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Charting The "Success" Of QE2

Tyler Durden's picture





 

One chart as usual does more to convey a simple message than all the Fed speeches equating the economy with the Russell 2000 ever could. Below we demonstrate the performance of three key market data points since the August Woods Hole speech: the performance of the S&P (via the ES), the price change in the 10 Year bond (TY1 inverse scale), and of course the change in non-farm payrolls (remember that old-school Fed mandate about full employment something something). Bottom line: the S&P is up over 30%, the 10 Year has plunged from over 126 to 118, while NFPs have added 392k, or 78.4 per month, nowhere near enough to even keep up with the natural growth of the labor force. So has QE been a success? We leave it up to readers to decide.

And just to make the message even more clear, here is how the dollar, cotton, rice and wheat have traded since August. Pick your winners...

Indeed, as David Rosenberg discusses, the number of "winners" (among which the NFP most certainly is not), are many other asset classes, whose returns put the S&P to shame:

So Ben Bernanke focuses on equity valuations and yet there is a wide array of other “asset classes” that have been affected by the Fed’s massive liquidity infusion. Just as equity wealth has an indirect impact on spending, higher commodity prices squeeze margins for many producers and pinch real purchasing power for those households who are not owners of equity but have to fill their kids’ tummies nonetheless and find a way to get to work if they live more than a mile away. Looking at what food and energy has done since August; it would seem a little circumspect to be fingering Asian demand as the primary reason for the latest leg in the explosive commodity price rally.

Here we are, with 91% of all equity holdings in the United States held by the top 20% income group in the country. The top 1% own 38% of all the equity valuation. The lower 80% of the income strata own the asset class that the Fed wants so desperately to reflate (and with unmitigated success to be sure!). That same 80% are now being crushed by the indirect impacts of monetary policy — the ones that Bernanke dismisses — and are also ones that are seeing their cash flow drained by the surging gas and grocery bill. Geez — real wages deflated 0.5% in November, by 0.1% in December, and by what looks like at least 0.3% in January. The last time real work-based income fell three months in a row was when the economy was plumbing the recession’s depths from April to June of 2009.

Then again, who cares? No hedge fund investor does that is for sure (we don’t intend to be mean — that comment only covers the hours that the market is open). As long as Bernanke is juicing it up for the equity investor, and Uncle Sam is looking after the poor sucker with 99 weeks of unemployment insurance, 43 million food stamp recipients, and a nice dip into the Social Security Fund to finance a payroll tax cut, then all must be good and we must therefore have a sustainable recovery on our hands.

As we have said time and again, there will be a reward for being patient. After all, this equity rally has already achieved in 20 months what it took 60 months to accomplish from 2002 to 2007. In other words, double from the lows.

Friends — there is going to be day of reckoning. Trying to time it is futile. Just know it is coming and sooner than many think. Stop watching the talking heads on bubblevision and start boning up on the history of how post-bubble credit collapses end up playing out, especially once the government runs out of gas. Please don’t be tempted into the same mistake you may have made in 2007 and 2008 by jumping in too the riskiest parts of the markets at this juncture. In our view, it is currently appropriate to be focused on long-short strategies where an investor can manage or hedge out market risk and at the same time generate significant risk-adjusted returns. We understand what the market did from the 2009 lows, but we also know what they did from the 2000 highs. And the 2007 highs. Don’t be burnt thrice.

 


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Mon, 02/07/2011 - 13:50 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

I think with QE we are all buying the dip in employment.

Keep some powder dry; the second dip is going to be a doozy.

Mon, 02/07/2011 - 13:24 | Link to Comment 99er
Mon, 02/07/2011 - 13:25 | Link to Comment pat53
pat53's picture

Yeah, thats about the worst chart I've seen .... NOT !!   1350  SPX soon.

Mon, 02/07/2011 - 13:33 | Link to Comment Ray1968
Ray1968's picture

The DXY is pretty damn ugly! No matter how you slice it.

