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QE3 and the 'not so quickly' Rising Value of Oil
Pinnacle Digest writes: The big difference between the announcement of QE3 and QE2, in respect to the market, is that many commodity prices are now at cyclical highs. Sy Harding believes investors can learn much from the reaction of oil prices to the initiation of QE3. The market and oil have never been more closely associated and understanding why oil is rising and falling could give you the edge in the commodity space.
When the economy slowed in the summer of 2010 and the Fed launched QE2, commodity prices immediately exploded. The price of crude oil reversed to the upside along with the stock market, surging up 64%, from $70 a barrel to $114 a barrel in only eight months.
Although we are only a few weeks in, this time around the results have been different as oil has actually declined in value. As of Friday, over the last two weeks, the CRB Index of Commodity Prices has declined 5.5%, and oil has plunged 11%, from $100.40 a barrel two weeks ago to $89 a barrel this week. Although oil trades at $92 dollars today, many predicted it would have climbed above $100 immediately following the announcement of QE3.
Harding wonders if the Fed action (and that of the European Central Bank) is too little too late to prevent a global recession. This time around the global economies are even worse than they were prior to previous QEs.
Harding believes that the markets will not react to QE3 the way they did to QE2. He notes that in combination with the ominous decline in oil prices, QE3 may not have the same positive impact as QE2 and operation twist. Last week's additional dismal economic reports are providing a warning to investors that October may be a difficult month this year. Harding has not had a chance to see September's impressive manufacturing numbers, released by the US this morning, but none the less he is issuing the caution alarm.
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