That then leaves the door of speculation wide open as to when the Fed will begin to reduce asset purchases.
Why was it a mistake? Because you cause unnecessary instability in markets by this incessant speculation, when all the Fed governors have said they want to "begin" -- even though they havenât defined what "begin" means -- to reduce asset purchases sometime in September.
The market is on pins and needles and that's why equity and commodity prices have been so volatile in the last three weeks because they hang on every new pronouncement from one of the 12 Fed governors on this issue of "tapering."
In the bigger picture, tapering or the reduction of asset purchases no matter when it begins is a net negative for asset prices as it has been when QE 1 and QE 2 were completed.
So what will happen? It could potentially involve a 10% sell-off in the S&P 500. Remember we have had 10% sell-offs each time the Good Ship QE came back to port so to speak.
It would also be negative for US Treasuries and that's the reason US Treasuries have been under pressure for the last six weeks and have fallen in value and will continue to fall in value.
If the Fed is not buying as many of them back as they are issuing, so there's going to be a greater supply of them in the markets which is a obviously a negative for prices. This also affects real estate prices. We've seen real estate begin to soften in the last two months. Real estate activity is diminishing. This also occurred when QE1 and QE2 came back to port.
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* AL MARTIN, author of "The Conspirators: Secrets of an Iran Contra Insider," is an Independent Political-Economic Analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. He is also currently trading the commodity futures market day and night and has a teleconferencing service to facilitate transactions in the markets. This is a service for independent experienced traders.
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