RICHARD FISHER: NO NEED FOR QE3
More explicit commentary here from the Fed on QE3. I’d say the recovering economy is a lesser concern. The bigger issue for the Fed is the fact that core inflation is steady and energy prices are once again soaring. So we’re still seeing disinflation in headline inflation, but that is likely to steady over the coming months if energy prices continue to rise. Remember, the Fed thinks QE is inflationary so the last thing they’re going to do is implement QE3 if core inflation is above the upper end of their target range (2%). My scenario of disinflation leading to a possible QE3 in June is going to be 100% wrong if current trends continue.
Fisher’s comments from this morning are attached:
“The tone is a lot better. It’s not brilliant; we don’t have enough new hiring taking place, (but we’re) definitely moving in the right direction.
…Given the improvement in the data that we’ve seen, things are getting better, not worse. I don’t see any need personally for QE3 here.
…I happen to be a little more optimistic about economic movement here.”
Definitely no need for QE3. I think it would be catastrophic if it was implemented at the same time as the LTRO program in Europe.
“our manufacturing index has the highest correlation with ISM of all the Fed indices” http://twitpic.com/8nmrvl
More carefully orchestrated kabuki rolled out by the Fed. One governor zigs this way, another governor zags the other way. QE* is inevitable as the global race to the bottom for currency weakness plays out. The Fed will stop at nothing to ward off the deflationary forces of the massive global debt bubble, and the only tool that they have is the printing press (in one form or another: asset purchase, twist, swap lines, etc.). Global central bank balance sheets have balooned by over $7TR in the past several years. At some point this year, we will get a “scare” which will give the Fed license for their next injection of liquidity. In for a penny, in for a pound!
What if Fisher is right? What if the global economy is so strong, which is what markets are telling us, that no more QE is needed?
What if the globaly de-leveraging cycle, thanks to the Fed’s efforts to pull forward the process, is over, which is what consumer credit is suggesting as it continues to expand rapidly again.
What if we are re-levering? What if the wage and earnings growth pressure in the US over the past 10-15 years is no abating as out-sourcing slows?
What if EMs are in a 90s-style US secular growth cyle and we are merely transitioning away from infrastructure and commodity growth into higher value added growth / efficiency??
You see nothing but reasons to be negative, I see lots of reasons to be positive.
Are you kidding me?
Markets are reacting to monetary accomodation, not discounting strong economic fundmentals!
Consumers releveraging is hardly a positive sign, particularly in light of stagnant wages. Did we learn nothing?
And governments keep leveraging to infinity and beyond through mind numbing deficit spending.
With U-6 unemployment over 15%, where is the pressure to come from in labor markets?
Yes, I see lots of reasons to be negative, and I find the hopium laced perspectives of “what if” rather naive.
What is skittles rain down from the sky?
What if unicorns prance across cotton candy fields?
I’m not kidding, I’m serious.
Even if I concede all of your arguments, the one area you and I agree on, that being markets are reacting (favorably I might add) to monetary stimulus, is the most important thing, so I’m glad we agree.
So long as asset prices rise it allows the wounds from decades of excess debt build up, private and pubic, to be papered over and heal.
In other words – yea, things are bad, but central bankers are winning. In effect, a tree has fallen in the woods, but central bankers are making sure nobody is around to hear it.
This seems to be all that matters…asset prices go up and the worst case scenario never comes to fruition. When the hounds have healed in a few years whooosh, we’re in a new secular bull market.
Financial markets are not the real economy. Yes, is wonderful, do you want to know the share of my stagnant income that went to pay gasoline compared to 5 years ago?
Please stop the bullshit, a lot of people is getting poorer and poorer, gambling on asset prices does not fix anything. For all the ‘job claims drops’ you can’t see a significant recovery of the working force or duration of unemployment (“they must be lazy!”), worse recovery since WWII. Not only that but there still as awful amount of leverage and debt which does not go away because we are in no-one-can-default global economy and the population is enslaved to pay debts on banks which “can’t” fail while their income is stagnant or decreasing and the assets that matter (average Joe can’t gamble on the stock market anymore, as they have been whipped out repeatedly year after year but the finance establishment) like houses are losing value. So yes, is great, there is your reflation for the wealthy, but the majority gets poorer.
