Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

IS QE2 DEAD ON ARRIVAL?

IS QE2 DEAD ON ARRIVAL?

Courtesy of The Pragmatic Capitalist 

QE2 hasn’t been initiated yet, but we’ve seen some remarkable moves in the markets since rumors of QE2 began circulating.  As I noted the other day input costs have been rising almost across the board as the dollar declines and investors fear the “money printing” of the Fed.  The bond market, however, doesn’t appear to be responding so favorably.  Since the rumors of QE2 began on August 3rd the 10 year treasury yield has moved just 34 bps.  Since Mr. Bernanke’s Jackson Hole speech the yield hasn’t even budged!

This is reminiscent of QE1 when interest rates actually ROSE throughout the entire program.  Despite claims that QE will have a broad interest rate effect the historical evidence corroborates no such thing.  In Japan, interest rates rose marginally during their QE efforts.  During QE1 here in the USA interest rates moved higher throughout the entirety of the program.  Why is this all important?  Because Mr. Bernanke believes he can create a refinancing effect that will boost aggregate demand.  If he can talk down rates and create a refinancing effect for debtors (which would subsequently help aggregate demand) then there is an argument that QE will be beneficial.

What Mr. Bernanke didn’t consider was the potential for QE to spark a massive move into commodities.  This is increasing the input costs across the commodity markets as investors misinterpret QE as “money printing”.  As we’ve already started seeing at various companies, these input costs are not being passed along easily because end demand remains very weak.  So what Bernanke is actually doing is creating inflation for producers while disinflation continues at the consumer level.  What does it all mean? It means margin compression.  And margin compression means no hiring.  And no hiring means no increase in aggregate demand.

I’ve maintained since day one that QE would fail with flying colors. The markets see this as some great recipe for economic growth.  I have called it the “greatest monetary non-event”.  That might be wrong. It actually might be the greatest economic destruction plan since the bank bailouts.

If the recent trends in the markets continue we have to begin asking ourselves if QE2 isn’t actually HURTING the economy?


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!