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Can QE Prop Up Asset Prices Forever?
Submitted by Chris Hunter via Acting man blog,
Popular Myths and a Shrinking Work Force
It’s not just voters who buy into popular myths. Many investors do too. Few have wider appeal than the myth that central banks can create economic growth via the printing press.
What central bankers and their supporters seem to forget is that growth comes from living, breathing human beings.
It often sounds a lot more complicated than it really is. But genuine economic growth comes from two things: the number of workers in the labor force and the productivity of those workers.
That’s a problem for the US. Because according to a recent report in The Economist, its potential labor force is set to grow at less than one-third the 0.9% rate we saw between 2003 and 2013.
Making things worse, many of America’s boomers – the first of whom qualified for Social Security in 2008 – are opting out of the labor force. Instead of looking for jobs, they are choosing to live on benefits.
This helps explain why the percentage of working-age adults looking for jobs in the US has fallen to below 63% from about 66% when the global financial crisis struck.
And it’s not just Americans who are getting older on average.
From The Economist:
“[T]he ratio of workers to retirees is now plunging in most developed countries and soon will in many emerging markets. Japan is already liquidating the foreign assets its people acquired during their high-saving years; China and South Korea are starting to do so and Germany will soon.”
Fewer workers in the labor force. More retirees to support for those with jobs. Foreign retirees cashing out of their US stocks and bonds. Janet Yellen et al. better hope investors are gullible enough to believe the magic of QE can continue to levitate financial assets forever.
Otherwise, stock and bond investors will start to reconsider the prices they’re willing to pay to own their pieces of paper.
Past and projected workers per retiree of selected countries – via macrobusiness.com.au.
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"What central bankers and their supporters seem to forget is that growth comes from living, breathing human beings."
Cancer growth comes from the over-active reproduction of cells. That's more like what the Fed does with our money supply. That tumor has to be extracted quickly.
What do you do when the people who control the cancer growth benefit, at least initially, from the cancer growth? Why would they possibly want to cut out what is a benefit to them?
A tumor doesn't cut itself out. A surgeon must remove it. A movement must arise with this goal of extraction as its main tenet... by whatever ruthless means required.
There is no real cure for Cancer.
Alternative movements will only become another problem. It has always been that way.
Cancer kills its host. That is the only possible solution.
Humans have proven themselves to be an organism that cannot live harmoniously with Mother earth. Cancer is just one of the cure.
Which means good people have to patiently wait outside the system for the demise of the western pseudo democratic capitalism.
Cancer has no real cure.
Alternative movements will only form another new version of same evil.
Cancer killing its host is the only solution.
Humans have proven themselves of being an organism that cannot live harmoniously among all creation on mother Earth. Time for a clean up.
That means good folks have to wait patiently for the demise of the western pseudo democratic capitalism.
Can QE prop up asset prices? People's incomes prop up asset prices. And when they don't, theft and Ponzi are involved. So QE would work a lot better if it went directly into people's incomes. But then the inflation would be visible to all, plus TPTB would be no better off. When QE bypasses the people and goes directly into asset prices, theft and Ponzi are the only results. How can people compete against QE prices when they have no QE themselves?
"Why is my slave so weak and skinny? I am eating all of this food for him and yet still he is skinny. I had better eat more food before he starves to death."
"The more I eat, the more scraps fall onto the floor. The slave can eat the scraps that fall onto the floor. Oh, we can't just let extra scraps fall onto the floor! That would be wasting food! Better sell the scraps to the farmer so he can feed his pigs ... why is my slave so skinny and weak? I'd better eat more food. I can't possibly eat that much food! Give the food to the pigs so they get fat and then my slave can buy a fat pig. Of course I can't pay my slaves any more!!! I'd go broke!!!! No, the farmer couldn't possibly sell the pigs any cheaper - haven't you seen how fat they are? He'd go broke!!!" ...
Everyone is rich! Haven't you seen how fat our pigs are? And we have so many of them! Oh, we can't just give them away ...
Of course they can........ until they can't.
For everything else, there's gold and silver.
https://www.youtube.com/watch?v=IGYaFMFU63U
A: No.
