The Fed Bagged One Bear in 2010 - But Birthed Another

The three largest economies in the world are the U.S., China, and Japan.

The stock markets of all three were headed into another bear market in 2010. Two of the three continued down and experienced a bear market. The bear market that began in the U.S. was stopped in its tracks half way down. Thank you, Ben Bernanke.

China actually began its bear market in August of last year. From that peak, it lost 32% of its value to the end of the bear in July of this year.

Japan began a new bull market in March of last year along with the U.S. and most global markets. Japan then topped out into a correction in April of this year, along with the U.S. market and most global markets. It continued to decline and crossed over into bear market territory, losing 23% by the time it reached bottom.

In the U.S. the market also topped out into a correction in April. After rallying a bit in July, it then declined again in the worst August in years.

At that point the Fed was aware that markets in the second and third largest economies were already in new bear markets, and was hearing similar expectations for the U.S. economy from some quite astute economists and money managers, George Soros, Mohamed El-Erian, Nouriel Roubini, and others.

The Fed seemed to panic, and began promising whatever it would take to make sure the U.S. economy doesn’t double-dip, including another massive round of monetary easing. And like magic, the promise immediately ended the market’s plunge. Money poured back into the market.

Bear market averted. Thank you, Fed.

Unfortunately for the more conservative investors, who had piled into U.S. treasury bonds as a safe haven, the promise of further Fed easing sent the bond market into what is developing into a bear market. It began in early September, the minute the Fed began talking of further easing.

The 30-year bond has already lost 11.7%, while the popular 20-year bond ETF TLT has lost 16.2% of its value since its peak in early September.

Score for the Fed: One win, one loss.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.