MDM - Model switches to BUY on February 12, 2014

Published : February 12 2014 at 9:14 ET

The model has switched to a BUY signal. 

A weak economy, both domestically and internationally, are arguments for continued quantitative easing. QE has helped put a shallow floor under the market since January 2013. With quantitative easing still nearly on full, and Janet Yellin who is considered pro-QE taking over Ben Bernanke's position as Chairperson of the Federal Reserve, the market is bouncing reasonably well, despite its recent aggressive drop which was playing out differently than past mini-corrections in terms of speed and correction, with a 6.5% drop in the NASDAQ Composite from peak-to-trough in less than 2 weeks with a cluster of distribution days. Adding to the bounce is Congress having just voted to allow for a higher debt limit.

So even though the Fed said they would wind down QE entirely by the end of 2014, this depends on the strength of the economic recovery. They intend to keep interest rates low well into 2015, and if the economy falters, they will have no choice but to extend the life of QE since it is in their interest to keep interest rates low.

The Fed has room to continue to print money since their key inflation gauge, core PCE, is still well within the 1-2% target range. Further, slackened demand from juggernauts such as China whose economy is stumbling mean potentially lower commodity prices overall including oil and gold which reduce global inflation pressures. Indeed, the CRB index has been trending lower since 2011.


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