Sorry Bulls, The Fed
Will Not Engage in More QE.
July 16, 2012 By gpc1981
‘For well over a year now, I’ve (Summers) been
stating that the Fed will not be able to engage in Quantitative Easing (QE)
unless systemic risk hits (think another 2008). My reasons for this are as
follows.
First off, the political consequences of hitting “print” (inflation)
have made themselves evident to everyone. Indeed,
Bernanke was talking about this point as far back as May 2011. The below quote
is from a Q&A session with Bernanke during that month.
Q. Since both housing and unemployment have
not recovered sufficiently, why are you not instantly embarking on QE3? — Michael A. Kamperman,
Mr. Bernanke:
“Going forward, we’ll have to continue to make judgments about whether
additional steps are warranted, but as we do so, we have to keep in mind that we do have a dual
mandate, that we do have to worry about both the rate of growth but also the
inflation rate…
“The trade-offs are getting
— are getting less attractive at this point. Inflation has
gotten higher. Inflation expectations are a bit higher. It’s not clear that we
can get substantial improvements in payrolls without some additional inflation
risk. And in my view, if we’re going to
have success in creating a long-run, sustainable recovery with lots of job
growth, we’ve got to keep inflation under control. So we’ve got
to look at both of those — both parts of the mandate as we — as we choose
policy”
http://economix.blogs.nytimes.com/2011/04/28/how-bernanke-answered-your-questions/
The significance of Bernanke’s admission went largely unnoticed by
the financial media. How many times has CNBC and
Bloomberg and the like put on various “gurus” who guarantee that QE 3 is just around the corner?
Yet, here we are one year
and over 10 Fed FOMC meetings later and the Fed hasn’t launched any new QE
programs. Think about that. For over a year now the
financial media has been awash with “experts” saying “QE is just around the corner, the Fed will launch QE
any minute now, etc” Every
time stocks rally. But.
No. QE.
Instead the Fed has largely resorted to simply shuffling its
portfolio around (Operation Twist 2) or issuing verbal/symbolic interventions
e.g. promising to maintain ZIRP for a prolonged period.
Heck, the Fed has even admitted
it doesn’t want to engage in more QE. Just last week the NY Fed released a
study revealing that the Fed has managed to double the value of the S&P 500
just by holding regular FOMC meetings.
As the above chart shows, when you remove for the market moves that
took place around Fed FOMC meetings, the S&P 500 would be around 600 today.
Thus, I ask… why bother implementing QE when you can get the same
effect (higher stock prices) simply by issuing verbal interventions?
We get more evidence that the Fed doesn’t want to engage in more QE
from the fact that the Fed has clearly gone into damage control mode. Bernanke has staged townhall meetings,
opened the Fed to Q&A sessions, and even had his favorite Wall Street
Journal reporter (Jun Hilsenrath) pen articles
depicting him (Bernanke) as an average guy who drives a Sebring and reads a
Kindle.
Remember, we’re talking about a man who openly lied to Congress (Bernanke’s famous “I won’t monetize
the debt” statement) … a man who basically told reporters to get stuffed
regarding the Fed’s secret loans during the 2008 Crisis… now staging townhall meetings with the public. If that doesn’t tell you
that the Fed is feeling some major political heat, nothing will.
Again, the Fed cannot and will not engage in more QE. It doesn’t
need to. It gets the same effect without
actually spending any money. Moreover, the Fed is in the political hot-seat.
You don’t go from lying to Congress and telling the media to get stuffed to
staging townhall meetings unless you’re very very worried about the public’s perception of you.
Which means… the Fed is on hold right now… which means the primary
prop that has held stocks up is being slowly removed… which means… the markets
are extremely vulnerable right
now.
With that in mind, I’ve begun positioning subscribers of my Private Wealth
Advisory for the next leg down in the markets. We’ve already
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investments few investors know about and timing our positions to benefit from
the various developments in