Very good, I’m glad your financial assets are being inflated and you can have DOW 50000, but that does not trickle down. Definitively we haven’t learned nothing, and Greenspan must be proud!
p.S: Yes I’m angry because I suffer the effects of all this bullshit as most people does.
“You CAN leverage to infinity and it never matters”
Oh god… madness, is does matter for most people, don’t you see there is insufficient growth to guarantee that labour share of wealth is also reflated? In what world do you live?
Also, I quote Paul Tudor Jones from the 1988 (yes, that far back trading geniuses / legends were saying debt implosion was imminent!!!) book “Market Wizards” by Jack Schwager…
“I know from history that credit eventually kills all great societies. We have essentially taken out our American Express card and said we are going to have a great time…we borrowed against the future, and soon we will have to pay”.
That was 23 freaking years ago!!! Moral of the story?? You CAN leverage to infinity and it never matters…it’s all just a bunch of zeros in a computer data base anymore that get shifted between one bank account to another…
B Ferro, Glad to see your comments back! Obviously, some newer people here that are not familiar with past comments, AND your nimble ability to shift directions when the data changes. Your comments have a similar tone to when you were riding the Bernanke put (correctly) and they shifted as you felt the lessening of that effect. I’m assuming that you are riding this wave until you feel the current shift, at which time, your comments will once again modulate.
I don’t happen to agree with you on this in the short term, but I do like the balance/perspective that you bring to the other side. I think markets are peaking out, BUT, whether it is a 4-5% drop as you predict, or something bigger, will have to wait and see….
best,
rhp
thanks RHP. Yea, I really don’t care which direction it all goes. I’m not so much inclined this time around to think the rally has much to do with central bankers at all, but more so with the damage that last summer/fall did to so many stocks. Such damage, historically, has happened in the midst of the market finding a major bottom (statistically at least, looking at my data, volatility witnessed over the summer was commensurate with that at the 74, 87, 02 and 09 bottoms). As such, I actually believe we are in a full fledged bull market, which is what happened after those other bottoms I listed above.
I do strongly believe we are due for a pull-back but also believe you absolutely, hand over fist, need to be snapping stocks/the market up if it happens as I believe we are going to make a mad dash sprint into the hold highs, or at least somewhere into the 1500 region. I’d be looking for 1300-1325 to begin buying. Can’t seem to tell whether we roll over right here or from 1380. Have thought 1380 for some time, but also perplexed at how long it’s taking us to get there in the context of how quickly the market has rallied off other major lows…
I think it is obvious that QE pushes up stock prices. Think about it this way, by imagining the most extreme case possible. Imagine that the Central Banks bought up 100% of all government bond issues. The only place savers could put their money is stocks, corporate bonds, commodities, and bank accounts. Since bank accounts pay 0% and are very risky above the FDIC limit, that leaves commodities, stocks and corporate bonds. Commodities don’t pay any income and are pure speculation on price appreciation. So that leaves stocks and corp bonds. Therefore, those asset classes must rise in price.
I tend to sort of agree with Ferro actually. I think we are in for a great secular bull, the market has been esentially flat for 12 years. The question is when and will there be a significant drawdown before that?
My base scenario is another drawdown of 20-30%, no idea when, and then the market takes off when deleveraging is done sometime 2013/2014. Currently short but if the drawdown comes I’m all in stocks.
You actually really believe things are getting better? I should find that hard to believe, but I don’t. Richrd Fisher is a liar, just like MSM, the political class, and the economists. This one cannot be inflated away.
QE(whatever number) has nothing to do with ‘inflation’, it’s just about giving the banks some easy profits flipping Treasuries back to the Fed after a few weeks.
How does giving banks more reserves equal greater profits? The piddling 25 bps the Fed pays on them?
In California we like to say..”we wouldn’t have fires if we didn’t have fire pensions”
We wouldn’t have to laud a Central Bankers Monetary Easing if we didn’t have Central Bankers. If there is one thing that will never change it’s the Bulls getting giddy over a market that is below where it was 5 years ago, 12 years ago and calling for another great bull run with contradictory statements. The trend is your friend they say as they draw a line from October on up and not from 2000 on down.
