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Citi On Why QE Isn't Working

Tyler Durden's picture


Authored by Robert Buckland, Head of Citi Global Equity:

QE Isn't Working: An Equity Perspective

The economics textbooks teach us that expansionary monetary policy, which lowers interest rates and eases credit, can be used to combat unemployment and economic recession. So, with inflationary pressures waning and the world economy slowing, policymakers around the globe have put this theory into practice and continued a "race to the bottom" for global interest rates. Many of those countries with policy rates still high enough to make it worth cutting have done so. Those where rates were already rock-bottom have resorted to increasingly creative means to lower borrowing costs even further.

Low interest rates should help to support consumer spending through reduced mortgage and credit card costs. In addition, by purchasing sovereign debt, QE policies help to reduce market pressures for governments to pursue growth-sapping austerity policies. But lower rates for overleveraged consumers and governments look more like damage limitation than growth promotion.

That leaves the corporate sector as policymakers' best hope for economic growth and especially job creation. Balance sheets are strong, profitability is high and the cash is piling up. Add ultra-low rates to the mix and surely CEOs will kick off a capex and hiring binge. But this has not really been happening, in the listed corporate sector at least. In fact, capex/sales ratios for publicly listed companies across the world have been heading downwards for much of the past decade even given a backdrop of progressively lower interest rates. Recent ultra-low rates have not noticeably reversed this trend.

Faults in the transmission mechanism

Such corporate caution is usually blamed on global economic uncertainties. Amongst these, the US fiscal cliff, China slowdown and the ongoing EMU crisis look most obvious. But we can't help feeling that there is something more fundamental going on here. The economic outlook is always uncertain at weak points in the cycle. Nevertheless, low interest rates usually prod CEOs into action.

We think one answer to this conundrum can be found in the equity market itself. As aggressive monetary policy has pushed interest rates to all-time lows, so the dividend yield available on equities becomes more attractive. The global equity market now consistently trades on a dividend yield above treasuries for the first time in over 50 years. Income-starved investors have noticed.

Turning textbooks on their head

If the global equity asset class has reinvented itself as an alternative bond market, this has profound implications for companies and, ultimately, policymakers. Textbooks suggest that investors should buy equities for growth and bonds for income. But low rates and QE have turned the traditional mantra on its head. Investors are increasingly looking to equities to fulfil their income requirements. And as the global equity market becomes dominated by these income-seeking investors, companies will become increasingly sensitive to their requirements.

Textbooks also say that the equity market exists to bring together those who capital and those who require it. Equity investors provide the riskiest capital to a company. They give up security of return in order to participate in the future growth of the business. Again, that looks less appropriate in current capital markets. Rather than providing new capital to companies, equity investors now seem more interested in extracting existing capital through share buybacks or dividends.
Another basic premise of financial theory — that lower discount rates should put a higher value in future corporate cashflows — is also being questioned by present circumstances. Low interest rates should encourage companies to invest more for the future because shareholders will value the resultant cashflows more highly. It is partly why policymakers have now set rates so low. But, again, these theoretical transmission mechanisms do not seem to be working. For the past ten years, a rising equity risk premium (ERP) has negated the supposedly positive impact of lower interest rates upon equity valuations. The ERP has now risen so far that equities have become an income asset, so increasingly attracting investors who are more interested in the next dividend than funding a new mine, drug or microchip.

It's all about the distribution

This brings us to a basic observation: companies remain reluctant to expand because increasingly income-obsessed shareholders don't want them to. If anything, ultra-low interest rates have exacerbated this theme. Policymakers should take note.

In 2011, US companies spent $650 billion on share buybacks and dividends compared to $580 billion on capex. While this is supportive of share prices, it does not help other stakeholders who would presumably prefer the capital to be spent on new investments and jobs. In markets where shareholder requirements have a greater influence upon companies, the suspicion of capex and preference for distributions is evident. In Europe, those sectors that invest the most are given lower valuations and in the US, share buyback and dividend ETFs have outperformed handsomely in recent years. It seems that the market is sending clear signals to companies "if you want your shares to outperform then distribute, don't invest."

What does this mean for policymakers?

If policymakers really do want to encourage stronger economic growth (and especially higher employment) then we would suggest that they take a closer look at the equity market's part in driving corporate behaviour. Despite high profitability, strong balance sheets and ultra-low interest rates, any stock market observer can see daily evidence of why the listed sector is unlikely to kick-start a meaningful acceleration in the global economy. A recent Reuters headline says it all: "P&G Plans to Cut More Jobs, Repurchasing More Shares".