Because dysfunction eventually fails.
.
btw, Evil = dysfunctional
Sir, you are correct, would like to add however..
QE isn't really "propping up" asset prices in the conventional sense. It is just goosing their nominal values. The real value of the underlying assets are getting hollowed out.
Thus, there is probably no immediate ceiling on how fantastically great QE can make those assets appear. But yes, you are right, at some stage even the central bank omnipotence meme will fall foul of the underlying fundamentals. As it always does.
A man walks into a small town in the middle of nowhere that has no imports and no exports, population = eleven. Ten people earn $100 per week. The eleventh guy makes $100 000 per week. We all know that doesn't make sense.
The local central bank recognizes there is a problem. And decides to pay the eleventh guy an extra $100k per week. We all know that still doesn't make any sense.
I'll have the 2 million dollar hamburger with a coke
...
whatever....
SUPERSIZE IT AND ADD SOME FRIES TO THAT ORDER!
HERE'S A 10 MILLION DOLLAR BILL! KEEP THE REST!
And can you validate my parking? I don't like to waste 3 million dollar just for a 10 minute parking...
"I'll have the 2 million dollar hamburger with a coke"
Are you sitting at a McDonald's in Zimbabwe? They must have wi-fi.
Just watch what happens when most of the money in the bond markets and (some of the money) in stock markets flee into real assets.
A 3 million dollar bill is probably a stretch but it is going to be educational for a lot of people.
NB: Need not be any time soon given international fundamentals. However, eventually those days will come.
Boomer's retirement scheme IS printing having initiated the program thru their Boomer leader Ben Bernanke. Like all selfish Boomers, he doesn't care what it does to future generations. It's all about the here and now, I'll worry about the details/costs/consequences tomorrow, me,me,me Boomer mantra.
We think alike. Central Planning short term thought process. These dumb fucks will be eventually gunned down.
Ben Bernanke's son kept increasing his student loans up to $500,000.
Ben Bernanke himself is taking on debt because the family knows the Federal Reserve's plan is print down debt. We will all be multi-millionaires. If it takes a million dollars to buy a hamburger what good is it?
Look at what the Fed members are doing, not what their saying.
Building Economies on Death Rates. What happens when the boomers have been purged?
According to Central Bankers......yes.
We'll probably see the DJIA hit 50k when the comet hits Earth
With conspiracy fact spreading like an unwanted STD it baffles me that the monkeys refuse to jump from the shoulders of the organ grinders.
Ah, but the next innovation will be for worker tax dollars to be paid to the unemployed as income, but with mandatory 401(k) withdrawals that, with rates kept at zero or lower, will naturally go directly into SPY and IWM forever and ever and ever . . .
Okay, not 'forever', just 20, 30 or 40 more years? Can bears hold out that long? Why would anyone, much less everyone sell? If they don’t sell, but buy more, it ain’t goin down. The Fed Bank now stands fully behind the markets and faith in Fed means that no matter how bad earnings, etc are, the Fed will make it all better. They have proven unlimited money creation works to support stock prices. Companies can buy back shares using cheap money until they have only one share in the float. One very expensive share, that millions will bid on, like those one of a kind tulips. Consumers can borrow with easy credit and buy more stuff.
Greed will power the markets ever higher UNTIL the day arrives that it is clear money printing will not work. Don’t hold your breath. They have plenty more ammo left to keep the lemmings hoping and buying. This is all about psychology, not earnings, not P/E’s, not profits. The bankers fully understand what it takes to keep people in the markets and they will never quit believing in Keynesian stimulus and trickle-down.
This isn't about psychology. This is brute force. The market can go up and has gone up in the face of massive liquidations of stocks. This is price rigging by the market makers using QE as an excuse to do so.
QE doesn't actually stimulate the economy. It just gives cover for the machines to carry out this grand scheme of taking the stock market higher because it puts money in their pockets.
Until there is a currency crisis. Until then the central banks have no fear.
Yes absolutely.
This is called a crack-up boom towards the end, the asset prices rise much slower than the prices of the items of circulation (consumption). Not there yet but approaching.
