Markets are shrugging off worse than expected news from housing, Chicago Fed Activity and the Dallas Fed in preference for the Ben Bernanke comments that some claim hints at QE3.  The key parts that investors were reading into:

“To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.

I also discussed long-term unemployment today, arguing that cyclical rather than structural factors are likely the primary source of its substantial increase during the recession.  If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well.”

Is that pointing to more easing?  Goldman’s Jan Hatzius is not so certain.  He said:

“On monetary policy, the Chairman said that faster growth—perhaps needed to see further declines in unemployment—“can be supported by continued accommodative policies”. He also argued that because the increase in long-term unemployment was primarily cyclical, “then accommodative policies to support the economic recovery will help address this problem as well”. These statements were not necessarily calls for additional easing, but they clearly supported the Fed’s current accommodative stance.”

Many analysts and pundits appear to be taking the Fed Chief’s comments as a hint at new easing.  I don’t see it.  His comments were pretty much exactly what he’s been saying all along.  The economy is weak and he’s going to remain accommodative.  But these new comments don’t hint at new easing policies.  And I still maintain that the Fed will be on hold unless the wheels really start to come off in the coming months.  I guess we can conclude that the Bernanke put is well in place.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Mr. Market

    Yes, I am betting on QE3 coming down the pike. Especially when the USD remains flat or is going down And a weakening US economy.

  • http://economicmusings.com David Schawel

    I still truly believe we see more QE. Out of all people not affiliated with the Fed – I’d guess Bill Gross gets as much info as anyone. His portfolio? Loaded to the brim (through some leveraging) with low coupon interest rate sensitive 30yr mortgage pools. Have a hard time believing that he’d have a 50%+ allocation to these types of bonds, and a duration that long, if he didn’t think/know more QE was extremely likely. No asset class would be hit as hard as what Gross owns if QE3 doesn’t materialize given these would be the EXACT bonds that the Fed would be buying. Does this mean Gross knows? No, but he’s making a sizable bet in his $260bil fund.

  • Alberto

    There is no doubt QE3 will come, but not now. It will arrive later after a brief schock on the economy. We’re in a currency war that will last until the goverments will find an agreement or a big burst somewhere in the future. Everything is connected. All countries will race to devalue. The last posts by Michael Pettis and Andy Xie are illuminating. Please don’t be stuck on the US only, it’s only one huge connected economy.



    And this by ECRI is also very good:


  • Larry

    It is clear from this super turbo-charged afternoon rally today that Traders believe that Ben just hinted that QE3 is coming. Both bond traders and equity traders are behaving in a way that strongly indicates a belief that QE3 is coming.
    @VII, you were right to be 60% long (or more), and @B FERRO, you have been totally right so far to be bullish. The two of you, and a few other bulls, have persuaded me to join the bulls, rather than continue fighting them. I still don’t think this party will last very long, but I’m in for what I think is a short ride.

  • jt26

    “I guess we can conclude that the Bernanke put is well in place.” Brilliant.

    BTW, does anyone think the GOP rhetoric on “reining in” the Fed will curb the put? I sort of think of it like Fukushima; highly unlikely, but the consequences are horrendous.

  • Pierce Inverarity

    QE2 caused a drop in the dollar due to market misinterpretation. Are you suggesting Bernanke wants the dollar to drop more? Or are you suggesting he wants to prop the dollar up? You can’t have it both ways.

  • Derfem

    One who can read a technical analysis had saw last friday that:
    (1) SP500 and NX were sitting on a rising support, still within a rising wedge
    (2) Breath was oversold (McClellan) which imply at least a bounce.
    On the other hand, sector rotation is on, BUT Financials are outperforming since one week (translate at least temporary bullish). Still no short signals.

  • VII

    @ Larry

    I don’t know where the SPX will be in 12 months. I know it just hit the 1415 mark which now changes everything for me. If it hits 1430 I will be thankful cause now everything changes positive even more. But I jumped this gun prior to 1415 because of B Ferro- He has helped me alot.
    If you have 250k or more to invest and want someone who is going to protect your assets and has from what I can see the the best process out there. I would fire your private wealth manager and see if B Ferro can help you. You’d be silly not to use from where I sit one of the most thoughtful LOng/short Hedge fund managers I’ve come across.
    I’m not smart enough to understand China, Europe and everything else. I just want to know what the SPX will do and is it acting different than it has to warrant reducing risk. Everything is for the smart PhDs from Stanford to discuss.

  • B Ferro

    This rally is the most amazing thing I’ve ever seen.