If anything, low interest rates are increasingly part of the problem rather than the solution. Perversely, they may be turning the world's largest companies into capital distributors rather than investors. Perhaps rates should be allowed to rise back to more natural levels. This might be painful at first, but it could stop equity investors being so income-obsessed. Or maybe the real problem here is depressed equity valuations. Low PEs and high dividend yields reflect the long slow death of the equity cult. At the margin, current valuations encourage CEOs to distribute through buybacks or dividends. They discourage capex and job creation. Perhaps instead of buying government bonds, the next round of freshly minted QE cash should be used to buy the stock market instead.

Alternatively, and more menacingly for equity markets, policymakers might use the tax system to clamp down on capital returns to shareholders. "Investors are forcing companies to over-distribute and under-invest" has a certain populist ring to it. This was exactly the argument used to justify the removal of the dividend tax credit for UK investors back in 1997. Another, more equity-friendly, policy might be to give greater tax breaks to capex.

Even if economic uncertainties and shareholder constraints mean that listed companies are unlikely to embark on a capex binge soon, maybe low rates can have a more textbook impact upon unlisted companies. Having no stock listing could make them less aware of investor pressures and more willing to adopt expansive strategies. Perhaps these are the companies that offer the best hope for a pick-up in employment.

What does this mean for investors?

If policymakers hope that listed companies can help drive down current high levels of unemployment then it could be a long wait. Corporate expansion plans are likely to remain constrained by uncertainties about the global economy and a shareholder base that is more interested in share buybacks and dividends than capex and job creation. But despite our misgivings about their effectiveness, interest rates are likely to remain very low for some time.

What are the implications for investors?

  • Equity markets are supported despite weak growth. Income-seeking capital should help to support global equities. Even if earnings growth is held back by weak economic growth, buybacks and accretive cash bids should help EPS expand.
  • Inflation may come back sooner than expected. Just as equity market funded over- investment during the Tech bubble created deflationary excess capacity, so perhaps under-investment may now be creating the potential for future inflation. Bond investors should take note.
  • Equity income and de-equitisation strategies are still key. Premium dividend yields relative to bonds should continue to attract income-seeking investors to the equity asset class. This will keep the appetite for equity income strategies strong. Those companies that offer progressive dividend policies should be rewarded with outperformance.
  • Smaller growth stocks can trade at premiums. Despite the current circumstances, equity financing is still best suited to fund longer-term growth projects. But the limited amount of capital available to sponsor these projects means that growth premiums are likely to remain focused in companies down the market cap scale.
  • Activism is here to stay. Expansionary strategies by corporates will continue to be treated with suspicion by the equity market and subsequent share price underperformance may attract the attention of activist shareholders. Those CEOs, particularly at the largest companies, who do not give this income-seeking market what it wants may find themselves replaced by a CEO who does.

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Wed, 12/05/2012 - 19:16 | 3037532 Death and Gravity
Death and Gravity's picture

Forced low interest rates is destroying a market; a way of exchanging financial capital for profit. Of course it won't work, it's like burning a bridge at the same time as trying to get heavily loaded trucks across it.

Wed, 12/05/2012 - 19:20 | 3037545 NotApplicable
NotApplicable's picture

Malinvestment shouldn't be that hard of a thing to understand.

Yet the pyramid building will continue, unabated. At least until they run out of blocks.

Wed, 12/05/2012 - 19:23 | 3037555 The Shootist
The Shootist's picture

Of course it will. How else do you perpetrate a pyramid scheme?

Wed, 12/05/2012 - 20:30 | 3037597 Michaelwiseguy
Michaelwiseguy's picture

Me, the smartest guy in the room, on why QE isn't working;

You can't have job creation in the USA because the vast majority of factories that produce consumer products were removed from the country.

The Money Math for Job Creation doesn't work due to Globalization, Trade Treaties, and the Federal Reserve Corporation.

Wed, 12/05/2012 - 20:47 | 3037720 Bobbyrib
Bobbyrib's picture

Bingo. You are the smartest guy in the thread. QE isn't working not just because it encourages malinvestment, but also because the economy is a gutted shell of its former self. With consumer spending being 70% of the economy and the US consumer being broke thanks to corporate America's policies of outsourcing and insourcing (visas to push down wages). It's not hard to understand that broke consumers will not continue to fuel economic growth. Job growth is at an all time low, because the investment that the companies would have to put out doesn't have a good chance of being a good ROI (return on investment), so the CEO's participate in the Ponzi everyone loves to talk about on this site. Why invest in the economy when you can push up the price of your stock by having high dividend yields (making it attractive) and having stock buybacks? When it comes time for the executives to cash in on their stock options, they exercise and sell into the higher stock price. Citi should include this dipshit in the massive firing of the 11,000 they are about to purge.

