Low volume stock rallies driven by nothing fundamental …
A steady upward move in bond prices, and decline in interest rates …
Levitation in hard assets, and a relentless decline in select currencies.
I’m no Sherlock Holmes. But I’d say these market clues point in one direction — that we’re getting stealth Quantitative Easing, this time with a European twist!
Is the ECB Following in the Fed’s Footsteps?
It Sure Looks Like It!
“QE” is Wall Street jargon for money printing. We’ve seen two rounds of it here in the U.S., one that ran from November 25, 2008 to March 31, 2010, and one that ran from November 3, 2010 to June 30, 2011.
QE1 caused every asset on the planet to levitate for months on end. The exception was the U.S. dollar; it fell in a virtual straight line. QE2 had a similar, but more muted impact.
Over in Europe, central bankers and other policy makers griped about the impact the Fed’s money printing had on commodities and the threat a falling dollar posed to their export industry. And more recently, several policymakers publicly disavowed money-printing as a strategy to combat the sovereign debt crisis.
ECB’s massive LTRO gave risk assets wings. |
Yet late in 2011, the European Central Bank (ECB) conducted the first of two planned long-term refinancing operations, or “LTROs.” The scheme flooded banks with 489 billion euros of cheap money, which they were “strongly encouraged” to use to buy sovereign bonds. The second LTRO is scheduled for next month, and there’s talk we could see 1 trillion euros — or more — in demand.
As a result of the LTRO and other ECB moves to combat the crisis, its balance sheet has exploded in size — to 2.67 trillion euros ($3.42 trillion) from 1.95 trillion euros ($2.5 trillion) just 6 months ago. The Fed’s balance sheet, by comparison sake, has ballooned to $2.9 trillion. That compares to $924 billion before the Lehman Brothers crisis.
Long story short: All signs point to the ECB pursuing — in a roundabout way — the same strategy the Fed did before it!
QE-E Sure to Fail
Just Like Ours Did!
Albert Einstein supposedly said the definition of insanity is doing the same thing over and over again, and expecting a different result. But it looks like central bankers the world over haven’t gotten the memo.
Despite the failure of two rounds of U.S. QE to stimulate the economy in a lasting meaningful way … and the failure of two rounds of QE in the U.K. to accomplish anything either … we now appear to be getting “QE-E” — QE in Europe.
It’s guaranteed to fail miserably if history is any guide. But it could also continue to inflate the asset markets short term, and drive the value of the euro currency even lower — just as U.S. QE drove the dollar down. So keep those trends in mind when you’re picking your investing spots!
Until next time,
Mike
P.S. My Safe Money Report members are already profiting from the euro’s decline. And you can join them for as little as 12 cents per day. To find out how, click here and watch Martin’s latest video.
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Well, the last paragraph would explain the paradoxical action of market up and U.S. dollar up at the same time.
Nothing fundamental driving the stock market? U.S. unemployment is dropping, the economy is strengthening and corporations are turning in nice profits. You are in a state of denial.
Not according to Shadowstats. They say unemployment is not improving. The census bureau’s data also shows new housing permits lower than they’ve been in 50 years. Any rise in the markets is not due to growth, it’s inflation. Good for you if you own assets, bad for the poor.
is real estate an asset???
The only problem is the markets don’t respond to shadowstats numbers. They respond to the government numbers. Markets rise when corporate profits are solid as is the case now. Stock valuations are hardly at an extreme.
King Ralph
It seems to me we are all on a bus. If you don’t no the rules (MF Global) and don’t understand the risks (sovereign debt) and don’t know the direction (counter party risk) then you don’t want to be the last one off the bus either.
Mike, you really, really, really don’t have a clue what “fundamentals” are……..you really, really, really don’t…
Truly a living prime example of ignorance and apathy….using your money..
Man…are his articles just getting shorter and shorter?…
I thought you said 60 days ago there was no ‘rescue” coming??….I thought you and Marty said 60-90 days ago that the “Euro remedy would look NOTHING like the US’s path??…..wrong again..
How can one person be so comically wrong all the time…
I just love all the money printing, SP666 to SP1310, that’s 96% upside.
Mike…. the QE – E as you put it, and the U.S QE 1 and 2 , doesn’t and didn’t work….how??
Market is up and trending up…we should be and should have been long…
it doesn’t matter the WHY….
wake up man !
Party on! YEAH BABY!! (don’t get complacent)
Structural imbalances, systemic weakness, and fragility characterize our current economy.
To put it another way the central banks are blowing another debt bubble–call it the .GOV bubble (instead of .COM). This leads to two possible scenarios IMO:
1. it fails to take hold and collapses in on itself in an epic crash.
2. it takes hold and blows the nominal values of all asset classes sky high until it bursts in an epic crash.
Housing and housing related expenses as a share of GDP has fallen about 5% while the US government structural deficit (not a one time stimulus but the deficit each and every year) has grown about the same amount in terms of GDP to between 9-10% with no significant improvement in sight anytime soon.
Out of one side of their mouth pundits speak of the improving conditions and out of the other they point out that we MUST have QE3 and we MUST have low interest rates FOREVER. I don’t feel like writing an essay this morning (more likely I will go out and stimulate the economy a little myself) but let’s just say that asset prices, job creation, and profits occurred in the last two major bubbles too…and how did that turn out.
Mike, you always say QE didn’t work. Didn’t work compared to what?
We have know idea what the outcome would have been without it. More bank failures? A deeper, prolonged credit crunch?
Mike, what’s with the smirk on your face all the time?