Today’s insane data point: Since Ben Bernananke floated his QE2 trial balloon in August, the Wilshire 5000 has gained ~10% — or $1.3 trillion in value. Not a bad bump in capitalization.

That observation comes to us via Randall Forsyth in this week’s Barron’s:

“SINCE BERNANKE STARTED laying out the rationale for further easing in his speech at the Fed’s annual bash in Jackson Hole, Wyo., in late August, the U.S. Dollar Index has declined roughly 7% against that basket. Over the past six weeks, gold is up more than $100 an ounce, topping $1360 as the Fed and other central banks engage in their race to debasement.

During that same span, the Wilshire 5000 has gained about $1.3 trillion in value, or about 9.9%. But the rise in stocks may be more apparent than real. The rise in equity prices is in terms of dollars that are rapidly losing value. Relative to gold—which central banks can’t expand ad infinitum at zero cost—stocks haven’t done much. Indeed, relative to the yellow metal, stocks have had more than a lost decade, as the chart here shows.

Thus, it appears that the Fed’s efforts to expand liquidity have been far more successful in producing asset inflation than jobs, as the latest employment report, out Friday morning, reminds us. Non-farm payrolls fell by 95,000 in September instead of coming in flat or just slightly negative, as the consensus forecast called for. The glass-half-full contingent trumpeted a 64,000 gain in private payrolls, while downplaying the 82,000 plunge among state and local governments, collectively the nation’s single biggest employers.

The official unemployment rate held steady at 9.6%, but the so-called underemployment rate, which includes labor-force dropouts and part-timers who would rather have a full-time job, surged to 17.1% from 16.7%. John Williams of Shadow Government Statistics—whose call for a negative payrolls number cited here was right on the money—further adjusts the underemployment rate to count folks who have been out of the labor force a year, who don’t get counted among “discouraged workers” by the government. By his tally, true underemployment hit 22.5% in September, up from 22% in August, and a new high for the cycle but not one to crow over.”

I have been using U6 data for about 5 years, and I find it more telling than U3, which understates the labor market woes. (I worry that John William’s numbers may somewhat overstate the data).

But its been very clear that Labor is not participating in the rally, while Capital is. Yes, if we are discussing Equity, that is in nominal terms. In fact, as the chart at right shows, relative to gold, equities have shown a steady drop in prices.

Of course, to those of us who toil in the nominal price world (i.e, domestic asset managers), that matters not a whit. (Vacation overseas and you might change your mind, but I refer to the professional obligations of asset managers).

And, as we are fond of pointing out, participating in one asset class does not prevent you from owning the other.

The choice you must make is one of residency: Where do you have to live, the real or nominal world?

>

Previously:
Unemployment Reporting: A Modest Proposal (U3 + U6) (June 12th, 2008)

Gold Hits Our $1350 Target; Now What? (October 7th, 2010)

Do You Wanna Be Right, or Do You Wanna Make Money? (October 6th, 2010)

Source:
Debasement Blues
RANDALL W. FORSYTH
Barron’s OCTOBER 9, 2010
http://online.barrons.com/article/SB50001424052970203989704575532303860728596.html

Category: Current Affairs, Federal Reserve, Gold & Precious Metals, Trading, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Prospect of QE2 Added $1.3 Trillion to Wilshire 5000”

  1. NickAthens says:

    There is an old saying that there are only two ways to make money. “have people work for you or money work for you”. Looks like money is winning these days.

  2. barbacoa666 says:

    “Labor is not participating, but capital is…” So, the money being pumped into the market is being funneled to the investing class, who is using it to purchase hard assets, most of which is produced outside the US? If so, the fed is boosting employment outside the US, but not much employment inside the US. And the fed is creating another bubble in natural resources.

    If the fed wants to initiate QE to stimulate the economy, why not just mail every citizen a check?

    ~~~

    BR: Stocks and bonds are being purchased by Capital, and they remain a US mfr’d product . . .

  3. call me ahab says:

    BR responds- previous thread:

    “Ignore liquidity as a short term factor at your own risk.”

    I don’t disagree w/ that statement. My point was to make sure everyone was crystal clear (via this chart)-that it is debatable whether we are even treading water- that the employment mandate is irrelevant (because- really- what can the Fed do on that front)-

    their only goal right now is to keep a bid under assets-

    desperate times require desperate measures undoubtedly- ZIRP and QE being desperate measures

  4. Moss says:

    They will never be able to exit this ‘intervention’ and have the market maintain the current P/E ratios. Ben and all other Central bankers know this. I would love to hear what Felix Zulaf has to say about this.
    So now they are manipulating interest rates lower and P/E ratios higher while arguing that we have below target inflation as measured by the CPI while hard assets and commodity prices sky rocket in price as the dollar plunges.