    It literally can’t stop – ignores bad Chinese data and tears higher on some irrelevant German survey data point LOL…

    When it’s all said and done this is going to be one of the, ex 98-00, most generational runs we’ve ever seen…akin to 95/95-00 onward…

    I have no explanation (and don’t really care to fathom one as it is irrelevant but in hindsight) but to think EMs are in a secular growth cycle that began in the early 00s that resembles what we had beginning in 82…the Fin crisis of the West since 07 until last fall was merely a temporary interruption to that cycle…there is no other explanation…I think this is what everybody is missing

  • teomax

    Good luck to Bennyboy with QE3.
    There is oil to stop all his helicopters. If he want to bring whole worldwide economy into the recession, just do QE3 sometimes before the summer. 150 oil will surely do good for a global economy.

  • VII

    + 1..
    better late than never says the drivers on L.As 405.

  • hfm

    Hi Ferro:

    You made amazing calls about this market. I believe this is a trader’s market, it is interesting that people always look for reasons for this rally.Today’s rally actually has nothing to do with QE and other economy news. It just goes where it should.

  • Larry

    @B Ferro, please explain to me why the SPX is out-performing the EEM over the past 12 months, if EM is the driver of this rally? In the last 12 months, SPX is up about 8%, while EEM is down about 7%. In the last year, the U.S. has been the best place to put risk asset money, has it not? Maybe this is due to AAPL and a few other growth stocks? Thanks. You said: ”
    EMs are in a secular growth cycle that began in the early 00s that resembles what we had beginning in 82.”

  • Giledain

    Fund managers patiently waiting for the dink that never comes. And suddenly it’s end-of-quarter and they’ve got more bonds and fewer stocks than the other guys do…

  • Tradeking13


  • Lance

    Interesting the Chairman’s seeming claim that most of the unemployment problem is cyclical rather than structural. Why, then, do employers apparently decry the lack of appropriate talents in the job applicant pool today? Of course, if unemployment is labeled structural, then maybe the Chairman’s policies are pushing on a string?

  • B Ferro

    I’m going to agree to disagree with you on this one…I think it’s the opposite of a trader’s market. A trader’s market is what you had from the Jan-10 high when Greece first became an issue to the Oct-11 lows. Think about it – we had two 20% sell-offs peak to trough in the span of a single year. In between those two sell-offs we had a massive rally – something much stronger than you get in a bear market retracement rally as we put a fresh cyclical high in during Apr-11 vs. the Apr 10 high.

    All of the above was a trader’s market. This is a sit tight and be right market. An investor’s market. Correlations have broken down, bottom up research is paying off and you literally don’t need to come into work except when you see the market down 1% intra-day or ~2% off its most recent peak so you can put more capital to work and get “long-er”…this is where the market does all the work for you. You just have to be there and not mess it up by over-trading!

    All the factors that were in play since fall 2008 are no longer in play, in my opinion…the world became different after the Oct 11 lows

  • B Ferro

    Larry..yes I believe this…

    For one, the more obvious answer is that GDP growth is not correlated with market performance.

    Secondly, historically, when we had a normal business/rate cycle in the US, the best time to sell stocks was after the Fed had over-tightened and began to ease for fear they had slowed the economy too much…that first Fed rate cut typically was your signal to sell. Best time to buy was when it was becoming clear the rate cuts had abated. Similar too for bull markets…if the Fed had been tightening and the cycle was strong enough, the market would stall / correct until it was clear the hikes were abating (1994/1995)…

    I think the EM cycle of the past two years is akin to the above…aggressive tightening in 2011 stalled EM stocks and right now they continue to chop around. My guess is this continues until investors believe the pace of cuts/easing abates…

    Lastly, every dog has its day in the sun…EMs have been massive outperformers over the past decade…

    Remember, even though the US secular cycl began in 82 and didn’t end until 00, the early 90s were harsh (though not scary) and unforgiving with a mild recession in there…nothing too out of the ordinary with what EMs have seen the past 2 years…minor sell-offs more about the inability to make new highs vs. intense downside

  • ES

    This comment stood out as a sore thumb to me as well. The unemployement is structural. For the skills/price level , US labor is too expensive. Either quality needs to get higher or the price needs to come down.It is hard to do anything about quality/ skills short-term, so the only avenue is the price. The cost of labor has to come down to be competitive globally. I am not sure how QE3 can help this.

  • quark

    Nero fiddled while Rome burned.

  • Andrew P

    Bill Gross was utterly wrong last year. What makes you think his prognosticating powers are any better this year?

  • Lance

    Thank you ES. It’s nice to know that at least I’m not the only crazy person in the room. ^_^

  • AK

    I think Monetary policy has run its course. Bernanke knows it. Bernanke also knows if he allows QE3 then it will only help speculators on Wall Street and it will do nothing to help the economy. Only fiscal policy can boost the economy. So, unless more fiscal help is announced (which is not gonna happen in the election year) I don’t think Bernanke will annunce QE3 because he knows the secret will come out on the Main Strret that Bernanke is just helping Wall Street with his stupid “QE”.