by Bill McBride on 4/05/2011 07:22:00 PM
Tuesday, April 05, 2011
Note: The Fed mentioned some downside risks today and it is possible there will be a 2nd half slowdown like in 2010:
... downside risks from the banking and fiscal strains in the European periphery, the continuing fiscal adjustments by U.S. state and local governments, and the ongoing weakness in the housing market. Several also noted the possibility of larger-than-anticipated near-term cuts in federal government spending. Moreover, the economic implications of the tragedy in Japan--for example, with respect to global supply chains--were not yet clear. ... Participants judged that the potential for more-widespread disruptions in oil production, and thus for a larger jump in energy prices, posed both downside risks to growth and upside risks to inflation.I'll have some more thoughts on this possibility soon.
Some people point to the end of QE1 as the reason the stock market struggled mid-year 2010. Others point to the economic slowdown and concerns about a double dip recession. Remember this quote from Robert Shiller on July 27, 2010? "For me a double-dip is another recession before we've healed from this recession ... The probability of that kind of double-dip is more than 50 percent. I actually expect it." (via Reuters: Chance of Double-Dip US Recession is High: Shiller)
Here is a look at QE and the S&P 500:
Click on graph for larger image in new window.
Based on the FOMC minutes today, it is pretty clear that QE2 will end on June 30th with no tapering. Here is a look back at the QE announcements:
• November 25, 2008: $100 Billion GSE direct obligations, $500 billion in MBS
• December 16, 2008 FOMC Statement: Evaluating benefits of purchasing longer-term Treasury Securities
• January 28, 2009: FOMC Statement: FOMC Stands Ready to expand program.
• March 18, 2009: FOMC Statement: Expand MBS program to $1.25 trillion, buy up to $300 billion of longer-term Treasury securities
• March 31, 2010: QE1 purchases were completed at the end of Q1 2010.
• August 27, 2010: Fed Chairman Ben Bernanke hints at QE2: Analysis: Bernanke paves the way for QE2
• November 3, 2010: FOMC Statement: $600 Billion QE2 announced.
• June 30, 2011: QE2 expected to end.
Although I thought we'd avoid a double dip recession last year, I was forecasting a slowdown (here is a post from May 4, 2010: The 2nd Half Slowdown).
Right now I think Q1 2011 was sluggish (based on data so far), and Q2 will probably be a little better. But I'm not confident about the 2nd half of this year (although I'm not forecasting another slowdown yet).
This is NOT investment advice.
Posted by Bill McBride on 4/05/2011 07:22:00 PM