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This Is The S&P With And Without QE
For a while there, it seemed that even the densest of career economists who try to pass for stock pundits on financial comedy TV, were starting to get that without the Fed's (and the ECB's, and the BOE's, and the BOJ's) QE, the market would be much, much lower (whether 500 points lower as Gundlach suggested or much more, remains unclear). After all: by now it should have been clear to most that QE is doing nothing for the economy, and everything for the stock and bond market (here we certainly agree: there is a bond bubble, which by implication there is an even more massive stock bubble too - anyone who says the two are unlinked can be immediately put on mute).
This is why we presented this chart previously:
And is also why in January, we showed this update of the calendar days with and without QE:
And yet, judging by the roster of TV guests appearing on assorted cable stations, the confusion is back again.
So just to set the record straight, and make it so easy even Jeremy Siegel gets it, below is a chart showing the absolute performance of the S&P, starting with March 18, 2009 when full-blown QE1 was announced, and adding up all the S&P points "gained" under some QE regime: QE1 (2009-2010), QE2 (2010-2011), Operation Twist, QE3 and QE4 (2011 until today) on one hand, while subtracting all the S&P points "lost" when there was no QE or no advance notification of QE from the Fed, such as the period from the end of QE1 (March 31, 2010) until the QE2 announcement at Jackson Hole in August 2010, and from the end of QE2 on June 30, 2011 until the start of Operation Twist on September 21, 2011.
The chart below is sufficiently self-explanatory that not even career economists will need assistance to grasp it.
One final point: for all those who say the Fed's QE has "been successful", or the stock market is sufficiently strong and does not need any more forced liquidity injections, here is a simple suggestion: just end it.
Crickets.
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Anyone who takes "guidance" from a billionaire DESERVES the ass raping life will give them as a result.
<------ Spot holder for whoever is down arrowing everyone. Lets all join in the fun. I already down arrowed myself here, who is next!
Come on guys, you can do it! MOAR down arrows!
EDIT: OK, who is the wise guy that up arrowed.
When reducing balance sheet = SP lower than without QE...
Qe can never end. ZIRP will be here until the dollar goes to 0.
The dollar doesn't have to go all the way to zero for sacred contracts to be broken and rioting in the streets, ask Greece. QE will be finished before the dollar takes a 50% dump. The banks will want to increase their short positions. It will be the same thing as giving away houses in the real estate boom without employment history and packaging them as securities and betting on the loans to fail before the customer buying them got out the door. The federal reserve needs a big score to back all the loans they've given, even at 20 to 1 or more leverage.
But by then, the 1% will have converted their dollars into rentier income streams, so they won't really care, will they?
Tyler,
I know what I am suggesting would result in something beyond the capabilities of any "economist" but ...
How about adding one more graphic that correlates the number of S&P points gained during each period with the dollar amount of each "QE phase" to date?
It would illustrate the classic "diminishing returns" case and possibly become text book material ... AFTER the global ecdonomic collapse
Get ready for the FED to buy stocks (we know they have been, but they'll announce it by year end). What a zany group of experimental geniuses.
You have to NOT have a PhD in Economics to be allowed to understand and even discuss this.
The question is not what the S&P woukd look like without QE but what the S&P would look like without the poisonous effect of the growth of government, war and waste.
On second thought, the conclusion of the article might even be wrong, because without QE here might have been a collpse at the time QE was introduced after which the system might have flourished once all the crap had been expunged.
This is your market.
This is your market on QE.
Any questions?
Can we stop calling it QE? I hate using their language. I prefer endless digital money creation.
or the swapping of zero coupon perpetual bank notes (digital) for coupon bearing government debt.
why dies anyone want so many bank notes?
So the market isn't really about price discovery after all?
Someone put that [monthly Fed. QE chart] in the 'Bat Signal', and shine it over CNBS.
It is literally an imaginary stock market composed of imaginary money.
Except the imaginary money is indistinguishable from real money -- you know, money people actually worked or produced something for -- so QE isn't really about the stock market or even financial stability. It's about diluting the real wealth of those who work for it into the pockets of those in the QE receiving line.
I don't know where anyone got the idea that QE had anything to do with "supporting the economy". It's a heist, pure and simple. It will end when the wealth held in the "real economy" -- that is, wealth held by the 99% -- has been diluted to a negligible level. QE could easily go on for another decade.
Get your pitchforks or bend over. The choice is yours.
The QE/beatings will continue until the economy/morale improves.
Meanwhile Becky and Buffett were tag teaming again today telling everyone to dump bonds and buy stocks. The harder they sell the more you know it's all hype. I can't waith to see them one day on my local cable channel right after the KIA dealer commercials.
Sad to say, but I think the Buffer knows his business. He understands what QE is all about, which is transferring income that would normally accrue to savers and investors in fixed assets (not to mention wage and salary incomes) to those in the financial casino. At least in the stock market, one has a chance of holding one's own by holding onto the coattails of the 0.1%. Savers will be diluted into oblivion and bond prices are pretty much flat against the ceiling.
S&P should be at 666.
And so it is, approximately. If we adjust for inflation by measuring the SP500 in grams of gold, we find the SP500 is pretty much the same as it was (in actual value) as when it was 666. In fact, it has been pretty much the whole time since then.
late 2008: SP500 @ 0666 and gold @ 0700
now 2013: SP500 @ 1600 and gold @ 1500
At this moment that puts SP500 just slightly up versus gold, but only after extreme manipulation and recent gold smackdown.
It is funny to hear people imagine they made a lot of money since SP500 666, when in fact they've earned just about zero AND must pay capital gains on the fiat, fake, fraud, fiction profits they realize. Just try to trade your stock for goods without creating a visible, taxable transaction. Good luck with that!