Hey, maybe Citi is going to buy stock back, and issue a stronger dividend. /sarcasm for the moron who wrote this POS article.

Who the fuck is downvoting his post?

It must be the same morons who voted this as a 4 or 5 "star" article.

Wed, 12/05/2012 - 21:08 | 3037774 Michaelwiseguy
Michaelwiseguy's picture

Thanks Robbyrib, especially for pointing out 70% of our economy is consumer spending and other points. At least someone else understands the situation. 

I pretend those two sentences I wrote are not rocket science, but I think it must be, because no one in our entire economic decline discussion has been discussing this fact at all.

We can go back to Bi-Lateral Trade agreements as a proposal, to help get our country on the right track.


Wed, 12/05/2012 - 23:41 | 3038163 Next to Arch Stanton
Next to Arch Stanton's picture

Since 2009 or so, I often wonder if the historic 70% consumption driven economy metric will no longer hold true.  I suspect with higher unemployment (chronic), boomer generation retiring (and with a lot less money than 10 years ago), and stagnant wage growth, there might be a new, lower consumption component to GDP measure.  After all, Govt spending is taking its place.

Any ideas what the consumption component was in the 1950s - 1970s?  I suspect that prior to the debt binge and outsourcing it was lower.  Besides deleveraging, our economy needs to retool to account for less consumption in the future.  Maybe we could make stuff again.  

Wed, 12/05/2012 - 21:58 | 3037905 Dingleberry
Dingleberry's picture

Ultimately it's failure is due to inflation. It's like swimming against the tide or betting against the house. Eventually, you lose.

Interest-free money in an inflationary world does not bode well.  Recent case in point:  I just noticed my new tube of Arm & Hammer toothpaste that I normally buy felt "skinnier" somehow.  So I got the old tube from the trash and behold:  the new tube shrank from 7.2 ounces to 6 ounces.  About a 16% rate of inflation.  I could give other examples by the dozen, but there is no need.  You bitchez already know that.

Come up with any reason or excuse for the middle class being gutted.  There are all valid excuses.  But the REASON always comes back to the same thing: fiat-induced inflation.  QE just made it worse, and faster.  The consumer is getting hammered by inflation on the back and front ends.  Low financing costs are not helping because that benefit is being overwhelmed by the actual cost of living.  And will continue to do so.  

Wed, 12/05/2012 - 22:58 | 3038062 klockwerks
klockwerks's picture

So right Dingle, last bag of dog food, 35#, month later 30# and $11 more. Place is going to the dogs. I go nuts when I hear 2% inflation but see ALL packages getting smaller and higher priced. Really amazing and what a con

Thu, 12/06/2012 - 07:20 | 3038636 Bobbyrib
Bobbyrib's picture

I believe in the biflation theory. The sales on the crap we don't need this year is even better than last year's for the holiday season. Moving inventory must be getting harder and harder for corporations. I have a feeling profit margins are going to be low this year.

Unfortunatley they can raise prices, or reduce product for things we need like toothpaste and dog food.

Wed, 12/05/2012 - 23:35 | 3038148 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

"...but also because the economy is a gutted shell of its former self."


All of those who participated in the hollowing-out of this country are TERMITES! That's what a termite leaves behind, a gutted shell.

Then, in 2008 they exposed their hand and showed what a bitch debt is. Now, even when the banks want to lend noone wants to borrow! They can't get "money" into circulation to create the inflation they want. The best they can do is biflation and I don't know how long that can last as the velocity of money continues to plunge:

Thu, 12/06/2012 - 07:24 | 3038641 Bobbyrib
Bobbyrib's picture

Eventually they will succeed at the wrong time and hyperinflation will set in.

Wed, 12/05/2012 - 20:49 | 3037753 cougar_w
cougar_w's picture

Go to the head of the class.

Wed, 12/05/2012 - 21:38 | 3037860 batterycharged
batterycharged's picture

The rich have squeezed all they can out of everyone.

Everyone is tight with money now. Corporations have no reason to invest because again....the rich have already squeezed all they can.

It's an endless spiral. Any person that sees growth in this shithole economy needs a labotomy.

It's like a boa wrapped around you, each time you exhale its grip gets tighter. Companies sit on trillions in cash and yet they continue to look for cheap labor and tech solutions, while complaining about shrinking revenue.

Hey maybe all the poor in Mexico and Asia can be the new consumers....sure.

Thu, 12/06/2012 - 07:23 | 3038639 Bobbyrib
Bobbyrib's picture

That was original their plan. I think they are starting to see that it will not work.

