Deficit Spending Boosts the Stock Market

November 5, 2010 at 11:44 pm Leave a comment

An interesting week got closed today November 5, 2010. After the FOMC meeting it got confirmed what we announce prior: The Fed is going to purchase $600 Billion of US-Securities through the second quarter of 2011. In addition it was announced that the Fed is planning to purchase $250 – 300 Billion in mortgages.

What does this mean:

An additional demand for securities enters the market and changes it. Money gets taken out of Bonds and Notes and needs to find a place to go and the stock market with high earnings of key players seems to be attractive for now.

Additional deficit spending and increase in the amount of dollars floating will sure keep the downward pressure for the dollar going. With a weakening, dollar commodities will see a nice surge and Gold at $1540/oz. is very thinkable.

The unfortunate part of this government sponsored stock market rally is, that it is not backed by any economy and with that might find its weak spots when the government bodies finished their buyback and bank relieve program.

At times we meet people complaining that the government should not get so much involved, and we always answer: take advantage of it with the right knowledge and care about what you have influence over, learn to trade the markets:

With the amount of money the Fed will spend, bad employment reports as we had them this week do not even affect on the market, but the problem is not going away and in the future we have to face that the US maneuvered into a long term 10% unemployment rate with no real preparation. The money used to buy back mortgages silly bankers granted prior will not help to put relieve to the huge unemployment challenge the US faces and when it gets obvious the markets might get ready for a bigger adjustment.

Looking across the pond we hear reports of filled order books in Germany and a reduction in unemployment. It looks like Europe is digesting their PIGS (Portugal, Ireland, Greece, Spain) while the us might be facing the PACAIL  (PA,CA,IL) issue soon – by the way, PA is very comparable in its economy and population to Greece, not to talk about California.

Entry filed under: Economy, Investor Education, Stock Market. Tags: , , , , , , , , , .

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