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QE 3 - Santa in disguise

edited September 2012 in Off-Topic
Expected to hear louder protests from some corners - especially criticism the Fed is playing politics. (I won't dispute the notion.) Than again, who wants to appear as being in opposition to the stock market? The magnitude of yesterday's gains may have muted normally vocal critics. You can debate the long term consequences, but unless seriously short the market, you gotta love the action. No - all's not well. We could opine about the shaky underpinnings. But, the sugar high - spiked with a shot of brandy - feels darned good at the moment. Like Santa stopped by - if you will .....

Had you been a junior Rip VanWinkle, asleep for 5 years - not 20, with your tv tuned to CNBC, you might not realize on awakening you'd been in slumber. Here's the closing averages on October 9, 2007. DJI: 14165, S&P: 776.76, NASDAQ: 2800. On the other hand, you might suspect a glitch with the gold ticker. Gold closed in NY October 9, 2007 at $741. And, what's this "AAPL" @ $696?

Oh, there'd be plenty of changes as you got out and about: Foreclosure signs in the neighborhood and signs in front of banks touting 3% mortgages and 0.5% CDs. Gassing up the buggy the first time would shock too. Gas in the U.S. averaged $2.64 during all of 2007 ... Enjoy the ride.

Comments

  • edited September 2012
    "You can debate the long term consequences, but unless seriously short the market, you gotta love the action."

    No, there are a fair amount of people who aren't going to debate any sort of long-term consequences, because there are people who act like there is no cost and that we can, in fact, print our way to prosperity, despite history proving otherwise. It also just resulted in a downgrade.

    " but unless seriously short the market, you gotta love the action"
    "No - all's not well. We could opine about the shaky underpinnings"

    So, you're saying that the market does not reflect the underlying, much like Bernanke admitting intentional bubble blowing yesterday during the press conference after starting QE3 at a market high?

    "On the other hand, you might suspect a glitch with the gold ticker. Gold closed in NY October 9, 2007 at $741. "

    Odd, that.

    "Like Santa stopped by - if you will ....."

    What does Santa say when a kid asks a few years down the road why a loaf of bread costs so much?

    Lastly, I'm sure some developing countries around the world who will see further rises in food and other prices will not be pleased.
  • Reply to @scott: "Lastly, I'm sure some developing countries around the world who will see further rises in food and other prices will not be pleased."

    Inflation in food and consumer staples is here already in US. Many companies play games with consumers by keeping the box price constant while reducing the weight of its content.
  • And just when I was going to take my losses on Tilson Focus (still down big 5 yrs later), Bernanke does this, but I guess he had to follow the ECB. Not too sure that it's politics, since he was a Bush appointee, re-upped by Obama in mid-crisis (little choice, really). I've fought the Fed at times; never won. Guess I'll wait for the first triple digit down day, exchange into ARIVX and go back to sleep.
    Hope Santa respects me in the morning.
  • Howdy,

    Never, Ever, Ever fight the Fed. Even if you're right, feeling smug sucks when your opportunity costs are soaring and you're watching the train pass out of sight as you stand at the station.

    As for Uncle Ben and QE3, QE4, QE...n, this is unfolding as predicted years ago.

    There are over $100T in Unfunded Liabilities (social security, medicare/aid, trusts, debt service, etc.) and there is no politically viable way to break promises or cut benefits sufficiently NOR raise taxes sufficiently to cover this tab. That leaves monetizing it as the only viable option.

    Ergo, the plan is to cut benefits and raise taxes as much as possible AND monetize the rest and try to keep the currency from imploding or hyperinflation striking. Estimates are that they've got to halve the value of the dollar over the next ten years to come close to pulling this off. Whether they'll trash the currency in the process is yet unknown.

    As for the gov't stats, they're so full of it. Go to shadowstats.com if you want to read what the real numbers are - unemployment 22%, inflation 5%, GDP -2%.

    http://www.shadowstats.com/alternate_data

    That said, good grief, you simply have to take advantage of the largess of Uncle Ben - Uncle Santa, if you will. Ride this sucker, but never ever forget that it's all a house of cards and sooner or later this sucker just might collapse.

    and so it goes,

    peace,

    rono


  • edited September 2012
    Reply to @rono: ShadowStats debunked: http://www.econbrowser.com/archives/2008/09/shadowstats_deb.html

    Also this is from comments left:

    Look at the first chart here
    http://www.shadowstats.com/alternate_data

    Look how big it considers inflation understatements to be since the mid 90s. We would have been having negative growth almost every year from then to now. Even during the tech stock bubble we would have been shrinking.