Here we are again praising another Fed Chairman for helping the missalocation of investment dollars. Don’t complain say the bulls/trend follows who don’t like bull or bear monikers…it’s free and easy money. How foolish of us all to point out to our neighbor that the window maker who installed your rose colored window is the same one who threw the brick at it while you were sleeping.
I’m bullish on many areas. Commodities, Oil, Natural Gas, Tech, india. Easing has it’s limits doesn’t it? At some point the very thing that gets you off has a way of seeping into those areas you don’t want. Oil et al.I own 13% in DBO for some time yet my wife complained it cost us $95. So my wealth effect of Oil ETFs is being taxed at the pump.(but at least I’m offsetting that cost) Then things slow…and QE stops. Then markets go down. But before they do the wealth effect needs to be captured. So in order to capture the wealth effect alot of people need to sell.(Zero Sum)
What was that about 77,000,000 baby boomers underfunded for retirement. Seems MPT- Risk Profile would call for a continuos underweighting in equities. “investors are underweight equities”….yes einstein…77 million should be at this stage. Get used to it…it’s only going to get worse How does an investment firm sell target mutual funds to 77 million baby boomers people and then claim they are underweight equities?
I could go on. Do not let yourself get distracted by excuses as to why the market should or shouldn’t be here today. I agree with many of you have a hard time when the Bulls are dancing claiming something that isn’t true. What I would advise you too do is dance with them…encourage them. Don’t fight them. This little bull market reminds me of a 1992 USAs Dream team basketball team vs. North Korea. I guess if you change enough of the rules of the game you can win. I wouldn’t be surprised if we started to hand out Gas cards with unemployment checks to offset the speculator whores that only trade oil and not the SPX or Russell. At least admit if for one moment that if we got rid of ZIRP, QE, OTwist, LTRO, FASB Mark to whatever, Cash for whatever, stoped extending benefits, TAF, TALF(Ralph) and any other backstop of finance do you think the North Korean Bulls would have a chance against the dream team? Ahhh but it’s the score that matters. But these programs are necessary solutions to the ills of the worlds problems. If we didn’t change the rules we’d have unemployment around 10% and no growth!(
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I’ll end with this. Can someone please tell me what the Federal Reserves duties are? Then can you answer me this? If someone worked for you and there duties were three things and all three things they are in charge of are failing would you go to that person and ask them to solve the very problem they were never supposed to allow occur? Why do so many of you place so much faith in the monetary easing polcies that need a 3 after it?
ZH has a nice piece of today’s market action with a couple interesting graphs:
Bond yields and SP500 priced in gold has gone exactly the same way since the rally started (sideways). So who is right, the bond market and gld or the stock market? The bond market has been right for… well… always.
But the housing market was also in a rally in 2006-07 right? It’s all about reflating prices right? So there we go, reflate the market again just like so many times in the last 12 years, going no where we are.
Shoot I’m being tagged to ZH….have I gone that far negative
These markets love liquidity. Let’s enjoy it while it lasts. My point is we can discuss the reflating up and deflating consequences but we should never let this get in the way of making money, finding areas to invest, learning how to do this better and profiting from policies meant to do this very thing.
I then qualify that with..a candid…I’ve been wrong on this market since mid January. Thats important to note as it says I have more to learn myself.
Ok I agree, but nowadays “the market” is pretty much about anticipating these moves, nothing else. If you do you will make money, if you don’t you will fail miserably or not lose at best.
We live in a centrally planned economy and the longer we go the more centralized it is, it all depends on CB easings and/or fiscal policies. That’s what is left of ‘the market’ so anticipating these policies and their effects (both on perception and on real activity) is what the game is about.
I think yields and bond market and equities are telling different stories, one is more centred around the evolution of the credit market and the fundamentals and the economy and the other is more centred around liquidity, ‘financial repression’ by CB’s and greed/fear (or greed/greed as other poster wrote once). As always is a matter of timing and timeframes.
