Saturday, 7 January 2012

2011 Review - US markets and the lack of QE3

On 11 June 2011, I made a post about the lack of further stimulus via another round of quantitative easing (QE3). I came to this conclusion:

Credit market and sovereign debt issues aside, businesses are currently very profitable. Based on consensus forecasts there is a very decent margin of safety between prices and value. This provides substantial shelter in the event that earnings in the near future come in below expectations. I started out being concerned about market levels and whether or not QE3 would eventuate (I think it will), what shape it might take and the timing. I have now concluded that it doesn't matter too much for the market. I think that there are serious issues that the world faces, but the DOW companies are well positioned and are unlikely to fall substantially from current levels as some claim. 

On the next trading day after that post, the DOW was at 11,953. Where is it today? 12,360 or up 3.4%. 

In August/September, a correction did occur, however the type of analysis that I use is not based on short-term trading. The market can diverge from fair value in the sort-term, but the medium term trend can be determined. I am happy with the outcome of this prediction.

1 comment:

  1. Printing money will only make the countries problems much wors.e Think inequality is bad now wait until inflation reaches 20 to 30 percent per year.