Back to the basics - painful but necessary

THERE really should be no surprises at Wall Street's sudden collapse over the past month. A market that set maybe 70 all-time highs last year and at least a dozen more this year with only a stuttering, artificially juiced-up economy to provide the backdrop justification should have set the warning bells ringing a long time ago, especially considering that the main driver of those all-time highs, the US Federal Reserve's quantitative easing (QE) or money printing, is due to end this month.

But will it? According to some market watchers, there is scope for the Fed to stay its hand and stay accommodative so as to stabilise markets. Rabobank, for example, last week even raised the possibility of yet another round of QE, something alluded to by a couple of Fed governors in their musings about the present market turmoil last week.

If the Fed does backtrack on its previous forward guidances and either delay its final taper, or even start a fresh round of money printing, it shouldn't come as too much of a surprise - given that all throughout the past six years, its strategy has been to ensure Wall Street remains supported in the hope that a rising market will take the economy up with it.