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Lance Jepsen
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I have been trading in the markets since the 90's. I'm the owner of the stock trading blog and the StockTradingMaster channel on YouTube. I've transitioned, like most, from a longer term buy and hold strategy to a shorter term swing trading strategy. I like trading in... More
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  • Federal Reserve Tapering: The Dark Side 0 comments
    Feb 28, 2014 11:53 PM

    The Federal Reserve tapering is, in essence, the Fed saying this current Bull market is too long and its time to go into a Bear market.

    The Federal Reserve is saying that they are tapering their bond purchases because the economy is getting strong enough to stand on its own; however, recent economic reports do not indicate that is true.

    One has only to look at the latest jobs report, or the manufacturing survey, or even the existing home sales report to discover that the economy is not any stronger than it was a year ago, or even two years ago.

    We know that the price of bonds continues to go up which is strange. In a bull market, bond prices should go down while stocks go up. So far in 2014, we are seeing bonds going up with stocks. The reason is that a lot of investors are buying bonds even though the biggest bond buyer in the world, the Federal Reserve, is buying less bonds.

    It's quite possible that the Federal Reserve is tapering bond purchases because the economy is on the verge of going into a Bear market. Think about it. If the Fed tapered when the economy was getting stronger, there would be a mass exit out of bonds and into stocks. The bond market bubble would collapse. The only way for Fed tapering to not collapse the bond market is if they taper during a time when there is a high demand for bonds coming from investors. At the start of a Bear market, demand for bonds surges as money is rotated out of the stock market and into the bond market in a flight to safety. That high demand for bonds allows the Fed to unwind its positions (it takes a buyer when there is a seller) without causing the bond market to collapse.

    In this video, I talk more about this dark theory:

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