Wed, 12/05/2012 - 19:29 | 3037562 TruthInSunshine
TruthInSunshine's picture

Ya know, I was just wondering whether QE/TARP/TALF/TWIST/OTHER RADICAL INTERVENTIONISM has created a misallocation of capital that's so widespread and so enormous, that it may have created inevitable, extreme hazards risks for markets and the overall economy going forward...


(I really wasn't wondering whether this was the case. I know the answer, and I suspect the fractional reserve charlatans/mountebanks do, as well.)

Wed, 12/05/2012 - 20:06 | 3037663 booboo
booboo's picture

Well when all corporations are reduced to a front office staffed by 4 part time employees tasked with bringing coffe and blow jobs to the Board of Directors that in turn are tasked with issuing stock to Pension Funds that are tasked with keeping pension check rolling out to retired public employees that have hired their 80 year old not so fortunate neighbor to clean their dogs anal glands for two bits we will know for sure if it is working.....or not.

Until then, lets pretend it is because pretending is the new reality.

I walked into bar at 1 am about 30 years ago, the air was so thick with tension you could cut it. My friend dropped his drink, hit the floor with a crash and the entire bar exploded into a fist fight. We are almost there.

Wed, 12/05/2012 - 20:55 | 3037765 cougar_w
cougar_w's picture

Damn. I didn't even know dogs had anal glands. Had to look it up to make sure you weren't yanking our chain.

Now I'm wishing I hadn't. Yuck.

Wed, 12/05/2012 - 19:33 | 3037581 LMAOLORI
LMAOLORI's picture



Yes forced low interest rates are bad but bernanke does it so obama can keep spending bernanke wouldn't want him to say anything about the billions he is paying his member banks not to lend.  Savers and the elderly be damned!


Cure for Economic Slumps Seen in Raising Rates: Cutting Research

Wed, 12/05/2012 - 20:37 | 3037734 rbg81
rbg81's picture

Rates will NEVER be allowed to go up.  The Government simply can't afford it.  It would immediately make the deficit unaffordable and cause the Entitlement State to collapse.  As you indicated, politicians don't care about the Economy--they want to dole out the $$ rather than business--it helps them keep the Power.  Bernake is only too happy to help.

Wed, 12/05/2012 - 21:13 | 3037801 The trend is yo...
The trend is your friend's picture

Citi just announced 11k layoffs which translates into more QE since Benny doesn't see a lower unemployment number in the near future.  One day it will be just a branch network to make depositors feel like their money is safe with a direct connection to the fed's computers and no other employees will be needed. 

Wed, 12/05/2012 - 20:51 | 3037756 Bobbyrib
Bobbyrib's picture

If you looked at the national debt before Obama took office and saw how much money we owed per tax paying citizen and how much in future entitlement obligations that are owed to people it was abundantly clear we had to monetize the debt.

Wed, 12/05/2012 - 19:18 | 3037536 lineskis
lineskis's picture

Guess: just not enough? /sarc

Back to reading...

Wed, 12/05/2012 - 19:19 | 3037540 HelluvaEngineer
HelluvaEngineer's picture

We obviously need a bigger hammer.

Wed, 12/05/2012 - 19:23 | 3037551 NidStyles
NidStyles's picture

more sickles too.

Wed, 12/05/2012 - 20:55 | 3037767 nmewn
nmewn's picture

No shit, shared sacrifice my ass.

Thu, 12/06/2012 - 00:02 | 3038211 Central Bankster
Central Bankster's picture

Hilarious.  Japan has already tried this to the extreme.  Buying domestic bonds, equities, FX, and foreign bonds.  Everything under the god damn sun, and the more they buy the worse the real economy in Japan gets.  WHY?! Isn't it obvious, central planning and fascism DO NOT WORK.

Wed, 12/05/2012 - 19:20 | 3037542 fonzannoon
fonzannoon's picture

" Perhaps rates should be allowed to rise back to more natural levels."

Lol. Go for it.

Wed, 12/05/2012 - 19:27 | 3037564 SpykerSpeed
SpykerSpeed's picture

B..but Keynesianism was supposed to work!  Princeton and MIT told me so!  Everybody knows interest rates should only go down!

Wed, 12/05/2012 - 19:26 | 3037563 Cdad
Cdad's picture

If anything, low interest rates are increasingly part of the problem rather than the solution. Perversely, they may be turning the world's largest companies into capital distributors rather than investors. 

From the category of "better late than never," I guess.  Good thing these Citi boys finally caught up to ZeroHedge.  The massive special dividend push going on right now is going to be absolutely devistating to stock valuations next year.  But Wall Street really only knows one thing...pulling the value of something forward and skimming it.

