The Incoming Wave of Worldwide QE Is Not Going To Work
September 9th, 2012
If anyone wants my thoughts on this, and it’s probably worth what it’s costing you, here they are…
The Fed does NOT want to appear political. Not to say they aren’t political, but they do have to work with both parties in Congress, so they hate to change policy in the midst of an election cycle for fear of alienating one side of the aisle.
That said, if it means putting a bandaid on a potential collapse of a major U.S. Bank, or the economy as a whole, I think they will do it regardless of the political implications, because I truly believe their number one priority right now is staving off a financial collapse until after the November elections.
It’s interesting to me that China announced their new QE program a couple of weeks ago, then the ECB announced theirs this last week, that is an indication that the FED won’t be too far behind, as these things are usually coordinated.
So let’s assume there will be a QE3, or whatever number we are really on, before the November elections. What should we expect? First, expect a market rally in equities and commodities. Some QE has already been priced in, but if they make a big enough splash you could see the DOW at 15000, Oil at $150.00 (even without a war in the Middle-East) and Gold at $1900.
BUT, how long will the rally last? Even if they do it this month, I don’t think it will last much past the end of the year, at least for equities and the DOW. Here’s why, QE in a chronically low interest rate environment has a continually deminishing rate of return, and interest rates have been way too low, for way too long. Money, from a depository standpoint, is essentially worthless already. If we were going to get any real financial benefit from all of this QE and effective interest rates of Zero, we would have already seen it, and the ECB is now on their second QE of 2012, if you remember they loaned European Banks over 1.25 Trillion Dollars back at the beginning of the year, and that barely bought them six months before they had to begin slapping more bandaids on. Expect the same thing from a FED QE, only with perhaps a shorter duration of relief. I give the next QE three to four months of effectiveness at the most…
You see econommists really have no idea of the fire they are playing with here. I’ve said several times that the next QE is the last QE, at least for the FED, and I stand by that statement. We’ve never in our history had interest rates this low, for this long. When you factor in inflation and real currency devaluation, the rates are effectively negative. But still NO GROWTH.