Is another round of quantitative magic by the Bernanke & Co. on the horizon?
The bipolar stock market is screaming for QE3. Year-to-date gains in the Dow Jones Industrial Average (NYSE:DIA) and the Dow Transports (NYSE:IYT) have been wiped out. And other major indices like the S&P 500 (NYSE:SPY) are on the edge.
Operation Twist isn’t yet over and Wall Street’s talking heads are already calling for QE3 to begin. (See free spending economist, Paul Krugman.)
Will the Federal Reserve accommodate them?
Operation Twist, which began in third quarter of 2011 and is scheduled to end in June 2012, is the Fed’s $400 billion shift from shorter-dated Treasuries (NYSE:SHY) into an equivalent amount of longer-dated paper (NYSE:TLT).
The May U.S. jobs report showed that employers added only 69,000 jobs, which is a huge miss from expectations of 150,000.
National unemployment in the U.S. is now 14.8% and has remained in that general vicinity over the past year, according to the Bureau of Labor Statistics U-6 figure. (It’s important to note, the U-6 figure is considerably more realistic than the more common U-3 figure used in the mainstream media.)
The precious metals group (NYSE:GLTR) and gold (NYSE:GLD) staged a nice one day rally on expectations the depressed job market will induce the Federal Reserve into more quantitative magic. GLD is now challenging its 50- simple moving average of $157.78.
The Fed’s formula for fixing the economy over the past two years is akin to injecting the wrong patient with medicine. In each instance, the Fed has been injecting the financial markets with its prescription drugs, instead of the broader economy, its intended patient.
As a result of the Fed’s direct actions, financial markets have become addicted to the Fed’s drugs.
The Fed’s next policy meeting on June 19-20. Which investment categories are most likely to benefit from QE3? The June 2012 issue of the ETF Profit Strategy Newsletter covers this scenario along with other trading opportunities.