Now if we can just get Bernanke to look at economic analysis.
Why would he do that? Bernenke is a banker. His job is to look after the interests of the banks and their officers and owners. Period.
Right now, he's doing that via QE, on which the banks pocket a tidy, risk-free profit by playing the spread between the discount rate and the various treasuries. When they're not using it to play pump-and-dump in the stock market, that is.
This has nothing to do with the economy. This is about transferring wealth from the working classes to banks and financial institutions. Financial analysis would be a waste of Bernenke's time.
Escape velocity is just around the corner, trust me -- Ben Bernanke
Israeli airforce bombs Syria twice in 48 hours over the weekend. No one cares; the market does not flinch, because Daddy Bernacke has their back...until he does NOT. Since Fed is all in, the day the dam breaks, the Fed will lose its most precious asset...faith and trust. May God help us all when this day comes.
Oh for Pete's sake, why do you think they would care? They don't need faith and trust. They have bullets!
Faith and trust lubricate the gears in a free and open society. The whole point of the last 12 years has been to crush whatever vestiges of freedom and openness are left here. When you've meneuvered people into a corner from which they have no alternative but to turn over all their surplus income to you, faith and trust become superfluous.
Surplus income??
What's that??!!
this is not the whole story though...for the S&P to have a "proper" signalling mechanism for the profitable and unprofitable companies, you need to calculate the profits that have flowed to companies (e.g. banks and insurance companies) from the Fed.
you can then apply multiples of Free Cash Flow or EBITDA to the "clean companies" and come up with a market aggregate.
there is a paradigm here that needs to be displayed. the cash flow/earnings from "good" companies that take the quality of life forward is being suppressed..whilst the cash flow/earnings of "bad" companies that serve no useful purpose in improving the quality of life are being inflated.
let's say that the misallocation of capital being caused by fed actions has been to support the oligarchies of the finance sector by legislating a further tax increase (expressed in terms of margin spread that individuals have no need to pay to banks) of 2% per annum on the entire amount of QE (since all benefits of treasury and Agency MBS accrue to the banks)..thats 3 trillion times 2% per annum or 60 billion a year.
this 60 billion would be priced as free cash flow in "good" companies with a multiple of say 15 = 900 billion of market cap..given the &P500 market cap of almost 15 trillion, this represents a transfer from the good (-900bn) to the bad (+900 billion) ..total of 1.8 trillion, or only 12%.
intuitively this is way too low an overvaluation and numbers of c.30-50% seem "better". the difference between intuition and the effects of 2 trillion in qe on free cash flow misallocation..must be a further value of pork barrel politics embedded in the budget (further misallocation) and the impact on employment by employment legislation and homeland security plus the funding of terrorist campaigns overseas.
still thinking
Think about it this way. If you are really really good at something, then you need people trying that thing, because you will be better than them and will make money off them. The poker shark needs and thrives off fish. Professionals need and thrive off amateurs. Old money needs new money, etc.
It's the human social game. We need competitors that are good enough to go up against, but bad enough to be beaten. We don't feel good winning against the weak, but we don't want to lose against anybody, either.
That's how the banks and Wall Street work. They NEED churn in the system. They thrive off of it because they are really good at trading, it's what they do for a living.
If you attempt to beat Wall Street at this game, you will lose. Again...if you do not professionally trade these markets for a living, YOU WILL LOSE. As such, the only way you win is by exiting the system. By refusing to play no matter what temporary gains you might make.
Trade these markets and you might make a few bucks, but you will definitely lose eventually. If you refuse to trade these markets, and you gain a life...you gain a soul. The things that they keep promising you but never deliver. You have to gain it for yourself. And in the process, you starve Wall Street of churn, so they lose.
So, to sum it up...play the markets and you lose and the bankers win. Don't play the markets and you win and the bankers lose. I think most of you have gotten it for years but still it's fun talking about it, even if I convince just one person I consider it worthwhile. We need to take the bankers on, everything else has been taken from us and we've been spoonfed bullshit.
i am waiting for any kind of debate that the mad scientists in their jekyll and hyde experiments can be replaced by sane scientists.
the sane scientists would say that the experiment of swapping dollar bills for bonds with no-one needing dollar bills to transact, is in fact a failed experiment
and
a better experiment is to let the market decide the price of bonds!!!! and demand an appropriate yield/return for time and inflation!
there goes that pig with the big flappy ears again...bleh!
only way this will end is when the fbi shows up at bernankes home and cuffs him. these people need to be punished. i dont see how else it can end if not that way
If by "punished" you mean "get a medal from the president," then you are right, it will happen: http://media-2.web.britannica.com/eb-media/22/127922-004-D215F474.jpg
Empirical evidence is overwhelming. 30 years of the retail grind and today i'm getting panicked calls from investors . They want to confirm that they are all in for the bull market they see coming. Things are finally starting to feel good to them. This is from a crowd that NEVER misses the turn, on the wrong side unfortunately. The easiest thing to do is to invest at the top!
Interesting page on NANEX about banks visiting their article about original flash crash report :)
http://www.nanex.net/aqck2/4182.html
That was quick. I get a '404 page not found'.
If it's working so good, it should be increased moar!
What color for (QE4EVA) to the power of 2
Wow, what a graphic. Hats off to ZH, very few sites would find and print it. :-)
cut back in purchases will come before bernank resigns, giving cover for the next fed head to do what even they know they must do sooner or later...
as the fed was the first one 'in', the fed will be the first one out...
my hyperinflated 2 cents worth.
:)