Hi ho.

Wed, 12/05/2012 - 20:53 | 3037761 Bobbyrib
Bobbyrib's picture

Who gives a shit about these companies' stock valuations? At that point it will be our turn to laugh..

Wed, 12/05/2012 - 19:32 | 3037574 Yellowhoard
Yellowhoard's picture

Does anyone have any idea what interest rates would be in the non bubble world of the Bernanke?

Wed, 12/05/2012 - 19:40 | 3037603 seek
seek's picture

Purely speculating, but...

Gold says the rate of inflation the last couple years is about 9%, and historically low-risk returns (e.g. pension funds) have presumed something like a 5-8% real return.

So... 14-17%. Just like the last time this shit happened in the late 70's and Volker came in and fixed it by putting treasuries that high. (I remember people being delighted to get a mortgage at 14%!)

If that happened today it'd blow the government right up, but good.

Of course if real rates were that high, inflation would plunge and we'd probably see rates reach equilibrium closer to 6-7%. But right now, they should be in the mid teens.

Wed, 12/05/2012 - 19:44 | 3037609 mayhem_korner
mayhem_korner's picture



Good speculation.  I think the gubbmint would blow up if it got to 6%, but that's just me. 

Scratch that...the gubbmint is already blown up, the masses just haven't realized it yet.

Wed, 12/05/2012 - 19:59 | 3037648 seek
seek's picture

I think even the most retarded economists accept that then debt service exceeds gov't revenue, you're officially 100% fucked.

With the current debt ($16T) and 15% interest, debt service is $2.4T. Receipts in 2011 were $2.3T.

At 6%, debt service is $1T. In theory there's enough revenues to cover that, though it means the budget would need to be $1.3T to balance (that'd be a 63% cut in spending, lol.)

So yeah, we're already completely fucked -- if we had a "real" economy and "real" interest rates, the government and USD would be dead right there.

It just hasn't registered yet thanks to their games and they keep printing to cover it up, but clearly the situation is unsolvable in its current form. A reset is the only way out.

Wed, 12/05/2012 - 19:41 | 3037606 mayhem_korner
mayhem_korner's picture



Eventually, we will find out.  Markets are like starfish.  A starfish uses suction to outlast the clam, who uses muscle to try to keep its shell closed.  Eventually the muscle tires and the starfish wins.  The market is the starfish and Benny is the clam.  His money-printing muscle will eventually yield and the default premiums will set in.

Wed, 12/05/2012 - 19:45 | 3037612 TruthInSunshine
TruthInSunshine's picture

Bernanke's like the Easter Bunny, but a far more sinister version.

He's hidden price distortion hand grenades and land mines all over the place.

Happy hunting, Muppets!

Wed, 12/05/2012 - 20:02 | 3037656 Temporalist
Temporalist's picture

@mayhem   Bernankegles!  Bear down bitchez!

Wed, 12/05/2012 - 20:32 | 3037722 itstippy
itstippy's picture

Damn that's funny. 

Every muppet's attractively-painted "nest eggs" could be the real deal, or they could be cleverly concealed price distortion hand grenades and land mines.  The little dears will either hatch or blow up. 

Thu, 12/06/2012 - 00:04 | 3038215 Central Bankster
Central Bankster's picture

HAR HAR muppets!

Thu, 12/06/2012 - 07:29 | 3038643 Tic tock
Tic tock's picture


Wed, 12/05/2012 - 19:38 | 3037592 mayhem_korner
mayhem_korner's picture



Corporations don't behave to maximize profit; they behave to maximize stock price.  QE contributes a lot to decoupling profitability and stock price.  So the thought that QE will stimulate profit-maximizing behaviors is suppressed by the direct impact QE has on stock prices.  And so the strategy is to feed the levitation, not invest in the actual business.

QE is doing exactly what it should's just not doing what the knuckleheads think it ought to.

Wed, 12/05/2012 - 19:39 | 3037600 MFLTucson
MFLTucson's picture

It is not working because you have the most unamerican president in American history working against the economy and to enslave the white American workers.

Wed, 12/05/2012 - 19:45 | 3037614 mayhem_korner
mayhem_korner's picture



That is offensive.  How you call such an upstanding Indonesian of Kenyan heritage "unamerican" is beyond me...

Wed, 12/05/2012 - 20:47 | 3037745 cougar_w
cougar_w's picture

Now that's just silly. American workers were being destroyed constantly over the last 30 years -- starting in the '80s -- by corporations exporting factory jobs to Asia and Mexico. Americans are now slaves of the welfare state certainly but that was long in the making and had nothing to do with any particular president.