The last thing to so in a money printing environment is to short anything. Shorting something si equivalent to do a pair trade long the USD against something, in other words when you short a stock, you do not assume that a stock will "decline". That would be a wrong understanding of the situation.
Shorting a stock is to bet that the quantity of dollars necessary to purchase the stock will decline. Sometimes it can happen as teh Dollar stays constant while the stock falls in real terms. Sometimes it is just the dollar appreciating.
CONCLUSION: Tyler is utterly wrong until the Fed raises rates on reserves and even then it would not crash stock because rates would stay negative in real terms, it would merely force lower PEs gradually.
Sounds like you're in a panic mode. Go buy a Black Friday thong and practice auto asphyxiation.
Welcome to the Fight Club!
Money counterfeiters have reached the ledge of lifespan.
...and yet, it is still possible for an enterprise to be worthless. At some point, the stock price of such an enterprise must become zero.
I guess it just falls from $1M/share to 0 in a few seconds.
Those running QE don't care that it does not generate wealth in genereral, and actually destroy wealth overall. But the redistributionist quality of QE does mean that it generates wealth for those who "matter".
STFU and get back to work--someone needs to pay my SS benefits, my federal pension and my veteran's disability pension.
How come these writers never answer the question they pose in the title of their piece(s)?
Negative Interest Rate Policy (NIRP) will be the last straw. Then the bullets will start hailing down. Bankers will declare it an exertion of homegrown terrorism. The non-productive money gravy train comes to an end. The monetary system rebuilds into trust.
very flawed analysis. Set the retirement age to death, and add a 15 million legalized workers. 90 percent of americans CANT retire. Period.
I would argue that they can retire comfortably. We have the technology. What we don't have is the collective will where it counts. It ain't that it CAN'T happen. It's just that it WON'T happen.
Alibaba Massive Fraud
Unrelated, but I believe highly important none the less. We have some smart people on ZH and curious if anyone else has heard or read about this. I am hoping someone that has the time and resources can look in to this and do some homework.
I was listening to The John Batchelor Show one night about a week or so again. He is on the radio and can be found online. Incredibly well versed on many international topics and world history. I highly recommend you tune in to him when you have a chance.
In any event, he had three guests (from China) on and the discussion was surrounding a massive fraud at Alibaba. The story goes something like this. Alibaba is a marketplace and they collect a fee on each purchase from merchandisers that operate via their website. Alibaba understands net profits and margins are of little concern to Wall Street, but growth in revenues and now we are talking. Many multiples for "growth" in a global economy that is barely creeping along. So, Alibaba hires a network of thousands to simply buy and return products all day. If Alibaba held inventory this fraud would be somewhat more difficult to pull off, but with thousands of businesses connected to Alibaba it is very easy to hide the costs of labor and returns in underlying (most likely very closely held) companies. Afterall, billions of $'s in stock price appreciation will pay a lot of people to sit on a computer all day and buy and return stuff on their website.
This is massive securities fraud and according to the guests, the scheme is "well known" in China. Besides the financial statement fraud, one would have to wonder what type of due diligence was done by the investment bankers that brought Alibaba to market?
I don't know about you, but I think this could be a watershed Enron-like, Madoff-like story.
1. The word "investor" is misused, as against the traditional meaning of "investor" as one who builds a factory, opens a mine, builds a railroad, builds a store, employs workers, etc., hoping to earn a profit from operations. Stock/bond/money market/commodity players are not investors in the sense of putting money into an asset or business organization that will produce wealth - they are speculators hoping for price movement. These "investors" produce nothing. They are seeking to take winnings from the casino.
2. The stock markets grew out of the underwriters and partnership "companies" that hired ships in Europe to make voyages to China and the spice islands, then return to Europe to sell their cargoes. The laws on partnership made every partner liable for 100% of the partnership debts if the partnership failed to profit, but a partner was entitled only to a proportionate share of the profits if the partnership succeeded. So limited liability corporations and limited partnerships were developed to allow a person to take a piece of the action and limit his/her liability to the amount invested. Then, in came the speculators who traded on the value of the shares, betting on price movement of the shares and not putting money directly into the corporation that arranged the voyage or other business venture. The number and types of means of share-price speculation have exploded, become ever-more short-term and esoteric, so now we have HFT trading by computers seeking advantages in microseconds and manipulating markets with flash "trades" and mini-puts which are head fakes on the markets.
