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Fed Stimulus: Not Likely
The markets continue to stabilize and head higher, even after the Fed and ECB failed to step in with the much anticipated stimulus in early August.
In this guest publication by Vedran Vuk, he explains why the Fed may be very slow to act this time around and for investors to not get their hopes up for more stimulus.
With fund managers up against the wall and begging for more stimulus to keep this rally going, the Fed may finally realize it cannot support its old friends on Wall Street.
Without significant stimulus in the last 12 months, fund managers have been failing to produce adequate returns. And because of these lackluster returns, investors have taken their money out of many funds.
After all, how many people would place their money in a high-risk market after a few years of low single-digit returns? The answer is not many as volume on major indices remain historically low.
The reality is that Bernanke realizes that he is low on bullets. The last few he fired landed way off target, and his final bullet might miss the mark even more so.
Vuk believes Bernanke is stuck with two options here: he can fire off his last bullet now (as Wall Street desires) and can send the market up maybe 1,000 points (on the DJIA); or he can wait to save this last bullet in case the market crashes. This is looking like the most probable outcome as interest rates are already at record low prices.
Vuk believes that if Bernanke shoots his bullet now and the market crashes anyway, he's going to go down in history as the worst Federal Reserve chairman ever.
The market will continue to get overexcited at the possibility of more monetary stimulus. With that said, we likely won't see another round of a truly massive program until things really hit the fan and the Fed is forced to reach toward the bottom of the ammunition box. Our team at Pinnacle believes this will happen in Europe faster than in America and Draghi will be forced to begin buying bonds.
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