    Trying to please all the investor classes all the time .. very tenuous situation. They have no choice but to invoke QE2… without it’s implementation the markets would crash hard.

    Who are the natural buyers that would participate if the Fed did not have an unlimited balance sheet.

  5. with all the, various, “Consumer Protection” shilling we’ve been entreated over the last interim, maybe Elizabeth Warren, and her ilk, will find it suitable to slap the chart–referred to, here: “In fact, as the chart at right shows, relative to gold, equities have shown a steady drop in prices.”–smack dab on the Front Page of Mr. & Mrs. MutFund’s 100.25(k) ‘Retirement Account’-Statement.

    Then, you know, maybe, they’d catch the drift that it’s “They”– (yon’ MutFund (‘Buy & di-’)vestor– that are being cut loose, and their ‘Asset Values’ are being Retired..

    nice post, BR.

  6. Petey Wheatstraw says:

    barbacoa666 Says:

    “If the fed wants to initiate QE to stimulate the economy, why not just mail every citizen a check?”
    ______________

    That, indeed, is the only solution to our current predicament (after all, fiat currency is created by proclamation and out of systemic necessity — distribution is the only variable). However, it won’t happen, because doing so would flatten the wealth curve (actually, nowadays, it’s a wealth spike). TPTB will not disenfranchise themselves, so they will continue to disenfranchise all who they can. They will find out, too late, why this is the worst possible choice they could have made.

  7. MayorQuimby says:

    The gazillion dollar question is THIS:

    Will QE 2.0 mean Wall Street cashes out of bonds and leaves Joe Taxpayer (vai Ben) holding the bag (aka buy the rumor, sell the news aka…SOLD TO YOU!)

    …or…

    Do equities roll over and bonds stay down into QE 2.0

    …or…

    is there even going to BE QE 2.0?

    Inquiring greedy minds would like to know lol.

    ~~~

    BR: All of the above. And then, QE3 . . .

  8. Petey Wheatstraw says:

    MayorQuimby:

    if there isn’t a QE2, China will repatriate stronger dollars than they took as collateral against trinkets and wars for us, and they won’t be coming after labor or products. TPTB are in double-plus check-mate.

  9. constantnormal says:

    I wonder what would happen if it turns out that Bernanke has been merely jawboning to try and avoid QE2, and does not deliver a multi-trillion-dollar injection into the banking system (I think that he is incapable of doing it any other way, such as direct injections of cash into the hands of the public, where it would do the most good and effect a huge amount of consumer deleveraging (at the cost of destroying the currency) in the week or two following the elections?

    just trying to imagine a contrary position here, as the impact of QE2 seems to be so universally expected. I’m pretty sure Bernanke recognizes that his previous attempt at QE did not achieve the desired results, he will either rationalize it as being insufficient (which is scary), or he is looking to accomplish the effect without permanently impacting the USD — which he should be able to see will lead directly to a set of even more intractable problems.

    I think that if QE2 doesn’t happen by Thanksgiving, the turkeys won’t be the only things getting massacred.

  10. constantnormal says:

    Looking at the recent action in the USD, if appears that a lot of reaction is taking place ahead of the fact/fiction of QE2. How will the goobermint be able to support the dollar in the face of actual QE2, and how will they be able to survive the international pressure (we ARE the most successful currency manipulators, I think) and the internal pressures — blowback from rising import prices, from gasoline to food (we use imported oil and fertilizer to grow our food, and a declining USD will result in more of our produced food being shipped overseas) — will put the congress and the president in a difficult position. Or are they sufficiently stoopid so as to attempt another run at wage and price controls? Now THERE is a truly scary thought!

  11. dead hobo says:

    1) The quote notes the Fed and how QE has created asset inflation. The Fed doesn’t care, says it can’t see it, claims the economy is insensitive to it at this stage, wants inflation and if it comes through commodities then so be it, and probably is responding to a need to fund 2010 bonuses via QE. After all, bank trading profits are bank profits and banks need help. By keeping the banks alive he’s keeping hope alive (of a 2011 bonus pool, that is).