Mon, 02/07/2011 - 13:51 | Link to Comment scatterbrains
scatterbrains's picture

not so sure about that..  copper which has lead the hot money looks weak today in the face of this blow off.

Mon, 02/07/2011 - 17:50 | Link to Comment ZeroPower
ZeroPower's picture

Target 1206? Lol.

When, in 2015? 

 

Mon, 02/07/2011 - 13:22 | Link to Comment alien-IQ
alien-IQ's picture

When the market cap of NFLX surpasses that of XOM, then we can say "QE was a great success". Other pesky items like employment or inflation do not enter the equation....right?

Mon, 02/07/2011 - 13:24 | Link to Comment Himalaya
Himalaya's picture

May be QE3 will do a better job. lol

Mon, 02/07/2011 - 13:45 | Link to Comment Me XMan
Me XMan's picture

QE 3 is fur sure.

Mon, 02/07/2011 - 13:25 | Link to Comment RobotTrader
RobotTrader's picture

Gold and oil both down today.

Neither commodity is overextended or parabolic.

Which means additional QE will be kicking in soon.

When the afterburners are lit, these commodities and stock indexes could go parabolic.

Mon, 02/07/2011 - 13:32 | Link to Comment alien-IQ
alien-IQ's picture

just imagine where the market will be when they announce QE XXV...of course...you will need a kevlar vest and a full automatic to go to an ATM...but hey...that's of minor importance. AAPL @$1500 is what really matters.

Mon, 02/07/2011 - 13:59 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

To the ATM? No. You'd need a wheelbarrow to carry it all and robbers would be doing a favor, the heavy lifting! Lol

Weimar, where for are thou?

Mon, 02/07/2011 - 13:34 | Link to Comment Pants McPants
Pants McPants's picture

All of your comments follow the same template - they pretty much write themselves.

Keep the photos coming, please.

Mon, 02/07/2011 - 13:35 | Link to Comment SheepDog-One
SheepDog-One's picture

Do you even bother looking at a chart before you say gold is down? Seems not.

Mon, 02/07/2011 - 13:46 | Link to Comment Robot Traders Mom
Robot Traders Mom's picture

Come upstairs and give your ol' mom a hug.

Mon, 02/07/2011 - 13:47 | Link to Comment Me XMan
Me XMan's picture

How to bankrupt the Fed?

Mon, 02/07/2011 - 14:10 | Link to Comment lieutenantjohnchard
lieutenantjohnchard's picture

so, from your apartment in los angeles, unemployed, are you today saying that gold mine owning, multimillionare gentleman jim sinclair is a gold fool, or perfectly situated to mint money?

it's hard to keep up with your popcorning ideas.

 

Mon, 02/07/2011 - 13:26 | Link to Comment Hedgetard55
Hedgetard55's picture

QE is successfully transferring debt from banksters to taxpayers, and nicking everyone who holds dollars and dollar equivalents.

Mon, 02/07/2011 - 13:30 | Link to Comment JLee2027
JLee2027's picture

Bond market falling apart. Housing in decline and accelerating. Inflation taking hold. QE2 ineffective. Political unrest in Middle East. 

It appears the writing is on the wall. Nasty storm dead ahead.

Mon, 02/07/2011 - 13:32 | Link to Comment SheepDog-One
SheepDog-One's picture

Oh thats OK, Robo says NFLX is up.

Mon, 02/07/2011 - 14:04 | Link to Comment thepigman
thepigman's picture

What's funny is Robo is not even a

bull, and I think that's indicative of

almost everyone else long risky assets.

They regard the market as a free money

dispensing machine. That can get very

tricky very fast.

Mon, 02/07/2011 - 14:34 | Link to Comment Clockwork Orange
Clockwork Orange's picture

Will be too dangerous to go to ATM or anywhere else for that matter.  When the storm hits, Netflix with your fav home defense weapon will be the thing to do.

