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MDM - Model switches to neutral May 31, 2011

Given the overall action of leading stocks and major averages and that QE2 is still present and likely to manifest in other forms after it ends on June 30, the model has switched to a neutral signal.

Quantitative easing can manifest by the fed reinvesting the proceeds from maturing securities after QE2 ends.

This process could take from 3 to 6 months. Once this process ends, a natural organic shrinkage of the fed's balance sheet would likely take place. All eyes would then be on the stock market to see how it holds up without any quantitative easing.

If the stock market were to start into a correction of some magnitude, the fed would probably find an excuse to launch QE3.

The fed is hoping that the economy will gain traction requiring them to hike rates. Fed futures are pricing in a rate hike in early 2012. But the fed's track record shows they are often late to the game. For example, in the last cycle, they were slow to lower rates, and they will likely be slow to hike rates since Bernanke wants to avoid a depression at all costs. But if inflation gets out of control, it can be very hard to contain. And given the massive monetization of debt that has occurred since early 2009, perhaps the fed should be fearing instead of hoping.

This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2024 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.
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