Thu, 12/06/2012 - 09:34 | 3038868 RKDS
RKDS's picture

You're a moron who thinks history began in January 2009.

Wed, 12/05/2012 - 19:46 | 3037616 g speed
g speed's picture

If low interest is causing malenvestment then that is policy-- after all this is a consumer driven local ( US) economy with priority on foreign policy and the world economic domination, and dividends and buybacks distribute to enhance consumerism as well as any other method.  

Wed, 12/05/2012 - 19:55 | 3037623 cougar_w
cougar_w's picture

End game.

This is how it works now. Large companies are awash in cash. Why? Because they have been cutting back on strategic investment and pulling forward customer commitments by offering deals that have zero margin just to get the sales numbers. Nor are they shy about one-time revenue boosts from sales of divisions, patents and assets. Since they are not innovating or pushing into new markets they can lay off line-level employees (except sales) and pocket the savings. Their stock tanks when they cannot meet sales or growth goals, but that's okay because they use part of the net net to buy their own stock, to make it look competitive in the market.

Smoke+mirrors people. They are just buying time because ...

... the global economy is blown. Toast. Nuked. Smoked. Burnt. Screwed. FUBAR (Fucked Up Beyond All Recognition for you youngsters out there). These companies buying their own stock see a 2-3 year timeline at the longest, beyond that is just a great big black sucking void of nothing-good-happened. If a miracle happens somehow and things tick up they can use their cash horde to quickly re-hire, or just as likely to buy up their weaker competitors who -- trying stupidly to you know run a business and retain good workers in hard times -- kept to the essentials of growth and innovation and ran themselves into Chapter 11. You need employees suddenly? You know where to get them, and you can kill another company in the process. Double-plus!

Only the robbers and theives are going to make out from here forward. The vulture LBO outfits like Bain will feed well indeed. Everyone else is expected to do the right thing; drive down to the reservour, leave a note saying how much you loved your family, and blow your own brains out.

Wed, 12/05/2012 - 20:07 | 3037665 Temporalist
Temporalist's picture

Truth!  And it's been going on since 2000.  This is just the continuation of same shit, different decade.

Wed, 12/05/2012 - 19:50 | 3037625 koaj
koaj's picture

lets break some windows...that should help next quarters GDP

Wed, 12/05/2012 - 19:59 | 3037649 davidsmith
davidsmith's picture

Perversely, they may be turning the world's largest companies into capital distributors rather than investors.

It's not "perverse," it's simply another step in a corporatist/fascist economy.  Just study fascist economies.  The American economy is proceeding every step of the way exactly according to plan.  No surprises here.
Wed, 12/05/2012 - 20:03 | 3037660 csmith
csmith's picture

ZIRP means time value of money = 0


therefore money value of time = 0

therefore there is no urgency to invest



Wed, 12/05/2012 - 20:19 | 3037699 cougar_w
cougar_w's picture

The USA is monstrous in debt. Any rise in interest rates ever for any reason however trivial will have but one outcome: to summon the Apocalypse and set lose the hounds of war.

Wed, 12/05/2012 - 20:26 | 3037711 mayhem_korner
mayhem_korner's picture



ZIRP = any investment with a positive (risk-adjusted) return should be pursued

That no investment is taking place tells you that corporations see the reality that the economy is not worth investing in.

Wed, 12/05/2012 - 20:04 | 3037661 Cursive
Cursive's picture

Robert Buckland writes as though there is no risk in the equity market.  He writes that the income seekers will place a permabid in the market.  Bullshit.  What happens to capital flows when a bunch of income seekers experience another 2008 event? 

Wed, 12/05/2012 - 22:37 | 3038017 TruthInSunshine
TruthInSunshine's picture

        "Stocks have reached what looks like a permanently high plateau."

-- Irving Fisher, Professor of Economics, Yale University, 1929.

Wed, 12/05/2012 - 20:18 | 3037662 Aurora Ex Machina
Aurora Ex Machina's picture

Was this written before or after the pink slip Friday bonanza was launched? [scrap that, dug out the original]


@ Anyone with GT News grab a look at this, please?


It's by the same author, a yard-stick comparison of % accuracy might be useful.

Wed, 12/05/2012 - 20:09 | 3037671 Let The Wurlitz...
Let The Wurlitzer Play's picture

If you want more reinvestmet from corportions than reveue, capex and payroll expansion are going to have to be part of the CEOs pay package.  It can be done.  The current "problems" are a direct result of how upper management is compensated.


