Friday, October 29, 2010

QE2: Happy Days are Here Again!

Beginning next week we will enter the world of QE2.  This new world will be a wonderful place where all of your dreams come true.  QE2 will be like the sun.  It will rise everyday, make everyone warm, and put a smile on everyone's faces:

We will all dance and sing each day because QE2 will solve everything.  Are you jobless?  Penniless? Underwater on your mortgage?  Forget about it!

There is now need to worry about any of that stuff anymore because QE2 is here and it's going to save us! 

Take that frown off your face and replace it with a smile!  Happy days are here again.

OK, sarcasm off, if I continue this anymore I will be forced to vomit.

Here is what QE2 will really end up looking like(Please replace Larry's face with Bernanke in order to get the full effect):

My Take:

I saw that and I couldn't resist.  I hope it made a few of you chuckle.   The point I make here is the market has hyped QE as the panacea that will solve everything.

The reality is it does nothing the help Main St. 

QE2 is a fairy tale.  We are being told that QE to will lead to endless prosperity.  You hear the same buzz words out of Washington.  All you hear day after day is words like hope, change, prosperity and so on.  My answer to this garbage is "where's the beef?".

Selling "hope" gets old after awhile when you continuously fail to deliver.  One of my awesome readers reminded me that we have seen fairy tale dreams like this before:

Wouldn't you just love to find this women today and asker her how all those promises worked out?  I bet you would get a different answer.

QE2 will fail just like every other government promise has failed to date.  They should place QE at the top of the fail blog right now because if you look at the price of commodities since the announcement of this disaster you could technically say it's failed already.

QE2 will not help J6P, it actually hurts us because the one thing we can count on with more quantitative easing is higher inflation.  That's being reflected in gold prices again today which are up another $15.

We are also seeing more weakness in the dollar especially versus the Yen:

Take Continued:

This is a chart of the USD/Yen dating back to 2001 which was as far as TOS would let me go.  We are actually on the border of breaking the all time lows on the dollar versus Yen that were set way back in 1995.

This is really bad news.  Especially for the Japanese.  Japan Announced more easing plans last night as they lowered their growth expectations as a result of their stronger currency.

Folks, I am getting really concerned about Japan.  The reason a rising currency is crippling for them is because they are an export driven economy.  A rising currency is extremely destructive for them because it makes their exports more expensive.

Japan is at serious risk of seeing an economic collapse.  Their debt versus GDP is the worst of any developed country.  It's at around 200% which is double where we are right now.  They have already tried multiple QE's which have done NOTHING but make things worse....Are you listening Mr. Bernanke?

This of course threatens the stability of the financial world because Japan is the 3rd largest economy globally.  If they default, there will be destructive rippling effects that will be felt everywhere.

The Bottom Line

US GDP came in at 2% which was a tad below expectations.  The stock market is down slightly.  As I said earlier this week, I didn't expect much out of stocks until the FOMC announcement.

The credit and currency markets are however extremely active as they start trying to price in the Fed's QE2.  Bonds are up after a few down days but are still down for the week.

I think the Fed's move to ask the primary dealers about bond demand might have forced the bond market to slow down the treasury sell off.  They are concerned that the primary dealers might be able to talk the Fed into increasing the QE2 number.

This is all setting up for one hell of a week next week.  The markets will be a rockin as they digest all of the election and QE news.

For now, all is quiet before the storm. 

Disclosure:  No new positions taken at the time of publication.


getyourselfconnected said...

"Now that we have QE I won't have to worry about my mortgage or putting gas in my car!"

Paraphrase of an oldie but goodie.

Jeff said...


I love that you tube video.

I should put that up. Good idea get

Jeff said...


Had to throw that in there Get. Awesome idea!

getyourselfconnected said...

Made my night! Too funny, I will have to "borrow" this section tonight!

Anonymous said...

"A rising currency is extremely destructive for them because it makes their imports more expensive."

You meant: Japanese exports will be more expensive and imports for them less expensive. Right?

Peter said...

Why thanks Jeff, that's going to make my weekend even more pleasant.

You know the only reason QE2 will fail is that they won't make it as big as Paul Krugman would like. Other than that it's really sound policy. It is, really, I swear.

Jeff said...


oops my bad.

I'll have to fix that

Jeff said...


Like I said: Happy days are here agin....NOT!!!!:)

Jeff said...


Fire away!!! I'll be on to read later.

CT-Hilltopper said...

The storm.

The calm before the storm.

We've been waiting for the storm for almost two f-ing years now, since TARP, son of TARP...and the wonderful world of POMO's.

POMO's make the world go round...dontcha know?

I'm sick of the whole freaking thing, honestly.

LOL at the video of the woman who said Oblahma was going to buy her gas and pay her mortgage. Good luck with that one, lady! She's still waiting for her hope and change too, I'll bet.

The only thing worse than a market meltdown is a market meltup. The prices on commodities and stocks shoot through the roof, yet the average American won't be able to afford to eat.

Jeff said...

Well said CT.

COuldn't agree more