3. QE by pure money-printing disconnected from any asset backing is a fraud on the marketplace and is pure inflation unless the sovereign-paper-exchanged-for-new-money transactions produce real debt assets that can reasonably be expected to be paid from future budgets or traded for real assets. Insofar as T-Bills, T-Bonds, and fiat money can be traded in the marketplace, they have real value, so long as the market does not realize the risk that excessive creation of T-paper and fiat money deflates asset value while increasing its nominal purchase price. NIRP and ZIRP complete the fraud circle by attempting to ensure that T-paper and fiat money produce no income payable by the Treasury or the banks.
4. QE and market manipulation allow those in control of markets (the Fed/Wall Street/London City/Exchanges/1% cabal) to make out like bandits, recycling QE funds into salaries and bonuses for traders and profits for the 1%, while skinning ordinary investors and pushing market averages ever higher. The divergence between market highs and GDP stagnation has become very blatant, but the MSM noise attemps to cover this up.
5. QE and the vast amounts of currency sloshing through the World's financial system have allowed the financial markets to pursue a frolic of their own, completely divorced from the Main Street economy. The health or illness of the underlying wealth producing activities of the World have become largely irrelevant to the speculative financial world, except to the extent that news from Main Street may produce a signal of expected movement in some market metric.
6. Central banks are lost in their own misma of Keynesian theory and the disconnects between: (a) theory and practical effects; and (b) the financial world and Main Street. How else could central banks endorse QE-bailouts of the banking sectors' bad bets with the public purse while expecting Main Street austerity (unemployment and higher taxes) to lead to GDP increases? "Trickle Down" theory is at best mistaken, and at worst a cover for enriching the 1% while thieving from the 99%. This, of course, is being kind to central bankers, assuming that they are not blatantly enriching themselves and their sponsors while feeding manure to the mushrooms.
7. Central bankers, Wall Street and London City have attained personal immunity from prosecution. The SEC and DoJ may extract fines (fees?) from them for fraudulent activities or breaches of the laws, but no bankster is personally prosecuted for sophisticated fraud (Bernie Madoff's fraud was too crude to escape prosecution). Wall Street now acts in consort with the Fed to invest in commodities and businesses, taking major equity positions and using them to manipulate markets. Wall Street firms now own or control metals warehouses, oil tankers, oil and gas storage facilities, and large amounts of commodities.
8. The cosy Petrodollar arrangement has propped up the Dollar since the early 1970s, allowing the US Dollar to retain its Reserve Currency status and its dominance of the world financial system. Excessive QE and overplaying the World Policeman role have led to a revolt among the BRICS and Shanghai Cooperation Organization nations who are seeking to escape the domination of their financial systems by Dollar-based institutions. Ironically, the failed US/EU/NATO bid to take over Ukraine on the cheap, and the sanctions against Russia for its resistance, are pushing Russia and others to accelerate their move away from the Dollar-dominated systems and from the Petrodollar.
9. The Gold Bugs have been squashed at every turn by manipulation of the price by paper gold. The paper calls on physical Gold now exceed the amount of physical Gold by as much as 100 to one. The central bank of India recently estimated that there are 92 one-ounce paper gold certificate equivalents for every ounce of physical Gold. Some commentators say that central banks have loaned/leased/hypothecated gold reserves multiple times to create a paper pyramid of alleged Gold reserves way beyond physical Gold availability. When and how the domination of the price of Gold by paper certificates will fall apart is a major subject of puzzlement among the commentators. Unmet demands for physical delivery may overwhelm the illusion of physical supply. In the meantime, physical Gold buyers are lapping up Gold like a cat does cream, with the central banks of China, Russia, India, and individuals in many countries are buying. No doubt some big bets hinge on the outcome of the Swiss referendum.