A quick redirect: the reasons cited by BFerro for optimism are not reasons at all; they are merely hopeful conjecture. I don’t believe that to be any basis for an investment strategy. Nor do I believe that nominal asset price inflation engineered by central banks as a proxy for economic progress is anything more than subterfuge which “benefits” an extremely narrow segment of society. If economies were truly improving there would be no need for continued trillion dollar deficits and global CB liquidity intervention. The stock market is a broken entity, long removed from any semblance of price discovery and/or efficient allocation of capital. I have been in gold, energy and treasuries since 1983, and I’ve done just fine without the S&P. Given the delveraging/deflation and currency debasement which still loom large ahead of us (CB reflation intiatives notwithstanding), I believe that such a defensive strategy will continue to serve well.
@ HyperCynci
I would just offer some friendly advise. If you read my post I have my own views on QE and so called solutions to problems the solvers helped create.
BUT once I process the shennanigans we so often see many lauding it is important to provide and make money for your family. The truth is…markets and economies grow then correct then grow again. There are alot of positives. We do need to remember what was branded into my physche…”The coward is convinced that he is only being cautious and the miser always thinks he is practicing frugality. Nothing is so easy to deceive one’s self since what we wish is always easy to believe. No one, in my life , has deceived me as much as I have.”
I don’t know you HyperCynci…and I get what your saying. Please don’t ever forget that the market is the ultimate voice. We may not agree with it but it doesn’t matter. WE can discuss our views on things but I want to stress this to anyone….we must not let our fears decide our fate. I have and will continue to be wrong on many market calls but the sooner I adjust and go with what will enahnce my families wealth the better. I never let my view of QE get in the way of making money. Even though Feb has not been profitable on some trades I as able to take advantage of some things that did better than SPX. That being said…for anyone wondering…Yes…I still own SDS-increased it negative on the trade.
In 2011 we all were waiting for a 10% correction in Feb that never occured. Market gave investors 7%. We’ll see what 2012 holds…but remember if your feeling like markets have run away they havn’t. This is not s great bull market. It could turn into one..but if one uderstands MMR it seems there are some risks to this in 2013-2014. Trade accordingly.
I appreciate the perspectives, and as I noted I have done quite well with gold, energy and TSYs. I don’t pretend to be a trader. I try to invest in keeping with macro fundamentals and with an eye towards long term preservation and enhancement of capital. I think that today’s stock market is nothing more than another neon sign on the Vegas strip. Not only are you always playing against house odds stacked against you, but now “they” reserve the right to change the rules in the middle of any game being played in keeping with what protects vested interests. It is the lack of integrity in markets and government that put me off. Perhaps I am too much of an idealist, but I have complete conviction that this wholly unprecedented, parabolic debt bubble era will end very, very badly.
@ HyperCynic
Don’t be what your not. Your a passionate idealist. We must separate our ideals here. There is no way the fed, congress and wall st will ever be what we think they should. So what…we still must live and love. We cant let them provide excuses for us not being wealthy.
Keep the ideals but if it isn’t making you money trading/ investing then from 9.30-4.00 put your ideals in a safe place.
The market does feel like Vegas. It’ll get worse before it gets better. The Internet will and central bankers provide the average investor with just enough ego lately to overweight individual stocks or ETFs they shouldnt.
Debt bubbles end. Yes that’s a risk well have to live with until it does. Be safe out there.
Correction: Gold, Energy & Treasuries since 1993. And one more set of “what ifs”:
What if asset price inflation does not paper over old wounds but merely feeds the cancer as debt continues its parabolic ascent?
What if the hopeful conjectures regarding recovery do not pan out?
What if fundamentals turn towards significantly submean levels and paper markets roll over as the incremental impact of easing diminishes?
And last – What if I am wrong about the frightening macro future? Answer: I will miss some opportunity, but I won’t lose any capitol.
“Given the improvement in the data that we’ve seen, things are getting better, not worse” — Fisher
Economic forecasts are mathematically infallible. There is literally no excuse to make policy errors. However, the FED continues to cut back on its data series, making all forecasts harder. That said, when you have an official with the stature of Richard Fisher saying we don’t need QE3 and that things are getter better, you should worry.
I.e., contrary to economic theory, & Nobel laureate Dr. Milton Friedman, monetary lags are not “long & variable”. The lags for monetary flows (MVt), i.e., the proxies for (1) real-growth, and for (2) inflation indices, are historically, always, fixed in length.
So why doesn’t Fisher see what’s directly in front of us? Why indeed? because it doesn’t matter when the FRBNY’s “trading desk” can cover up their shortcomings.