Investors around the world are waiting for Ben Bernanke to speak at the Jackson Hole Federal Reserve meeting on Friday. Bernanke may announce QE3, or he may have another trick up his sleeve. But whatever it is, you can be sure he's going to take some kind of stimulus action.
There are several facts that led me to this conclusion.
The past QE's have been so darn effective! We had one of the biggest market rallies in history from March 2009 to March 2011. It's so powerful, why not use it?
The Fed ended up making a profit of $25.2 billion on its $309 billion TARP investment in banks and insurance companies. That money has been saved for a rainy day like this one, and it isn't sacrificing anything to put it back in the system.
Bernanke is a stock market guy, and loves a bull market. He's not going to be influenced by political clowns like Governor Rick Perry who said if Bernnake starts more stimulus it would be treasonous. Treasonous? He's calling the man who saved us from what would've been the worst depression in history treasonous? Get a clue Perry! Bernanke is a hero.
Now that the economy is showing real scary signs of a possible double dip recession, there's a greater chance of QE3. Many people of influence are feeling real fear, and they want that fear to go away. There's not going to be as much of an objection by anyone in politics or the Fed, because they realize that if they voice their opinion that Bernanke shouldn't do any stimulus, and the market tanks as a result, there's going to be a lot of people disappointed. But if they encourage Bernanke to provide more stimulus and he does and as a result the stock market rallies, everyone feels good. Fed Presidents Fisher and Hoenig both opposed QE3 earlier this year, as late as July, but that was before the recent intense panics the market has experienced as of late. I haven't heard them say anything in the last two weeks; it's likely they've changed their opinion to a certain degree.
The Fed realizes that the weak housing market is a big factor in holding back our economy. The housing market has almost reached the bottom. If we could just hold out for another year or two, that will allow real estate to finally make a comeback and get us out of the depression for good. Warren Buffett said that once people start buying houses again, it will create lots of jobs related to real estate. We'd have brokers, home designers, painters, carpenters, home improvement stores, etc. all making more income and hiring people.
The Fed's decision to keep interest rates low for the next two years won't do much to deter Bernanke. Keeping interest rates low just doesn't seem to have the active power of taking more aggressive action like buying treasury bonds, for example. But I think the Fed will take different action because treasury bond yields are already so low. It has other weapons in its arsenal.
I spoke with hedge fund manager Aram Fuchs of Fertile Mind Capital a few months ago and he thought there was going to be a QE3. And this was when the market was doing great and the economy showed few signs of slowing down. Aram studies the big picture and is very scholarly in that respect.
If you agree with my assessment, buying stocks now before Friday is the best way to take advantage of it.