    2) The market results of the public broadcast of potential massive QE2 funding is only a prelude to what will actually happen if $500B in new money injections is added to the current cash recycling plan. Money will come off the sidelines. At least mine will (probably … unless they put some hinky qualifier or flaky condition on it that makes it less of a direct path from the Fed to the equity markets.) I’m looking at gold mining, chemicals, some form of emerging market, transportation, and maybe something technological. If the Fed wants to make a transfer payment, I’ll stand in line for this one now that I see a pattern emerging that is suitable for use at home. I’ll also bail out no later than the last day of injections. Thanks, Ben. Please come again.

    3) If the Fed fails to announce QE2 at the next meeting, then the markets will probably correct a lot. This would also make an excellent entry point since the Fed has proven it will buy the markets if the Dow breeches the mid 9000 range. Go to point 3, but for different reasons. Personally, this is my preferred choice since QE2 on top of today’s events will really screw up the US economy. A managed correction will lower the rate of UST debt due to a flight to safety reaction. QE2 afterward will just keep the markets moving sideways and control asset inflation somewhat. Unfortunately , the Fed is a proven idiot and will do what its broken models tell it to do. Anything is possible, and the worst option will likely be selected with glowing pride.

    4) Yes, I plan to still be jumpy and will stay out if none of this happens as speculated.

  12. dead hobo says:

    I meant, go to point 2. I deleted a point and missed that edit.

  13. dead hobo says:

    BR said:
    ——————-
    BR: Stocks and bonds are being purchased by Capital, and they remain a US mfr’d product . . .

    reply:
    —————-
    The econ books need to add a third dynamic:

    Out: Labor vs Capital

    In: Labor, Capital, Printing Press.

  14. Petey Wheatstraw says:

    dead hobo Says:

    “I meant, go to point 2. I deleted a point and missed that edit.”
    ____________

    I have a hunch that that’s what the people who created the worthless MBSs will eventually say.

  15. tel1 says:

    What happens to the Wilshire once Bernanke finally stops floating QE trial balloons? Alternately, what happens to the dollar when people conclude that Bernanke will never stop floating QE trial balloons?
    Obama should fire that clown before it’s too late!!!!

  16. machinehead says:

    Where do you have to live, the real or nominal world?

    The nominal world, obviously.

    What goes unsaid is that with a stable monetary unit, the nominal and real worlds would be (indeed, used to be) essentially the same.

    Our misbegotten regime of ‘full floating fiat’ is a deceitful veil of illusion, best exploited by the financially sophisticated and the politically connected.

    Too bad about the little people, in their forlorn attempt to work and save with the ground constantly shifting beneath their feet.

  17. machinehead says:

    Where do you have to live, the real or nominal world?

    The nominal world, obviously.

    What goes unsaid is that with a stable monetary unit, the nominal and real worlds would be (indeed, used to be) essentially the same.

    Our misbegotten regime of ‘full floating fiat’ is a deceitful veil of illusion, best exploited by the financially sophisticated and the politically connected.

    Too bad about the little people, in their forlorn attempt to work and save with the ground constantly shifting beneath their feet.

  18. So can we finally put the lie to bed that the printing presses don’t control the price of EVERYTHING? Thus the ones who control the printing press control the economy. To take it one step further, the good economy make voters happy, the bad economy makes voters angry ———-> the fed controls the economy AND the elections

    So when they wanted to move the Democrats into office to …….maybe say……bring in universal health care, this was pure economic manipulation

  19. Obama should fire that clown before it’s too late!!!!

    It looks like that clown is going to fire him first!!

  20. b_thunder says:

    “Where do you have to live, the real or nominal world?” – this question could have been appropriate in 1810, maybe in 1910.
    As $147 oil and $4/gallon gasoline in 2008 showed, in 2010 there is NO such thing as “living in the nominal world.” The domestic prices, and especially prices for the stuff we have to use daily, catch up to the “real” prices in a matter of days if not hours. Anyone noticed how speculators drove up food prices recently?
    Without price controls, 90% of this country’s residents will very soon have to pay a lot more for food, fuel, and local/property taxes. Can you say QE 10.0, DOW-36000, and toilet paper rolls made of $100 dollar bills?

  21. RW says:

    If inflation is understood to be a (normalized) rise in the general price level: Increases in the price level of specific asset categories are not meaningful if they are offset by lower prices in other categories or if substitutes are available and so forth.

    That implies it is the expectation of further inflation that gives folks further incentives to spend money now: No point in hoarding cash if it’s going to be worth less next year and not much point in buying bonds for anything other than shorter term cash flow needs if they’re going to be worth less later too.

