It has now been PROVEN that Quantiative Easing, which was designed to boost asset prices to combat deflation, was an abject failure that did far more harm than good.
The boost in prices brought about by QE took prices to where they had no business being, for both stocks and commodities. Everyone piled in and once the stimulus was complete, reality sets in and just a month later we are crashing. You are now witnessing the effects of false prices, misallocation of capital, market manipulation and outright fraud perpetrated by the Federal Reserve and the Treasury Department. Forget about how high prices hurt the economy. The destruction of capital is a far more dangerous phenomenon.
Sure, clamping down on government spending won’t help a thing and sure we’ve got some serious spending problems. But prices of financial assets SHOULD HAVE NEVER BEEN THIS HIGH and now we are witnessing the newly created capital going to money heaven. This has been my thesis for months and I’ve had a SPX 1200 target. But in this one-way market, where its all in or all out, things go faster and farther than anyone could expect.
The market won’t be happy until all of QE2 is given back. Remember this?: THE BULL MARKET IS DEAD
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Great, great call.
Why would anyone not believe that? Big Ben said it himself. Increase asset prices (stocks) so people would feel wealthier and spend to stimulate the economy. He has no bullits [sic] left. I just hope this isn’t 1937. We will all see how this works out.
But he was an economist from Princeton…….how could he have gotten it so wrong
BECAUSE HE DIDN’T WIPE OUT THE DEBT FIRST. If he did, he would have been successful!
Unfortunately you only get do-overs in college and not in the real world
You’ve been right all along Scott, of that there is no doubt. However, the optimal way to have played things would have been ala Le Fly but with a twitchy finger on the sell button at the first breakdown.
Scott – you nailed it but you look way better in shorts ; T ; and flip-flops. Ya’ll are dressed for radio.
Excellent commentary.
It gets worse, not only does it appear to be a syndicated pump & dump scheme .gov included, they also encouraged people to SPEND / CONSUME because don’t worry we have your back on your investments.
Now that people have consumed and financed purchases, they are now not supporting the market, and soon they will come after the social security that people paid in as well. South Park – And It’s Gone. I don’t mind changes but it should be pro-rata what was paid in otherwise its baby boomers stealing from everyone else.
With loss of jobs, loss of credit, a 17% drop in investments, high gas prices regardless of oil prices, higher commodity prices, and calls for changes to SS, how’s consumer confidence when the rug is pulled out?
Let’s see which banks have a perfect trading record this quarter and go after the manipulators / financial terrorists. With such negativity, it looks like the complex might be ready to load up on calls/longs on the cheap. The S&P rating should be investigated along with positions in benefiting banks, look for collusion on timing.
A country is easily controlled by its system of credit, these boom and bust cycles have benefited the connected while knifing everyone else.
and all the congress folk accidently taking holiday a day before the shit hit the fan because they have insider info……you see how they all butted out of there,silently and quick…….it’s literally turning into a dog eat dog scene now.
And next on the legislative agenda, the Anti-Dog-Eat-Dog Rule!
Scott Im a fan and you know this. Big ups.
Here’s my question, just out of my own interest in others’ ridiculous view points: Can you guys find me links where people made arguments FOR QE? I know you were ardently against it, bot stocks last summer, sold and missed some of the overshoot to the upside, well played, but were there people who seriously argued a fake bidder is conducive to price discovery? I want to see wtf they were thinking.
I mean how, in any kind of reality, could FAKING A MARKET have anything but insanely negative consequences?
Second q.
how can a free market have controlled rates when rates are integral in every single financing equation in the universe? Planned rates never made sense to me on a foundational level even when I was in upper division accounting in 2007 and there was no much thing as a financial crisis (at least with respect to what we now know)
I agree. I went short on Jul 27th open, when my very short-term models turned negative, and have not covered yet, as Aug 4th only seemed to prelude a more ominous move to the downside. I will cover tomorrow before the Fed’s announcement, and then re-establish my short position into a bounce of a 6%-9% magnitude. I will short again because my current working thesis is that the market will likely eradicate all the QE2 gains (i.e., back to 1040-1010).
If history is any guide, markets often not only erase the gains of a bubble, but also cut into the flesh (i.e., below 1010). This market feels very sick, it will likely take time to heal no matter where the eventual bottom ends up being. Time to radically shorten our timeframe, and play both the small bounces as well as sell-offs that are bound to follow after such a pervasive crash. A bottom will emerge at some point, but during violent forced liquidation, it is anyone’s guess when and at what level that may be.
Scott,
Your statement that QE was a failure is based on the false assumption that the intended purpose was the stated purpose. I maintain that the real purpose of QE2 was the same as QE1 – a massive wealth transfer from everyone else to the very rich. By that metric it has been a resounding success.
Great post
TJWP
Unless the “very rich” sold everything, it is now a resounding failure…
“we are witnessing the newly created capital going to money heaven.”
So this is where all The money went!