QE3: Shut up, you have no idea.
- Joshua M Brown
- August 27th, 2012
I'm blown away by the willingness of every schmuck who owns a clean suit to opine on the odds of the Fed embarking on another round of Quantitative Easing. One clown has some kind of formula based on I don't know I was too disinterested to write it down. Another changes his mind in real-time based on every single new data point (as I believe the Fed itself does as well, lol).
And the news flow! The news flow can be interpreted and reinterpreted on an hourly basis! It's completely newstarded, it's guess how many fingers Bernanke is holding up behind his back when Bernanke himself hasn't even decided yet. What's the point?
Jeff Miller at A Dash of Insight sums up the sheer madness of it all perfectly:
After weeks of anticipation, we may get the answer to a key question:
Will the Fed launch another round of Quantitative Easing?
Since the decision for QE II is linked to Fed Chair Bernanke's 2010 speech to the annual Economic Symposium at Jackson Hole, some expect a similar outcome this time. There is obvious confusion.
Stocks rallied as the Fed minutes seemed to show a greater receptiveness for more QE. Stocks sold off when St. Louis Fed President, a non-voting member whose hawkish views are well-known, said that the minutes were "stale" and that data had improved. Stocks then rallied a bit when Chicago Fed President Evans basically said the opposite. Finally, there was a significant reversal on Friday when WSJ reporter Jon Hilsenrath released a letter from Bernanke to Congressman Darrell Issa (R, Cal.), responding to some questions he had posed by mail. The answers contained nothing new, but market participants seized upon the date of the letter! The idea is that this is the most recent information.
Here's more evidence of confusion, dedicated to those who are always opining about the "message of the market."
- Headline in LA Times: Price of gold surges on Fed stimulus hopes; is it headed for $2,000?
- And from Reuters: Wall St falls on dimmed Fed stimulus hopes, data
Two stories -- published within minutes of each other. For the flexible pundit, it is easy to derive whatever message you want!
Josh here - The truth is, there is no need to hazard a guess, whatever happens can be reacted to in good time. Placing big bets on quasi-political economic policy outcomes is a losing game in the long-term, it should only be attempted by the hedgiest of hedge fund managers - guys who can make an entire career with a single large wager that hits. But is that the game you're playing?
I don't mind the discussion of should he or shouldn't he launch QE (which is becoming a political question more than anything else). But beware the pundit who acts as though he knows the mind of Bernanke and the course of near-term data as a certainty. He's talking out of his ass.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.