    So if enough people think that the Bernanke Fed is just blowing smoke or floating trial balloons or even conducting QE at a level that only supports some assets while others fall — the general price level trend remains either flat or downward YoY — then deflationary expectations become the norm and bonds, cash and the $USD become king.

    Don’t think that’s good news for anything else but since that’s basically what’s been going on for the past several years what the hell do I know. I’ve made good money in this market but it’s made a fool of me enough times I’ll be damned if I’ll try to call it overall; it’s asset by asset, trade by trade.

  22. rktbrkr says:

    OK so Fed policy drives commodity prices up, stuff like oil, nat gas but jobs & wages flat to down – fuk the “little people”!

  23. rktbrkr says:

    The Fed spokesman said they would force up asset prices, they have. This is creating such distortions in the economy the backside is going to be even more painful, maybe runaway hyperinflation or hyper stagflation after this long period of ultra low rates.

    A few years down the road Bernanke will be mumbling “unimaginable” just like Greensputum has been doing

  24. obsvr-1 says:

    what was Wilshire 5000, NASDAQ and S&P 500 capitalization at the peak in 2007 vs FED balance sheet

    Ben Bernanke – BB – Bubble Blower

  25. machinehead says:

    ‘As $147 oil and $4/gallon gasoline in 2008 showed, in 2010 there is NO such thing as “living in the nominal world.” ‘ — B_Thunder

    These are still nominal prices. ‘Nominal’ is not a synonym of ‘fair,’ realistic,’ or ‘unmanipulated.’ It simply means priced in current dollars (which are losing purchasing power).

    ‘Without price controls, 90% of this country’s residents will very soon have to pay a lot more for food, fuel, and local/property taxes.’

    The last time we had price controls, in 1973, prices ROARED higher, and continued doing so for a decade. Cap gasoline prices at $2/gallon as a populist measure, and watch the waiting lines appear, featuring muscled punks warning ‘Cut in front of me, dude, and I’ll bust your chops with this tire iron!’

    I’d rather pay the market price and save my time and my skin, thanks.

  26. tt says:

    eventually the main stream will discover what lenin knew.

    control the printing of money and you control the country.

    amazing that so many ivy league and state u educated financial types have no clue as to the private cartel of fed res of ny bank, with the printing press monopoly to the country.

    easily the story of the century in finance.

    maybe barry will drill it home since he has a small microphone with an audience. be careful though, old boy, this is the big one. go near the printing press and the fangs start coming out.

    as the ancient romans said after the first 10,000 crucifixions. “next time, no more mr. nice guy”

  27. ToNYC says:

    @tt : indeed and in fact.
    The Central Bank controlling and manufacturing credit money and eating every drop of interest on the overproduction has proved only that it almost lasted 100 years, but no ‘cento anno’ for this monopoly.
    The Wizard ‘s curtain has been yanked down and the fake Trillions they need you to believe they ‘create’ are mere whiffs of a pipe dream of money that was never earned, stored or existed. Gold is no more than a convenient metric that proves the point, and crude oil as well for that matter.

    try
    http://www.zerohedge.com/forum/central-banking-vs-repubic
    for some perspective on the history of the scam

  28. tt says:

    who is the next andrew jackson?

    maybe it will be palin or huckabee. and trust me i am no teabagger. just an observer of history.

    the odds are the next pres to shut down this 3rd federal reserve, will be a hick from outside the nyc/dc bubble.

  29. Long term says:

    I would say the Real world.

    The Economy, as well as How Much You Are Worth, are both simply measures of how much you can afford that the next guy cannot afford. In the old days, when America could afford for its people what the rest of the world could not afford for its people, America was “rich”. Today, when one can afford a large house, medical care and vacations in the US, he is Worth A Lot. In either case, it matters little what your Nominal worth is. You could be a Millionaire but if everyone else has $800,000 then you aren’t much better off. What matters is how many MORE good and services you can afford COMPARED to the next guy. That disparity is the Real world, measured in any monetary unit you like, even gold.

  30. HEHEHE says:

    This could end up being the set up for the biggest stock market tank job ever. Now Bernanke has two situations:

    1)Economy improves to the extent QE II is not warranted or Bernanke decides to wait until assets drop further= market tanks

    2)Economy continues to worsen resulting in QE II = market already has it priced in so you likely see a sizable sell the news event.

    The only way he avoids a sizable market drop (10-30%) is if they institute a QEII program in November that dwarfs the previous one. I don’t see that happening for the simple reason that there’s too many future unknown negative events that these morons think will require further QE.