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Historically, "Taper" = "Selloff" (Be Careful What You Wish For....)

|Includes: SPDR S&P 500 Trust ETF (SPY), VXX

QE Dates/Effect

This chart is a keeper, although at this point it's somewhat dated. This is only through February of 2013, so if it were updated, that last leg of the rally (Orange) would be +17.5%. Bigger than the rally during Operation Twist and a similar time frame (about 9 months).

Since September 21, 2011 there has been a constant Federal Open Market Committee (FOMC) program. In other words, the Fed has been injecting liquidity into the market, bolstering banks balance sheets/allowing deleveraging (whether it's going on or not) incessantly for 18 months.

QE began in December of 2008 (after TARP/TALF) and in the 55 months since then there have only been 10 months where the Fed has NOT been actively spiking the punchbowl.

During the two "intermissions" the S&Ps suffered considerably.

The last purchase date for QE1 (extended) was March 31, 2010. The S&Ps were 1180. It topped out on April 19th (2.5 weeks later) at 1220. Then the S&Ps started falling.....down to 1020 by the end of June. (16.4%). Bernanke then hinted at QE2 on August 27, 2011 and the rally began again.

March 31, 2010 - VIX = 18. May 3, 2010 - VIX = 41.

QE2 purchases ended on June 30, 2011. The S&Ps were 1340. They topped out (patriotically) on July 4th (1 week later) @ 1345. And then they started falling again - down to 1125 or (16.4%). You can't make this stuff up. There was an almost identical percentage drop when purchases were "tapered" after QE1 and QE2.

June 30, 2011 - VIX = 15.90. August 15, 2011 - VIX = 44.

Operation Twist was implemented/announced on September 21, 2011 and we've had ongoing FOMC interventions ever since. The S&Ps were 1135 when Op Twist was divulged. The equity market has never looked back. There have been 2/3 broad market selloffs since Operation Twist.

Sept - Nov 2011: European sovereign debt and US Downgrade.

April - May 2012: European elections and terrible US macro data.

To be clear, I really hope that the Fed "tapers" their purchases which have distorted asset prices (commodities, equities, rates, and volatility) for years, but be careful what you wish for if the past is any indication of what happens when the Fed allows Adam Smith's Invisible Hand to exert itself again.