Bernanke followed thru with his Jackson Hole speech and didn’t pull the football away from Charlie Brown. More QE he brings totaling $40b per month in MBS with no specific timetable on when it will end, thus considering it ‘open ended.’ The Fed also extended its desire to keep the fed funds rate “exceptionally low” thru mid 2015 from “at least thru late 2014.” The Fed “is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.” Bottom line, Bernanke gave us what many should have expected after his Jackson Hole speech where he defended previous QE and gave his ‘grave’ concerns with the labor market comment. This policy will do nothing for economic growth, raise commodity prices, will further clog their balance sheet with longer term securities and will make the process of an eventual and inevitable exit highly disruptive and messy. The Fed did little to convince me that the benefits of this new policy comes anywhere near the costs. Also, the Fed again is showing no faith in the regenerative powers of American capitalism where growth naturally happens as long as markets remain free.

Category: MacroNotes

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6 Responses to “More QE as should have been expected…”

  1. drctypea says:

    why does the fed have to unwind. cant it just hold the securities and let them payoff?

  2. ironman says:

    But for stock prices, perhaps as much as a 10-15% boost, above and beyond what they would otherwise be, through the effect of quantitative easing. More likely somewhat less than that given that long term interest rates are already pretty depressed and are thus would be more difficult to lower further through the Fed’s latest action.

  3. Rick Caird says:

    Bernanke also extended ZIRP until 2015 continuing the “senior squeeze” and delaying retirement for many and, hence, not clearing out jobs for younger people.

  4. Rick Caird says:

    Oh, and the dollar is dropping, but gold…. Dropped by $40 before the Fed announcement (clearing out stops) and then rockets up. Think any of these banks that own the Fed had advance notice? Nahhhh, not a chance.

  5. Jojo says:

    Given our ineffective and essentially paralyzed Congress, the FED has become the new shadow Congress, attempting to act in their stead. Why not allow the FED to make laws also and just disband the Congress?

  6. curiously, technical analysis “sensed” weeks and even months ago (since June 29) that big time liquidity was coming up. I wouldn’t underestimate the bullish potential of today’s announcement a further 30% gain for the stock market from current levels is not unrealistic. Why? There are two reasons:

    Technically, under Dow Theory, the stock market is in a primary bull market. +100 years of Dow theory’s track record (and observations) show that the average gain exceeds 40% and its median duration is 2.5 years. So we are not talking of a knee-jerk reaction to QE3. So we are not talking of a “rally” or short covering rally but of a very powerful bull market. Such signals aren’t given very often

    Furthermore, and confirming what I see in the stock market charts, the gold and silver universe issued by late August (gold silver), early September (gold and silver miners) another primary bull market signal. This also means that a powerful move in the PMs is to be expected in the next months and maybe 2-3 years. But gold is to the dollar what kryptonite is to Superman. If gold is going to go up substantially (as per Dow theory given its volatility a 50% target is not outlandish).

    But such foreseeable increase in gold with the corresponding dollar decline, further reinforces the stocks bull market. In Weimar Germany when the currency was being destroyed stocks witnessed massive increases (albeit gold was the best performer).

    So in nominal terms stocks may go up substantially. Definitely not a market to short.

    sorry for the long post, but today is an important day whose repercussions will not fizzle easily.

    Here you can find the detailed technical analysis under Dow theory:

    for stocks:
    http://www.dowtheoryinvestment.com/2012/09/the-market-is-in-primary-bull-market.html

    for gold:

    http://www.dowtheoryinvestment.com/2012/08/august-22-2012-new-primary-bull_30.html