Reaching ZIRP

Even though it might have been the worst kept secret of the year, The Federal Reserve, in an unprecedented move, set its key interest rates at 0% to 0.25%—the lowest level in history.

This makes the U.S. the first country to actually implement ZIRP (Zero Interest Rate Policy). Surely, others will follow as the global recession deepens. Like a drunken sailor, the stock market took ZIRP as a confirmation that this is a good thing and rallied to higher levels. Never mind, that this desperate move by the Fed signals that, economically speaking, the worst is far from being over.

Additionally, the central bank said that they would pump more cash into the economy, a process that is called quantitative easing. The money spigots are now wide open in an attempt to stimulate growth and find a floor for the housing market. Only time will tell if this approach will have the desire effects. If mortgage rates follow suit and take a steep drop as well, you might see a flood of new refinancing applications and qualified buyers taking stabs at buying real estate.

Nobody can be sure about the outcome because we are in un-chartered territory. As I said before, short-term the market trend is up; long-term we are still in bearish territory by -9.38% according to my Domestic Trend Tracking Index (TTI).

We have now been out of the market since our last sell signal was generated on 6/23/08, a date from which the S&P; 500 has now dropped over 30%. Having avoided this haircut affords us now the luxury of not having to desperately participate in bottom fishing to attempt to make up losses. We are in now in the enviable position of being able to wait until a major trend reversal has occurred before returning to equities.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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