so much the Fed can do, but fiscal policy is needed. Bernanke said that he will continue to monitor the economy and pursue further QE, if needed. If there is the much anticipated gridlock in politics, the US will be in serious hurt. I don't think politicians realize how serious this is. We keep continuing the same measure of stimulus, both monetary and fiscal, that failed us in the past. It's time for a new approach.
If you have followed this blog throughout the past two weeks, you were swamped with my projections for today's decision. I did the research, and came out correct. My practice forex account reached a $28,000 profit today as I shorted the US dollar, going against the expectations for a rally by some analysts. The difference in my approach is that elsewhere the news is just reported, but on Dantes Outlook I dig deeper to project the next move, and invest in that. The Fed wants a weaker dollar, and that's what they have accomplished today.
Trading on these events improves the economic skill of this blog. Being invested in information helps to provide clear cut analysis and economic forecasting. The community of readers receive this digest as a way to filter out the noise to get informed about the stuff that matters most. Profits have been consistent, but to do so, there is high leverage and risk. This is heavily managed with good discipline in asset allocation intra-day; and I'm present when the fundamentals clearly drive me to the trading room - that is during reports and announcements. The same approach has proved successful leading me to the final rounds of energy trading in New Orleans. Because of this, I plan on launching the Dantes Outlook Fund sometime next year so that readers can become invested in what moves the world.
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