Is there really any doubt that virtually all our markets, especially commodities and with the exception of real estate, have been propped higher as a direct or indirect result of the Federal Reserve’s policy of quantitative easing? I have no doubt.
The question remains outstanding just how far the Fed, in concert with its banking friends on Wall Street, has gone and will go to further manipulate our markets. That question may never be fully answered. What a shame! For those who believe a preponderance of truth, transparency, and integrity are the cornerstones for long term fiscal health and financial well being our markets remain a decidedly challenging arena.
In light of this reality and with the end of QE2 on the horizon this June, where do we go from here? A reader posed that very question the other day.
LD, ZH (Zero Hedge) recently reported that 2 large macro funds in Europe recently went “super-long” on the S&P around the time you were over there, do you know anything about this? This would seem to imply that Chairman Bernanke is preparing QE3 for June and that there is hedge-fund/institutional knowledge about this? Do you know anything about this? What are your thoughts regarding potential QE3 in June? Will we have QE3 in June and if-so how large will it be? We all need our fix, man.
Yes, we do all need our fix. The markets need to be fixed. Our government needs to be fixed. Our pension system needs to be fixed. Our fiscal deficit needs to be fixed. Is quantitative easing the right approach to go about fixing these problems or merely a charade to disguise our real underlying issues? Once that charade is complete, then what?
Over the last few months I have heard diametrically opposed opinions on whether Ben Bernanke will continue to provide further ‘juice’ via quantitative easing to maintain a negative real interest rate policy. At an industry conference just a month ago, a highly regarded Washington insider said in no uncertain terms that the ‘word about town’ was that the end of QE2 would be the end for quantitative easing as a whole. On the other side of the coin, in speaking with senior executives at a number of money managers, they believe a continuation of the ‘quantitative easing juice’ is a foregone conclusion.
What do I think? Based upon my travels in Europe, it is very apparent that the economies of the peripheral nations remain under real duress. We already know that the Fed has previously provided a backdoor bailout for selected European institutions and effectively the continent as a whole. That precedent and the fact that selected European economies remain on the brink would support a continuation of quantitative easing.
On the contrary, the fact that the Fed has announced a timetable to sell $10 billion in mortgage securities per month is an indication that the Fed may be looking to move to the next phase in managing our ‘walking pneumonia’ economy.
My ‘sense on cents’ take is that Bernanke will try to thread the needle and buy further time with QE2. How so? I think he will announce in the next month or so that he plans to extend the end date and accompanying implementation of QE2 for another few quarters. In doing so, he will provide a wink and a nod to those on Wall Street that the Fed’s easy money is there if and when they need it.
What do others think? Opinions and comments always encouraged and appreciated.