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Trump's QE

Trump’s QE is not like the Quantitative Easing of the past,
it's better, and it’s having the same effect on the markets. 

Originally Posted on 11/27/2016 @3:38pm

by Steven Warrenfeltz

✟

Don’t let the title mislead; This post is about economics, not politics.

Trump’s QE is not like the Quantitative Easing of the past; it's better, and it’s having the same effect on today’s markets. 

Quantitative easing is a Ponzi scheme that has been employed by the U.S. Federal Reserve since the 2008 financial crisis to purchase distressed financial debt and mortgage-backed securities from failing banks and institutions to support the economy.

It is a Ponzi scheme that the Federal Reserve creates by printing money out of thin air to pay for debt and assets, and then it shows up on its balance sheet.  See the Federal Reserve's current balance sheet debt here.

Even though it is a Ponzi scheme, Quantitative Easing (QE) has shifted the mindset of market traders and financial media, leading them to believe that Central Banks can manipulate the 'free market' without consequences; they can't.

This is crony capitalism, where the Central Bank helps to keep some failing banks and other financial institutions alive while making others declare bankruptcy.  

True Free-Market Capitalism is about keeping central banks and the government out of the market.  When a bank or any business can no longer function, it should fail, and those in the industry who are strong enough to survive buy up the good assets of the failed businesses, if any assets are available for purchase.

The Federal Reserve, the United States Central Bank, has been engaged in Quantitative Easing since the Financial Crisis of 2008.  

However, if the Fed's "QE" had Not happened, the Federal Reserve would Not be over 3 trillion in debt (as of 11/2016), and the financial system would Not be a house of cards because the failures of the past would Not be in our current financial system.

Trump’s QE is better.  

Trump's QE is better because it's fueling the market to move higher based on Trump's campaign promises and the markets' expectations of him as a strong advocate for free-market capitalism.

Trump's words have encouraged traders of better days ahead, so have those who will be in his administration, in addition, the great expectations are coming from market traders and financial media. 

For Trump’s part, he’s made promises to increase military spending, cut corporate & personal taxes, reduce regulations, expand oil exploration and pipelines, and renegotiate trade deals.

Steve Bannon, the new Chief Strategist for Trump, stated the following in this excerpt from a post-election interview with the Hollywood Reporter:

“I'm the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it's the greatest opportunity to rebuild everything. Shipyards, ironworks, get them all jacked up. We're just going to throw it up against the wall and see if it sticks.”

Source: Hollywood Reporter - Ringside With Steve Bannon at Trump Tower as the President-Elect's Strategist Plots "An Entirely New Political Movement" (Exclusive)

These words have given market traders reasons to expect that the future will be filled with growth.

Quarterly Charts provided courtesy of StockCharts.com

Since the election, bonds have been selling-off due to the market's "Expectation" of higher inflation, but that hasn't happened.

As of Nov. 27th, 2016, the official U.S. Bureau of Labor & Statistics (BLS) inflation rate is 1.6%.

Generally, a bond sell-off occurs in a high-inflation economy because if a bond's interest rate is lower than the inflation rate, the bond is not worth holding.  The result is bonds lose value, causing interest rates to rise.

This also explains why gold and silver prices rose in April & May of 2016 during the Federal Reserve’s talk of Negative Interest Rates. These actions tell investors, "It’s better to hold something with no interest rate, like gold, than an asset with a negative interest rate, like bonds."

Typically, high inflation or the anticipation of increasing inflation boosts gold and silver prices.  But precious metals are down due to everyone's expectation of the Federal Reserve to raise interest rates on December 14th, 2016.

Furthermore, Trump's quantitative easing (QE), which is rooted in his campaign promises and anticipated outcomes, has led the market to expect stronger growth in the future. As a result, investors have shifted away from safer assets like bonds, gold, and silver in favor of higher-risk assets, particularly stocks.

The Market is Going Up, But...
Who's in the Market Now?

There is a lot of momentum behind Trump’s QE.

The chart below indicates that although the price of the Dow Jones Industrial Average (INDU) is higher, the top indicator, the RSI (Relative Strength Index), is Overbought, and the bottom indicator, MACD, is showing the same.

Furthermore, even as the price goes higher, the volume of trades is decreasing.  But why? 

Market volume is down because of the types of traders active during this time of year.                                                                   (continued...)

The majority of traders in financial markets leading up to Thanksgiving are professional market traders working for banks and institutions, engaging in larger and more frequent trades.

Professional institutional traders have MBAs and other college degrees; they work for banks, hedge funds, and other Wall Street firms, and around Thanksgiving, they get large bonuses and take their families on vacations that usually last for the rest of the year.

So usually from Thanksgiving to New Year's Day, the market is driven by retail investors, everyday people like you and me seeking to get ahead.

In Conclusion

As of this writing (11/2016), we don't know if Trump's QE is going to pan out or not.

Although, if Trump fulfills his promises, things should be looking better for the United States of America, and MAGA (Make America Great Again) will be alive and well.

The Week ahead for Gold and Silver

Like last week, I've decided not to post my analysis this week for Gold, Silver, and the U.S. Dollar because they are continually breaking key support and resistance levels.

I hope you and your family had a Happy & Safe Thanksgiving, and I hope to post next week's blog with price charts.

Take Care & God Bless (✟), Steve

Thank You for Your Time!

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