Tag Archives: QE2

Ben Bernanke: Taking Credit for the Good and Not the Bad

With Fed Chairman Ben Bernanke testifying today before the house budget committee let’s take a look back at what has transpired since QE2 was first rumored.

Rumors of QE2 started last August at the Fed’s annual Jackson Hole meeting but didn’t officially start until November. Prior to the official announcement the New York Fed’s Brian Sack had the following to say about the intentions of QE2:

keep longer-term interest rates lower than otherwise by reducing the aggregate amount of risk that the private markets have to bear. In particular, by purchasing longer-term securities, the Federal Reserve removes duration risk from the market, which should help to reduce the term premium that investors demand for holding longer-term securities. That effect should in turn boost other asset prices, as those investors displaced by the Fed’s purchases would likely seek to hold alternative types of securities.

Basically the Fed was attempting to lower interest rates with the hope that this would boost the economy and boost other assets. As you can see in the chart below Read more of this post

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

 

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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