Canadian Money Forum banner

1 - 15 of 15 Posts

·
Registered
Joined
·
2,892 Posts
Discussion Starter #1 (Edited)
I thought this was a great article...the market has went up very smoothly that past few months, considering we don't even know if, and in what form QE2 may or may not come in.

Makes me think of selling when others are greedy and buying when others are fearful. And I wonder how many are currently fearful...

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/david-rosenberg/the-hopeless-cause-of-banking-on-the-fed/article1755847/

And a little more info on QE:

http://www.theglobeandmail.com/globe-investor/investor-education/investor-clinic/ins-and-outs-of-qe2/article1754073/
 

·
Registered
Joined
·
13,042 Posts
My simple mind won't follow the logic behind QE1 or QE2.

The idea that injecting massive amounts of paper money into the system, well not really into the system......more like right in the banks pocket, to lower interest rates..........infers that the big problem with the economy is that our interest rates are too high.

I really don't accept that unemployment is at record high levels because interest rates are too high, but then I wonder how a 50 Billion dollar "stimulus" package aimed at digging up roads and fixing sewers, was going to fix the problem either.

Are people unemployed because we have bad roads or leaky sewers?

As far as I can see, the only people who benefited from all those billions was the large road construction companies. It has been a boom for them, and their employees who probably number in the few thousands, but everyone has pretty well sucked wind. Unemployment was extended for a short period, so that helped a little, but many of those people have exhausted their benefits, received no retraining for another job, and are destined to sit on welfare for awhile.

The US housing debacle is in round 2 or 3........and it looks as worse as ever.

So, how does lowering interest rates to people who are unemployed, underemployed, are fearful of their jobs, owe too much debt, or have had their credit rating trashed so much they couldn't borrow money anyways, going to benefit from QE2?

I don't believe any of it. I truly believe that QE2 is going to turn out to be another massive handout to the banks to help them avoid a catastrophe from holding onto all those toxic mortgages and other derivatives. Obama isn't going on prime time TV and telling Americans, "yea, we have decided that we better give the banks another Trillion or so, because they got a lot of bad mojo on their books". They have to use sleight of hand to get it done, hence QE2 which is going to "stimulate" something that most Americans haven't got a clue about.

If any government wanted to truly stimulate their economy, they would do exactly what China did when they started to slow down. They gave each citizen vouchers to purchase products that were made in China. Need a new refrigerator......get a voucher. Need a new TV......get a voucher. China spend hundreds of billions on their stimulus package and it worked. People stayed working, factories kept humming along, and their economy is stable, relative to other economies.

These "stimulus" packages are nothing more than theft. They are stealling from everyday taxpayers and giving our money to the wealthy. Then those turkeys give themselves bonuses, because they are so smart.

Interesting that JP Morgan announced a pretty good year. Part of the reason was they took a couple of billion out of loan loss provisions and added it to the revenue line. When questioned on it, the CEO got hostile.

Of course, they don't have to worry about loan loss provisions. The government is going to buy all that crap from them at top price, so now they are good.

The US politicians need take care, or they will have a full scale revolution on their hands. The US populace is angry and they are armed to the teeth.

The Tea Party movement is merely a pre-cursor to the big events.
 

·
Registered
Joined
·
2,925 Posts
Thanks for bringing this topic up cal, I have been thinking about this QE thing a lot lately. I do believe the threat was there for a big market decline this fall and it was changed by this intervention. I now believe we could be in much bigger trouble as the Fed pumps inflation high in what people really need when they don't have a lot of money to spend and stops them from buying what they want.

If world follows the Fed and tries to compete in the devalue the currency game we will really be in trouble. The game plan is to keep stocks going higher to try to make Americans feel richer even though stocks will just be keeping up with inflation. And the biggest problem is savers and people who are not comfortable with risk will be forced into it if the plan succeeds.

So now everyone uncomfortably will be all in risk only to have the rug pulled out from under them because the inflation is unbearable. It will be very hard to invest from here on as the game will be changing a lot confusing people more then ever before.
 

·
Banned
Joined
·
171 Posts
So now everyone uncomfortably will be all in risk only to have the rug pulled out from under them because the inflation is unbearable. It will be very hard to invest from here on as the game will be changing a lot confusing people more then ever before.
Good points and summary...

Does this mean that as investors, gold and real-return bonds are the place to be until the situation stabilizes?
 

·
Registered
Joined
·
2,925 Posts
Thanks for the comments mike59. So what does this mean for investors?

This is really tough because the targets are always moving and what is working is going parabolic. The US dollar is the rock that is dropping with a rope pulling everything else up on the other side. So at this time a dollar rally should pull down everything else on the other side.

Gold and silver is pulling a oil 2008 and an internet 2000 at this time that can go on for a long time, meaning months, to ending now. So in my opinion I would stand aside and be in short duration bonds unless you can take the risk and go for the gold so to speak. I personally have lost on short positions this month because the market shot me down and the market is always right.

So as you can see I am very conflicted at this time because of the manipulation that has allowed assets to become extremely overbought and still go on without correction.
 