Mon, 02/07/2011 - 14:15 | Link to Comment HarryWanger
HarryWanger's picture

Bond market is hardly "falling apart". Housing decline has flattened and, worst case scenario, has another 5-10% drop - far from "accelerating". We've seen inflation is benign at best. QE2 has been immensely effective. And, finally, we're seeing some calm in the Middle East.

Do you actually look at the data and economic numbers before posting this stuff?? Look at all the acceleration in manufacturing - ISM, GDP, Retail Sales, etc. How can anyone here seriously think that the economy has not improved significantly in 2010?

Mon, 02/07/2011 - 14:19 | Link to Comment d00daa
d00daa's picture

Hi, asshole.  You're not getting away that easily.

 

ONCE AGAIN, WHAT EXACTLY IN THE GALLUP EMPLOYMENT SURVEY POINTED YOU TO AN 8.9-9.1% BLS?????

 

http://www.gallup.com/poll/145922/gallup-finds-unemployment-slightly-jan...

 

You're a liar and a fraud.

Mon, 02/07/2011 - 14:25 | Link to Comment disabledvet
disabledvet's picture

egads! "liar and fraud"!  how will he recover!

Mon, 02/07/2011 - 14:35 | Link to Comment d00daa
d00daa's picture

So he's not a liar or a fraud??  The only thing left is woefully ignorant and/or mentally retarded.  Pick your poison.

Mon, 02/07/2011 - 14:32 | Link to Comment lieutenantjohnchard
lieutenantjohnchard's picture

notice harry wanger danger barch hasn't said a word about the zh post earlier mentioning the nearly 100% likelihood of downward bls numbers after the initial release. heck, i read at another site the white house doesn't even believe the bls number. only in harry's world can one calculate a dropping u3 number with no job growth.

in the meantime the world's largest garage sale economy - aka the usa economy - continues apace.

Mon, 02/07/2011 - 14:28 | Link to Comment d00daa
d00daa's picture

Bond market is hardly "falling apart".

The Bernank said QEx was supposed to lower rates.  Rates have risen in the face of it.  If that is because the economy is improving, there is no need for QE.  Do you see how you are boxed in here?

 

Housing decline has flattened and, worst case scenario, has another 5-10% drop - far from "accelerating".

Based on WHAT??  Reggie Middleton posted an article here recently which flies in the face of your call, backed up with solid analysis.  Again, waiting with bated breath on your "analysis."

 

We've seen inflation is benign at best.

Orly??  Please, expand on this view, preferably backed up with some objective data.


QE2 has been immensely effective.

Once again, SHOW ME THE DATA.

 

And, finally, we're seeing some calm in the Middle East.

It's forming a nice base, for sure, but I'm definitely long volatility on the breakout.

Mon, 02/07/2011 - 14:30 | Link to Comment Zero Govt
Zero Govt's picture

Harry still taking your happy pills... you're going to need double-doses when these makets you think are looking real good disappear down the toilet quicker than you can say "WTF happened?!!!"

Mon, 02/07/2011 - 14:41 | Link to Comment EvlTheCat
EvlTheCat's picture
In your honor Harry: The amazing Cuckoo song

http://www.youtube.com/watch?v=ik1PP26JrsU

I imagine this is pretty close to how your logical reasoning works!

http://www.youtube.com/watch?v=bJW-rXoFrI8&feature=relmfu

Mon, 02/07/2011 - 14:49 | Link to Comment Ferg .
Ferg .'s picture

Reggie Middleton does some good analysis on housing and makes some good arguments for a chronic decline . I'm not sure in what regard you think QE2 has been " immensely effective " , aside from commodity/stock inflation that is . Thankfully things have calmed somewhat in the Middle East . However , that was only after riots and pitched battles between different sides of the political divide in Egypt . It's a sign of the character of the equity market that even as the situaton deteriorated in Egypt last week stocks rallied regardless .