Wed, 12/05/2012 - 20:09 | 3037672 blindman
blindman's picture

@.."Perhaps instead of buying government bonds, the next round of freshly minted QE cash should be used to buy the stock market instead." ...
comment: wtf ? we are not in kansas anymore, are
we? actually, i never spent more than a few hours in kansas in all my life anyway but this quote above
remains alien yet oh so familiar. odd

Wed, 12/05/2012 - 21:01 | 3037779 Bobbyrib
Bobbyrib's picture

Citi would like to see the Fed purchase stocks directly, wouldn't they? That may help their shit corporation stay afloat for at least a few more months.

Wed, 12/05/2012 - 22:58 | 3038063 mirac
mirac's picture

I believe that the government has been buying the market since 2008.  just look at todays rally.  What...every stock and mutual fund had to buy the ES SPY SPX Nasdaq at the exact same time?  And while Apple was down heavily, there was an imment need to buy tech?  Look at a two week chart of Amazon!  Can you say zoom.  Maybe they will make some money this quarter! Nah, 33 Liberty street were in there buying.  Stock brokerage firms may have colluded, but it seems more reasonable to assume there was an electronic wink and a nod from the government and da boyz count on it.

Wed, 12/05/2012 - 23:05 | 3038081 blindman
blindman's picture

ppt goes main stem and stream, overt
fascism, in america it plays stability
wonderful, as else where!

Wed, 12/05/2012 - 20:12 | 3037678 Fedophile
Fedophile's picture

This line,

"Perhaps instead of buying government bonds, the next round of freshly minted QE cash should be used to buy the stock market instead."

is the real pitch here.

Wed, 12/05/2012 - 20:47 | 3037748 blindman
blindman's picture

"get to work."
chuck e shoe shine.

Thu, 12/06/2012 - 00:11 | 3038229 helping_friendl...
helping_friendly_book's picture

Who is to say the PPT hasn't been hft the SPY to ramp the market after FTSE closes?

There seems to be a close corelation. When the FTSE closes the S&P ramps.


Wed, 12/05/2012 - 20:41 | 3037738 TWSceptic
TWSceptic's picture

Oh it worked, it just worked before it was officially announced. Now that the drug is wearing off, a higher new dose is required. The Federal Reserve, turning market participants into junkies since 1913.

Wed, 12/05/2012 - 20:53 | 3037763 whotookmyalias
whotookmyalias's picture

I want a new drug

Wed, 12/05/2012 - 20:51 | 3037757 whotookmyalias
whotookmyalias's picture

F*CK Citi!  As of December 2011, they held $52 Trillion in derivatives and just today announced 11K layoffs.  Back to the topic on hand.. 

Wed, 12/05/2012 - 21:08 | 3037780 michael_engineer
michael_engineer's picture

The below link better explains reasons why QE isn't working than Citi did.

Wed, 12/05/2012 - 21:15 | 3037803 NoDebt
NoDebt's picture

Every day we on this board talk about how the "real economy" doesn't matter any more.  Prices and interest rates float in mid-air with little or no apparent support.

IF YOU BELIEVE THAT, and I know many of us do, you won't have any problem believing the following reasons why ZIRP and money printing (straight to the banks) continue with no end in sight:

1.  Many TBTF banks would go instantly insolvent if rates moved up more than maybe 150-200bps

2.  The federal government would go into near-instant budget shock if rates moved up more than maybe 150-200bps.

IT HAS NOTHING TO DO WITH HELPING THE REAL ECONOMY.  It is merely helping the status quo establishments in the halls of power.  Period.  No other reason.  They are on the brink more now that they were even in 2008 AND THEY KNOW IT.

Businesses by and large are not fooled any more than we are.  They would be making new investments in their businesses at these rock-bottom rates if they were.  They know it's a fools game to be expanding now without a damned compelling reason.


Wed, 12/05/2012 - 21:51 | 3037890 techstrategy
techstrategy's picture

If you only have a hammer, every problem looks like a nail.  

I don't know where to start on this idiot.  The goal of corporations is NOT value destroying growth, but returning capital to the owners.  Whether public or private.  Dividends are a GOOD thing and not a BAD thing.  But, he along with most from Wall Street are so addicted to GROWTH AT ANY PRICE that they want the Fed to start buying equities... 

Ironically, the author doesn't recognize the role that WS has played in creating this mess.  Look at the way that Apple, Google and Microsoft's stock price has been held back for decades compared to value destroying "revenues" stories which are really just low float algo option scalping consumer facing behavioral investing SCAMS.  INVESTORS DEMAND DIVIDENDS BECAUSE THEY DON'T TRUST WALL STREET and with good reason.  Once need look no further than INTC's valuation or Apple's drop today while any number of earnigns free companies continue to rise.  When WS stops running scams and starts investing again, capital will come back to the market and higher multiples will return.  But, as long as the large long only funds allow the valuation scams to continue, money will be pulled because retail investors have common sense...

