Monthly Archives: September 2010

QE2 through the lens of QE1

A survey released yesterday on the subject of the markets’ expectation for the future size Federal Reserve balance sheet has me curious regarding what another round of quantitative easing (QE) would mean for the equity markets. 70% of survey respondents believe the Federal Reserve will resume QE with the average expected increase in balance sheet size being $500 billion.

Several people have already weighed in with their opinion on what QE2 would mean for the markets. David Tepper, president & founder of Appaloosa Management, says there are only two scenarios (h/t pragcap.com):

1) The economy improves and stocks rise. OR

2) The economy will decline and the Fed will induce a rally in stocks via QE. Read more of this post

Investor Sentiment and Subsequent Returns

A recent post by The Pragmatic Capitalist on the topic of investor sentiment has me curious regarding the correlation between sentiment and subsequent returns of the S&P 500 index. Last weeks’ survey has bullish sentiment at 45%.

This analysis will consist of data from the AAII Investor Sentiment Survey and be divided into four sections. The first section will look at the entire data series, which started in 1987.  The second will look at instances of “extreme” bullishness where bullish sentiment was 50% or higher, one standard deviation above the average bullish sentiment of 39%. The third section will look at instance of “extreme” bearish sentiment where bullish sentiment was 28% or lower; one standard deviation below the average. Finally, the last section will look at periods where the eight week moving average of bullish sentiment was above 50%. Read more of this post

Where good ideas come from

I found the following TED talk by author Steven Johnson very interesting and encouraging (h/t paul.kedrosky.com). His talk “Where good ideas come from” is based on his latest book of the same name. His two main points are:

  • The best ideas are often the result of collaboration, we don’t always have to go it alone. Don’t be afraid to share your ideas.
  • The best ideas are often developed over time. Rarely does a full idea take form in one “Eureka” moment.

The price of politics (September edition): Over a grand per year to the average family

Bloomberg reported today that the Senate will not vote on extending the Bush tax cuts until after the election. If no extension is passed by year end, tax rates will revert to the 2001 levels. Meaning higher taxes for all taxpayers. Read more of this post