No doubt data has improved over the last few months but it's hardly been stellar . More importantly you can't just observe a headline reading and take it at face value . Numerous contributers to ZH have pointed out , in detail , the shortcomings of various econometric models currently in use .

I've no problem in agreeing that there has been an improvement since last August . The real question though is whether it's sustainable against a backdrop of spiralling debt ,  fiscal deficits , a slumping housing market and high unemployment . Remember the aftermath of QE1 ? Things fell apart rapidly once it was withdrawn .

Mon, 02/07/2011 - 15:32 | Link to Comment thedrickster
thedrickster's picture

I've come to the conclusion that Harry works in government, the incessant cheerleading, jingoism and self delusion is a dead giveaway.

Now the real question is whether Harry works at Treasury or whether he is one of the Emperor's paid blogger political hacks.

In any event I want some of what he is smoking.

Mon, 02/07/2011 - 13:34 | Link to Comment TradingJoe
TradingJoe's picture

Look at the 1929-1933 "thing" and you know where we're going! POMO and all QEs cannot do shit against that! SO BTFD or BTFH won't help any longer! I have been looking at these charts and compared the shit out of them...at on point or another it will materialize and when it does...that big fat red candle on the chart will look like a monument of failed and corrupt government crony capitalism load of crap!

Mon, 02/07/2011 - 15:12 | Link to Comment limcagoldspot
limcagoldspot's picture

history repeats itself.. but not in the same way you think, my friend..

Mon, 02/07/2011 - 13:40 | Link to Comment the rookie cynic
the rookie cynic's picture

QE2 has been a success for rich people and banks. Blows for everyone else. http://therookiecynic.wordpress.com/

Mon, 02/07/2011 - 13:44 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Bernanke said very carefully the following:

***The purchase of bonds in the middle of the curve is intended to reduce interest rates and consequently increase economic growth, which will in turn reduce unemployment and buoy the stock market.***

This is a SEQUENTIAL thing.  It all happens in the order he specified.  That was his thinking.

It has failed.  Rates did not come down.  That was the intended engine for all other effects.  Those other effects, partially, having taken place ARE NOT DERIVED.  The mechanism is what mattered.  Rates were supposed to come down.  They did not.

He has failed.  He is in completely new territory and has no idea what is going to happen or even what has happened already.

It's all a crapshoot.

Mon, 02/07/2011 - 13:49 | Link to Comment thepigman
thepigman's picture

Everyone long this mess knows its

a scam. Even Robo.

That's not bullish.

Mon, 02/07/2011 - 13:53 | Link to Comment thepigman
thepigman's picture

Basically, the Bernank is not gonna

have enough QE in the final analysis

to keep it from imploding.

Mon, 02/07/2011 - 14:06 | Link to Comment topcallingtroll
topcallingtroll's picture

I gotta believe in the bernank cuz i got nothing else to believe in.

Mon, 02/07/2011 - 14:50 | Link to Comment Clockwork Orange
Clockwork Orange's picture

Exactly pigman, that's flash crash deux.

Mon, 02/07/2011 - 13:50 | Link to Comment SilverIsKing
SilverIsKing's picture

QEx is accomplishing exactly what the FED wants it to.  My mother thinks everything is getting better because the stock market has come back.  Everything else is just noise.  So you see, it's working.  My mom also thinks Obama is doing a good job.  I'm now wondering if I was adopted.

Mon, 02/07/2011 - 13:57 | Link to Comment thepigman
thepigman's picture

'Cept we've set ourselves up for

a repeat blowup of 2008 when reality

intrudes.

Mon, 02/07/2011 - 15:03 | Link to Comment Clockwork Orange
Clockwork Orange's picture

Next time there will be not TARP, no bail-outs, and no tolerance.  Thanks to Egypt, even the American sheeple are waking up to the notion there are two classes and they are the ones being fleeced.

Next time will be big-time.