Wed, 12/05/2012 - 22:14 | 3037952 orangegeek
orangegeek's picture

Deflation folks.

Wed, 12/05/2012 - 23:04 | 3038069 Confundido
Confundido's picture


Wed, 12/05/2012 - 23:15 | 3038109 blindman
blindman's picture

qe is working perfectly as a transfer of
value to central planners and central
directors. it was never intended to
lubricate the real economy, main street.
to destroy main street or foreclose on main
street, perhaps yea bro. what did he say
"they got ya' by the balls" g.c.
that is the system, the way it "works",
to pervert a word in memory or mr. g. orwell.

Thu, 12/06/2012 - 00:31 | 3038252 Flakmeister
Flakmeister's picture

The problem is that this time, for the first time, all those shiny new Bennie-Bux could not be turned into more cheap oil.....

Game, Set and Match...

Thu, 12/06/2012 - 00:59 | 3038270 helping_friendl...
helping_friendly_book's picture

The bankers write as if the trillions in inflated "unreal" equity wiped out in 2007 -2008 is hiding somewhere and will magically reappear. They just don't seem to grasp the equity, sweat or otherwise, never actually existed. 

The consumer has been wiped out and any of us lucky enough to be not underwater certainly don't have excess liquidity to gamble in the market.

30% of our equity up and vanished like a fart in the wind. The banks will lend. No one has the collateral to leverage.

If we weren't financially ruined in the meltdown we still haven't seen a definite stabilization in the market. I am not going to borrow against assets which might experience deflationd and do not know assets will  continue further deflation nor will any bank lend against uncertain collateral.

I ,luckily, am not so over extended I cannot pay my obligations. If asset prices continue to deteriorate then I don't know what to do because I am certain I won't be getting a raise in pay or a more stable job than the one I have now.

I am immobilized because I will not sell my house to break even and chase a more lucrative possible location.

I have become a serf paying interest to the money changer for a pittance in positive cash flow and at the mercy of the Muni. gov't to tax the rest of what I might us to improve my circumstance.

Why are these bankers not considered criminals?

If I loss what I have I am going Randy Weaver/ Ruby Ridge lifestyle.

It is a shitty country we live in and we are getting fleeced, without recourse by a bunch of criminals.

Here comes the 1930's again.

Thu, 12/06/2012 - 05:53 | 3038574 theprofromdover
theprofromdover's picture

Maybe one benefit will be that investors stop going to the Fortune 500 or FTSE 100 companies, and start looking at smaller operations with proper potential.

You will always get honest growth from small, new, innovative companies. They are the guys that deserve your money (even if they eventually sell out to the behemoths)

Thu, 12/06/2012 - 07:54 | 3038660 IamtheREALmario
IamtheREALmario's picture

Interesting, and yes an issue, but I do not believe it is the crux of the problem. The core issue is misallocation of assets... if the actual goal is growth and low unemployent.

Money is put into the war machine instead of infrastructure

Money is put into acquiring companies through PE (or public acquisition) and Ponzi-style bidding up their prices instead of starting companies and investing in value creation.

Money is put into creating higher prices and monetary profits instead of creating more value (value creation is the addition of labor to material ... higher prices are the action of more money put into a system that does not create value)

Money is put into creating restrictive laws that people cannot help but violate, instead of creating a fair and open civil law system that protect the rights of individuals to compete

Money is put into restricting access to markets and price determination instead of creating free and open markets

Money is put into protecting the monopolies of the largest companies instead of creating opportunities for new and small companies

Money is put into creating an elitist culture of those at the top getting a highly disproportionate amount of money instead of using money to create a balanced and vibrant middle class.

Money is used to create debt slavery instead of creating debt freedom.

People are given money through welfare instead of given opportunities for value created independence

Money is put into education and propaganda that supports the power structure instead of providing people the information that will help them create value, growth and independence

You see, my belief is that it is intentional. The use of money by the controllers of the earth's population in the above manner is to consolidate power and control. Growth is NOT the goal. POWER and control are the goals. CEOs get the bulk of the benefit from a company because it is easier to bribe and control 1 person than an entire company. Do they deserve their salary? In a word: No. But, it serves a purpose to control those at the top and enslave them to the money.... and the same applies for the rest of the above misallocations. Growth (through value creation) is actually in conflict with power consolidation and control.

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