Tag Archives: QE

QE2 Creates Oppurtunities for Contrarian Value Investing

As always, John Hussman’s weekly market comment is a must read. In it he discusses what he sees as the driver of returns since QE2 was announced (essentially a transient psychological effect), the asset classes that have benefited and current valuation levels. All three areas are worthy of reading and further introspection but I will focus on the second. Read more of this post

Weekend Reading

Quote of the Week:

As commercials for Fram oil filters used to say, “You can pay me now or pay me later.” In our case today, “pay me later” is a perpetuation of weak banks, substandard growth, persistent unemployment and stymied productivity. Better to do takeunders of banks now than to hire an undertaker for the whole U.S. economy later. ~Andy Kessler

Links for the Week ending Nov-20, 2010 Read more of this post

Assets Returns Since QE2 Hints

A very nice interactive tool today from Reuters that shows asset returns based on different QE2 related time periods. Link.

Notice how most assets rallied from the Jackson Hole speech until the official QE2 announcement and the USD declined. Since the actual announcement risk assets have sold off and the USD has rallied. Interesting that the anticipation QE resulted in assets moving as the Fed intended, higher equity prices and lower bond yields, but since implementation prices are moving in the opposite direction. The question is, will this continue?

Click to Enlarge

Click to Enlarge

 

Hussman: Bubble, Crash, Bubble, Crash, Bubble…

Hussman’s weekly market comment is a must read. He does not mince words in arguing that QE is utterly misguided and Bernanke’s leadership at the Fed has bordered on criminal. Excerpts below (emphasis mine) but please read the entire comment.

Given that interest rates are already quite depressed, Bernanke seems to be grasping at straws in justifying QE2 on the basis further slight reductions in yields. As for Bernanke’s case for creating wealth effects via the stock market, one might look at this logic and conclude that while it may or may not be valid, the argument is at least the subject of reasonable debate. But that would not be true. Rather, these are undoubtedly among the most ignorant remarks ever made by a central banker.

We will continue this cycle until we catch on. The problem isn’t only that the Fed is treating the symptoms instead of the disease. Rather, by irresponsibly promoting reckless speculation, misallocation of capital, moral hazard (careless lending without repercussions), and illusory “wealth effects,” the Fed has become the disease.

Source: Hussman Funds

Sentiment Update: Significant Jump in Bearish Sentiment

The NAAIM (active money managers) sentiment survey was not released this week so we only examine the AAII (individual investors) survey in this post.

AAII Individual investors’ outlook for the next six months decreased slightly from last week. Sentiment dropped from 51% last week to 48% this week. Bearish sentiment jumped to 29.8% from 21.6% last week.  The eight-week, bullish sentiment moving average again increased, this week’s reading is 48.0%, and the highest level since February ’07 however it will take a bullish reading above 50.9% next week to continue moving the eight-week average higher.

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