Mon, 02/07/2011 - 13:54 | Link to Comment tewkatz
tewkatz's picture

So has QE been a success? We leave it up to readers to decide.

There are no tanks in the streets...although a completely-salt-caked Ford Expedition is pretty scary too...

Mon, 02/07/2011 - 13:55 | Link to Comment Jim in MN
Jim in MN's picture

Very successful, compressing 20 years of Japanese economic policy into 2.

Bravo.

Mon, 02/07/2011 - 13:59 | Link to Comment thepigman
thepigman's picture

Highly amusing comment.

Mon, 02/07/2011 - 14:47 | Link to Comment Zero Govt
Zero Govt's picture

Well Timmay Git'ner did visit Japan and said they "weren't spending fast enough"... with Keynsian friends like him to fabricate a false Govt zombied economy who needs enemies!!

Mon, 02/07/2011 - 13:59 | Link to Comment Cocomaan
Cocomaan's picture

What the fuck is wrong with you guys? Didn't you see those superbowl commercials? The economy is definitely stronger now.

Mon, 02/07/2011 - 14:05 | Link to Comment Flakmeister
Flakmeister's picture

Ever crammed it in the boot? Or had you boot crammed?

Mon, 02/07/2011 - 14:13 | Link to Comment Cocomaan
Cocomaan's picture

Bernank knows that he can cram the markets with QE, which is about the same thing.

Mon, 02/07/2011 - 14:02 | Link to Comment topcallingtroll
topcallingtroll's picture

If i am going to play the dollar collapse scenario and teotwawki it will be with the canary in the coal mine gdxj. As the troll mentioned previously there is minor resistance at 38 but at least two resistance points between 39 and 40. If it clears.those i.am a playa again. Then minor resistance at 44. Then if it clears 44 buy some puts and go on vacation for a while.

However i really.do doubt a break out in anything gold related is imminent.

Mon, 02/07/2011 - 14:05 | Link to Comment Dicite justitiam
Dicite justitiam's picture

Perception management is successful if you can get a critical mass spending via credit again, irrespective of the propaganda failures among the more skeptical.

Mon, 02/07/2011 - 14:07 | Link to Comment ivana
ivana's picture

Guess Ben's red phone is going to ring soon if not already... long end, inflation, stagflation blah blah blah - look at 2yUST. So strong ... smells like ... FIREEEEE!
http://www.dailymotion.com/video/x236hb_rage-against-the-machine-sleep-n...

Mon, 02/07/2011 - 14:10 | Link to Comment ebworthen
ebworthen's picture

Ben and the boys are shooting the moon in Hearts, sure that if they can fool all the players they can pick up all the hearts in the deck since they took the Queen of Spades back in 2008 with the bailouts, TARP, TALF, POMO, QE, etc.

It's an all or nothing strategy.

The only losers are the American citizens.

Politicians win, banks win, corporations win, citizens lose.

With another crash there will simply be another bailout.

It is the citizens who get ground under the wheel of the grist mill.

 

Mon, 02/07/2011 - 14:17 | Link to Comment thepigman
thepigman's picture

I heard an interview with Prechter

who doesn't think the Fed is directly

manipulating anything. He thinks it's

just lunatics at this point. Comforting, ain't it,

Robo?

Mon, 02/07/2011 - 14:28 | Link to Comment bugs_
bugs_'s picture

Feds and Lunatics ain't mutually exclusive!! LOL

Mon, 02/07/2011 - 14:26 | Link to Comment william the bastard
william the bastard's picture

Rosie sees the end of QE soon. Me likey.

 

Mon, 02/07/2011 - 14:33 | Link to Comment newworldorder
newworldorder's picture

So has QE been a success? We leave it up to readers to decide.

QE has been a success in the 2 areas that it could be a success.

- Raising equity levels

- Reflating the banks and hiding potential bance sheet loss.

