So let’s get this straight – the Fed Chairman did not foresee the crisis. When confronted with the crisis he reacted late. When driven to the brink he applied the wrong solution (saving the banks while ignoring Main Street). Yet, now it seems as though every equity market bull under the sun views his most recent solution (QE) as some sort of cure-all. No, no QE did not fail the first time – it just wasn’t tried hard enough….
The David Tepper’s of the world have multiuplied in recent weeks. This is obviously a “win win” market. Step right up ladies and gentleman. Everyone’s a winner! This week’s note from Bob Doll expresses hisconfidence that the Fed’s actions will save the world:
“Despite the fact that Treasury yields have moved lower in recent weeks (usually a sign associated with increasing downside risks to economic growth), we expect that the Fed’s actions (along with those of other central banks) will help reduce deflationary risks and will act as a positive for global economic growth. Stock markets and commodity prices have been pricing in a reflation outcome and we believe those markets have it right in that central banks will do what is necessary to fight deflationary forces. The intentions of central bankers is quite clear at present and this appears to be a case where the old saying “don’t fight the Fed” seems prudent advice, suggesting that, from an investment perspective, risk assets should continue to grind higher.”
Jeff Saut of Raymond James is even more bullish. He says QE erases a housing double dip (I don’t even know where to begin with that nonsense), will continue to help the economy while bolstering risk assets:
“Well, I’m on the road again this week speaking to PMs and conducting retail investor seminars. My message remains pretty simple. With more quantitative easing (QE2) on the way, the risk of another downdraft in housing has been taken off of the table. It has also boosted commodities, which is plainly good for our “stuff stocks.” Additionally, QE2 should spur more M&A activity, increase share repurchases, and lower the U.S. dollar (good for export companies), all of which is positive for the S&P 500.”
It’s amazing isn’t it? This Fed Chief has failed us consistently. He has not helped to generate a private sector recovery. The very fact that we are discussing a second round of QE is essentially an admittal that he failed the first time around. It’s no surprise to me that everyone under the sun is misinterpreting QE as some sort of hugely inflationary event. Even Mr. Bernanke thinks he’s “printing money” and adding net new financial assets to the private sector (not true). Despite his consistent failings investors have this undying faith in him. How many times does a friend need to punch you in the belly before you realize that he is not your friend?