Earlier today consulting company McKinsey, which has now become the new Moody's, released a 72 page report titled "QE and ultra-low interest rates: Distributional effects and risks [9]" which contains the following pearls of wisdom: "The impact of ultra-low rate monetary policies on financial asset prices is ambiguous. We found little conclusive evidence that ultra-low interest rates have boosted equity markets. Although announcements about changes to ultra-low rate policies do spark short-term market movements in equity prices, these movements do not persist in the long term." Uhh, does McKinsey have an S&P chart that goes back to 2008? One would think whoever commissioned this report can at least pay for "bigger charts." Continuing: "Moreover, there is little evidence of a large-scale shift into equities as part of a search for yield. Price-earnings ratios and price-book ratios in stock markets are no higher than long-term averages."
We will spare any analysis, in-depth or otherwise, of the report: it merits none, and certainly not for those who watch the farce that the "market" has become.
Sadly, by issuing such drivel McKinsey has just tarnished what little reputation and credibility it may have had.
Instead we will just point out, visually, what McKinsey is saying: namely that the chart below from SocGen titled very confusingly "Liquidity has been the main driver of US equities since 2008" which shows the causation between the S&P and the Fed's balance sheet, doesn't exist and is purely a figment of overactive realists' imaginations.
[10]
Oh, and to the skeptics, we urge both you - and McMoody's - to speak to the US Treasury and the TBAC, which three months ago "finally admitted the truth: It's All POMO [11]." To wit:
There, hidden on page 26, or slide 76 of 100, where the Treasury discusses "The Impact Of Monetary Policy", the biggest "conspiracy theory" of all becomes merely the latest conspiracy fact. First, for corporate bonds...
[12]
But just as importantly, for stocks.
[13]
But most importantly, and tying it all together, POMO. Only this time, finally, the US Treasury finally admits it.
[14]
So, thanks to the US Treasury, we know that between January 2009 and April 2013, on days in which the Fed POMO was more than $5 billion, the stock market rose a total of 570 points, on days in which the POMO was less than $5 billion, the cumulative stock market gain was "only" 141 points, and when there was no POMO, the S&P gained... -51 points.