It has not helped housing or employment, nor will it do so in the future (2 to 3) years. In employment, we have a structural job loss vs job creation issue. This is further exagerated with constant increase in the labor pool of annual  college graduates, loss of mid level well paying fortune 2000 jobs, as well as increased legal/illegal immigration. Most job creation has been in the sub $15 per hour basis. - Thas $31,200 per year. - This has led to our 2nd problem of housing downturn. Even with job pickup in retail, restaurant, administrative and lower level health care industries, there is NOT a sufficiently adequate income steam to either avoid forclosue or for those with jobs to be able to purchase the inventory of available or forclosed homes.

Our problems in employment and housing connot be fixed untill the political and financial classes resolve to provide a framework in which they can be fixed. Their  current consensus is however - to kick the can forward for as long as they can.

 

 

Mon, 02/07/2011 - 14:34 | Link to Comment SilverIsKing
SilverIsKing's picture

Has anyone seens this?  Weird shit.

http://www.youtube.com/watch?v=0C20ZPjVty0&feature=related

Mon, 02/07/2011 - 14:36 | Link to Comment Flakmeister
Flakmeister's picture

I don't usually comment on the Fed, I find it to be an exercise in self-flagellation, but the end game is becoming clearer.

  The Bernank knows we are fucked, his only hope is to inflate and have the U.S. as the last man standing. Europe and China coming in a close second is acceptable. This can be done as long as the U.S. military has primacy, which in turn depends on the the militarys faith in the dollar (think of Rome as a well studied example).

  The outcome will either be war and an ensuing collapse or a revaluation of the dollar at gun point. As bullish as I am on precious metals, I do not think they will be a panacea. Equities in physical plant, i.e. hard industrial assets that have prohibitive replacement cost, have a good chance of holding up provided we don't self immolate.  Media type entities are likely to become essentially worthless..

Just my 2 cts....

Mon, 02/07/2011 - 16:18 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Flakdood, 

I have only refinement to add to your perspective on this.  It is:

1) Ben Bernanke is an academic.  A professor of Economics at an Ivy League school.  He knows the subject very thoroughly.  He is doing all he can do, and further, all that can be done.  He is not evil, conspiratorial, or being paid by anyone other than the US govt.  He is doing all that can be done.  It won't be enough, and yeah, he probably knows it.  

2) The theories so popular on ZH about the "elites" remaining elite during an engineered collapse doesn't hold water, because the elites won't walk behind a pair of oxen pulling a plow, and if you don't do that, you starve.

3) Read about Rome and malaria.  Economists and historians HATE medical history.  It robs them of PhD dissertation material.  Rome and malaria is a good example.  Another is Bonaparte's peptic ulcer at Waterloo.  And yet another, the Battle of Bataan in WWII Philippines.  Malaria again.  80% of US forces incapacitated, and Japan's too.  They reinforced with uninfected troops and just walked in.  There was no battle.

Mon, 02/07/2011 - 16:41 | Link to Comment Flakmeister
Flakmeister's picture

   I don't think its a engineered collapse, it is a calculated guess  that says this is the best way to go... Sauve qui peut, and it is being telegraphed for anyone that wants to listen.

 Rome is a funny beast, not to disagree but my point was that ultimately, if you had the money you had an army and hegemony...

Mon, 02/07/2011 - 15:55 | Link to Comment MrTrader
MrTrader's picture

Is there a large enough prison for FED´s braniacs? Revolution elsewhere, but not in the US of A where Joe Sixpack gives a damn sh.t about the dishonest behavior of their so-called "elite"!

Tue, 02/08/2011 - 10:39 | Link to Comment oh_bama
oh_bama's picture


This guy is too pessimistic and unamerican

Remember: Recession has been over for more than a year! Now US is in normal time and is growing at 4% a year.

More americans retired early due to increased wealth and confidence, and low inflation expectations

More Americans pursuing graduate degrees including MBAs due to increased future outlook and higher pay!!

QEs were really successful! wake up guys!

 

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