Saturday, October 22, 2011

QE3 : Operation Twist...will the stock market rally again? ...Part 2.

Part 1 is here

In late September I asked the question if the Fed Operation Twist will coincide with the next rally on the stock market.

Here is the schedule of treasury purchases by the Fed for Operation Twist :[Link]. The very first one is on 3 Oct 2011 when the Fed purchased $2.7B of treasuries from the market. Lets see what happened following the start of Operation Twist:

Despite the mainstream media focus on the problems in Europe and doom and gloom of the global economy, on exactly 3 Oct 2011 when the Fed started Operation Twist, the market bottomed. and rallied more than 10% in about 2 weeks.. This can be attributed to sheer coincidence but it is quite amazing coincidence if you go back to my article in Sep 2011 where there is a chart showing when the other QE started and where the market rallied.

It is strange that as the financial media harps about the disastrous downgrade of Spain, potential downgrade of France, contagion in Europe slowdown in China, rising frustration over the economy, rising unemployment, impending recession...and all the bad news, the US Dow Jones Index rose 10% in 2 weeks starting exactly on the day Operation Twist was put into action.....I looked around and nobody actually noticed or reported it in the media....


Anonymous said...

That's why the Fed can just do an "Operation Twist", QE etc and everything will be OK (or rather look OK) again.

So what's the problem? Despite "Occupy Wall street" lah, unemployment, recession, etc, etc?

Anonymous said...

Many companies are recording increase in profits, including Citgroup.

Looks like fears of recession may not materialize after all.

Lucky Tan said...

anon 11:48,

actually the Ceridian index shows a marked slowdown in September. If this continues for another month, the risk of recession will increase. We are not in recession yet but the odds are 50-50...despite evidence showing things have improved slightly.

The silver lining is the potential for aggregate demand expansion because businesses held back orders in Jul-Sept...if we go into a virtuous cycle we can really see a big uptick.

tempest said...

Apparently, GE reported earnings but digging deeper, seems like bullocks...

Anonymous said...

"The silver lining is the potential for aggregate demand expansion because businesses held back orders in Jul-Sept...if we go into a virtuous cycle we can really see a big uptick."
Lucky Tan 22/10/11 12:40

So for Singapore things will also be good lah? Except no "Occupy Raffles Place". But even have, got any use or not?

Ghost said...

I don't think "Operation Twist" will have that much of an effect. The main thing is that "Operation Twist" is a bit if a stunt with a limited shelf life. There's only some many times you can do it, and I think once is more than enough.

Anonymous said...

I think the US can do "Operation Twist" or QE as many times as needed and still be effective to stimulate their stock market, but may not reduce their unemployment.

Simply because the US$ is a de facto international currency.

And it is one of the key currencies the S$ is pegged to.

And of course, whatever the US Fed actions will also affect us one way or another, some very negatively.

But most importantly for us, there must be political stability and social peace, whatever the effects and economic situation may be. And so far so good.

Anonymous said...

Don't think it is the economy anymore. It is the financial system that is at risk. The banks have taken too much risk.

Anonymous said...

The banks have taken too much risk.
Anon 23/10/11 01:03

But not our local banks.

Nor is there any risk of our property market crashing.

Singapore is very safe, secure and (for about 60% of voters) also happy, satisfied and maybe prosperous too.

PM Lee and his Cabinet deserve their highest paid ministerial salaries in the world. This is endorsed by at least 60% voters at every election.

Anonymous said...

STI going 3000 and maybe more in the coming days!

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