Do you find yourself wondering why the markets love economic weakness so much? Sure, it means more QE, maybe.
But why does QE jazz the market so frikkin much? I’ll tell ya, Sandy: QE is literally and figuratively like mainlining morphine (crank?) directly into the vein of the markets. Cash goes DIRECTLY to the markets! Nice, huh?
You see, if the economy recovers, it will be a slow affair, taking plenty of sweet time to filter through to the various and disparate sectors. During that time corporate results will only slowly improve after you see it in the overall economic numbers. QE on the other hand, circumvents the economy altogether. The money never filters into the economy as it stays locked in the closed loop of the investment world. In a QE manipulated regime, the economy & markets seldom meet.
So there you have it. Wall Street wants a weak economy. In fact they need it to be weak as to get the quick fix. It is the unstated Policy Tool of the Federal Reserve and the Treasury alike. As long as the numbers are weak, but not disastrous (open to interpretation), the promise of free money for markets is far more desirable to long investors than a long slow slog to economic recovery.
As Wall Street’s best friend Chucky Schumer said to Bernanke, “Now get to work!”
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Thank you for an informative post, Scott. So, it would seem the endgame will once again be a stock market bubble fueled with more QE; rising commodity prices, particularly in oil and the grains, under the media cover of farm belt drought; continued ZIRP with all the attendant maladjustments; and further concentration of wealth and political power in the hands of a few.
Given the Econ 101 equation MV=GDP, your brief post today goes a long way toward explaining, “Where’s the ‘V’?”… which has been declining since the first Reagan administration.
same old…I’m ready for a change!
btw, that was a precedent directional call from you earlier this week.
no qe anything . it doesn’t work. youd have to give every person 50k if you want the economy to be stimulated. that just might last longer than the few weeks that qe does. not happenin.
Does this headline make you concerned about post expiration forecast of a big letdown? http://www.businessinsider.com/lance-roberts-100-day-replay-of-summer-2012-7 Could it be that well known?? Really enjoy your blog/commentary.
hi there Scott
in this case, are you suggesting mkts are going for a sustained bull run?
Ps enjoy reading your writings
A weak economy increases the probability that Mr. Leveraged-Buy-Out will be elected President.
qe :fillin the balloon with water. i think it can hold a little more… opps!