·
Banned
Joined
·
2,508 Posts
Read this article yesterday after trying to understand what is making the markets climb like this over the past 6 weeks. Been waiting to ajust my allocation but the markets wont come down now. Is this the start of a quater bull?
 

·
Registered
Joined
·
7,252 Posts
This type of QE undertaken by the US is madness.
Such intervention in an economy does not work and is counter-productive.
Canada is doing the same thing but in a different way (via artificially low interest rates).
The US is having to resort to QE because they have already exhausted all other instruments of fiscal and monetary policy.
I wonder what out-and-out monetarists like Milton Friedman would have made of this....I wish he were around today.
In a hugely over-leveraged economy, artificially reducing borrowing costs is counter-productive.
There is no real GDP (and NNP) growth to counter-balance the monetary expansion.
The M1 will simply keep expanding.
It is already expanding in Canada....I don't know what the US numbers are.

All of this monetary expansion is simply being transfered over to the producers of consumption good offshore mainly China and to some extent India and other south asian countries.
That is causing rampant inflation there....both India and China are at double digit inflations already.
They have to stop de-valueing their currency, stop the borrowing, and start producing value-added goods and services.
If the private sector in the US is too spineless to do so, maybe instead of doing "quantitative easing", it's time for the US to consider nationalizing key sectors and industries such as banking, manufacturing, infrastructure, etc.
 

·
Premium Member
Joined
·
2,686 Posts
Here's an interesting take on QE2:

Memo to Ben Bernanke: Listen to a Conference Call Once in a While

So we have a suggestion for Ben Bernanke, and, for that matter, Bill Gross, ace bond king of PIMCO who seems to manage PIMCO from within a CNBC studio, so frequently do his musings on the state of the economy appear on that TV channel, and a cheerleader of the Fed’s impending QE2 campaign: listen to a few conference calls some time.

If they listened, they’d know that companies aren’t holding back on hiring because business stinks: they’re holding back because they see tax hikes and healthcare cost increases coming, and they’re not sure adding a new FTE is a smart thing to do.

And no amount of “QE2” or QE3, 4, 5 or 6 will change that.

Ah, but who in Washington needs facts to make up their minds?
 

·
Registered
Joined
·
2,925 Posts
People in high places are being paid so of course one must not listen and let the fraud continue. The US is dripping in fraud so I suppose a crash in fraud would be far scarier then an increase in unemployment. Almost everything the US does like the war on terror, the war on drugs, everyone must own a home and just wars in general has made some people very rich. So doing the right thing is impossible unless there is no other choice.

This is why investing, buy and hold or anything else is so incredibly hard to do today because you never know where the next blindside will come from. CanadianCapitalist and haroldcrump are right but unfortunately the bad guys or the idiots hold all the cards.
 

·
Registered
Joined
·
5,223 Posts
lot of great comments in this thread

a lot of people are saying that qe2 is in fact driving the market and that in fact it will be a huge letdown because rates are low enough allready

there are other significant problems (lack of training for new jobs, de-leveraging has a long way to go, housing is crap, small business and individuals can't meet new credit standards) that won't be addressed by qe2 so i am starting to hear people talk about a correction

makes sense, more money won't do the job

all of this is driving gold higher as an alternative to too much paper money

i highly recommend the website zerohedge.com if you want some really sharp, highly technical and really fascinating ultra, ultra bearish ideas on why we are headed to hell in a handbasket
 

·
Registered
Joined
·
12,788 Posts
The point of QE is to ensure we don't fall into deflation. Moderate inflation helps erode real wages and nominal debts. It also creates negative real interest, which is a powerful disincentive to hold money (ie, get out and spend it).
 

·
Registered
Joined
·
7,252 Posts
a lot of people are saying that qe2 is in fact driving the market and that in fact it will be a huge letdown because rates are low enough allready
yes, it is driving the market but the market is not reflecting the true extent of the underlying problems.
There is "irrational exuberance" again.

I say if not doing QE will bring down the market, let it.
What's wrong in a down market during recession.
Why is the stock market controlling our thinking, decision making and our destiny so much.
At the macro-economic policy level the stock market index should be a non issue.
It matters to us as individual investors but shouldn't matter at that level.
We can keep pumping up the stock market index artificially like this and dig the whole world into a deeper and deeper hole.
Or we can use rationality to first weed out the deep seated issues and let the stock market fend for itself for a few years.
Let's get rid of the inflation, the worldwide debt, the imbalance between the consumer goods producing nations and the consumers, bring the currencies to a more reasonable valuation, etc.
The monetrary policy esp. QE is making all the above issues worse.
 

·
Registered
Joined
·
2,925 Posts
Get it and spend it only works if people are buying cars, houses a television and so on. The problem is they are inflating the cost of the goods people must have, so they will not have money to buy the cars and appliances and so on. If the Fed wanted things to work out better for the economy then they would put the money directly into the hands of the people and let them spend it.
 

·
Registered
Joined
·
6,879 Posts
I think QE2 will be as effective as QE1 - i.e. not very much. Bankers will take a few $100 billion in bonuses for doing such a good job and everybody else will continue to suffer.
 
1 - 15 of 15 Posts
Top