Old news first…

As you know, the Fed upped the ante in mid- to late 2012 when it launched its biggest quantitative easing (QE) program yet. Its efforts did revive the economy, which was flat-lining at near zero growth in Q4 2012.

Yet despite the continued injection of $85 billion a month, the economic response to Fed efforts has become increasingly muted.

We’ve warned about this inevitable decline in the effectiveness of QE for years. We’ve always said it takes more and more stimulus, like any performance-enhancing drug, to create less and less effect. At some point you collapse, hit bottom or even die from the side effects of the drug.

Now the breaking news…


We’re nearing the end.

The chart below shows the rising Federal Reserve balance sheet thanks to its unprecedented stimulus and money-printing programs to stimulate the economy.

See larger image

As you can clearly see, the trajectory of the last QE3 stimulus program is longer and steeper than QE2 (late 2010 to early 2012).

QE1, in late 2008 and early 2009, was the most dramatic program, but that was about reversing an accelerating financial meltdown as Lehman Brothers collapsed and AIG and General Motors teetered on the edge, not to mention many major banks and financial institutions crumbling under their own greed.

The first two quarters after QE1 averaged 2.6% real GDP growth.

The first two quarters after QE2 in mid-2010 averaged 2.3% growth.

Now the first two quarters after QE3 have averaged only 1.7% growth.

There is simply no way we are going to match the trajectory of 2011 that saw a peak rate of 4.6% growth in the fourth quarter of 2011.

All of this brings to light the evidence and truth behind our forecast. The Fed can’t stimulate forever. Eventually it will face checkmate.

Every round of stimulus will have to be even stronger and bigger than anything that came before, and it will only create less impact. This is already evident in the rebound from the fourth quarter of 2012.

The Fed surprised us all on September 18 by not tapering when the market had already priced in a $10 – $15 billion per month cut-back in bond buying. When it did that, it lost a golden opportunity to start becoming more responsible without facing the wrath of the markets.

Instead it chickened out and opted to not taper.


Bernanke stated that there was not enough evidence of economic growth to justify it.

Well duh!

So the Fed isn’t that comfortable with the economic recovery. Neither are we. But that shouldn’t be good news, and the markets are likely to correct ahead. We expect up to a 10% correction in stocks into October and then a final rally into early 2014 before the Dow peaks somewhere just north of 16,000.

Then look out below as stocks could crash again well into 2015 or so, just as they did in 2000 to 2002 and 2008 to early 2009.

The first half of 2014 is the highest risk period ahead, because that’s when our best long-term and shorter-term cycles collide negatively, just as they came together positively in October of 2002, giving one of the strongest buy signals in the history of my first newsletter, HS Dent Forecast.

Be safe from mid-January of 2014 into the summer. That’s when the next crash is likely to start, especially by late March of 2014.

We will re-evaluate after the summer of 2014 when our shortest-term cycles start to lighten up a bit. Stay tuned.


Follow me on Twitter @HarryDentjr


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Harry Dent
Harry S. Dent Jr. studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of his chosen profession that he turned his back on it. Instead, he threw himself into the burgeoning new science of finance where identifying and studying demographic, technological, consumer and many, many other trends empowered him to forecast economic changes. Since then, he’s spoken to executives, financial advisors and investors around the world. He’s appeared on “Good Morning America,” PBS, CNBC and CNN/Fox News. He’s been featured in Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, U.S. News and World Report, Business Week, The Wall Street Journal, American Demographics and Omni. He is a regular guest on Fox Business’s “America’s Nightly Scorecard.” In his latest book, Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage, Harry Dent reveals why the greatest social, economic, and political upheaval since the American Revolution is on our doorstep. Discover how its combined effects could cause stocks to crash as much as 80% beginning just weeks from now…crippling your wealth now and for the rest of your life. Harry arms you with the tools you need to financially prepare and survive as the world we know is turned upside down! Today, he uses the research he developed from years of hands-on business experience to offer readers a positive, easy-to-understand view of the economic future by heading up Dent Research, in his flagship newsletter, Boom & Bust.