    The total economic contraction would be larger than the great depression was in the US.

    That's just ridiculous.
  • Howdy investor.

    As you could tell from the comments to your first link, the jury is still out. Everyone knows that the official gov't stats are rubbish. SS at least makes a quantifiable measure as to how much so. Simple fact is that if you use the old formulae relative to the new, the differences are substantial. Next if you compare reality numbers vs. reported official numbers, the differences are substantial. Cripes, even the most BF nowhere news jockey will qualify the unemployment numbers with 'not reporting underemployed nor discouraged'.

    Most every thing the gov't does is indexed for inflation so they have motive. They have means. And as for scruples, they're marching to their own beat.

    peace,

    rono
  • Post-Fed QE3 decision: Time for Asian Cyclicals? LINK:
    http://www.cnbc.com/id/49027783
  • Unless and until we get our debt house in order and stop overseas excursions at taxpayer expense the government shell game will go on--it must. Today's stock market close [down slightly] already has me concerned that maybe the Bernanke 'Veneer Job" may not work as expected. Nothing in my portfolio went up today, not a stock fund, reit, bond, domestic or overseas holding. What can you expect with a weak[er] dollar? You are less than you were yesterday. Food stamp usage is up sharply in the US, from around 22.5% to 40%. Half of Americans don't pay income taxes. We must become the producer nation we once were, even if it hurts in the short term--and it would and will. Am I dreaming? Probably. Maybe the government should print our currency on real gold tinted paper. Bite into some gold if you agree, and send it here.
  • edited September 2012
    Reply to @rono: Rono, I cannot consider ShadowStats site as gospel. One person vs a whole cadre of professionals. If there was an backroom effort to hide or distort the number it simply would not be kept secret. Don't take the "old formula" as correct either. There were indeed problems with old calculation which is corrected.

    In fact, I'll say ShadowStats site is bogus and this guy has huge incentive to promote the belief that that government has other agenda to sell subscription services. Without creating the suspicion he has no gain in this.
  • Reply to @MaxBialystock: I sent a small check to SFGIX today. If it was in TDA, I'd have switched quite a bit more. I suspect he wishes he had several extra million to invest over the next month or so (not that I would have helped much). He seems aggressive enough to make money and cautious enough to conserve most capital.
    Guess time will tell.
  • edited September 2012
    Reply to @Investor: Your take on inflation depends so much on your situation & I don't trust anybody's figures that much - certainly not govt.'s. Now, if ya bought a house last few years, inflation's looking pretty tame. If ya drive a lot, different story. Ouch at the pump. And, have you checked out beef prices lately? I know it's the drought they'll say. But that's how it always is. Always a "logical" reason for the price hikes when you have inflation. Often, however prices don't fall much after the immediate crisis ends.

    If you wanta gain some perspective on inflation, think about the new cars you've bought over the years. I know, today's have more gizmos. But they're also smaller, contain more plastics, & are assembled more by robots. So - a wash there. Mine - (Deleted)
  • Reply to @hank:

    * Gas prices are not too bad. We are not anywhere close to 2008 highs. You can verify this yourself. I have recently did this to a John's post.

    * Beef prices has actually come down. Due to drought which increased the feed prices, some of the live stock is sent to slaughter house instead of feeding. Next year it will be higher. Having said that, food is typically about 6% of average American family expenditure. For lower income families the percentage goes up and for higher income families it goes down. We are very familiar with the changes in food prices because we shop them often. However, their impact is less than thought.

    * Regarding the car prices you have quoted, biggest hump was in 80s high inflation environment. If you actually calculate the percentages from your numbers 1970 to 2008, the annualized inflation on car prices was 5.09%. From 1987 to 2008, the inflation was 2.972%. From 1993 to 2008: 2.927%. From 2001 to 2008 auto price inflation: 3.56%. Personally, I do not see that huge inflation you are talking when you convert to percentages. I am not sure how various autos you have purchased over time are comparable or not. The autos are much safer and the safety features such as seat belts, air-bags etc. did not exist back in the day. All these add to the cost of the auto. On equal food basis, auto prices might even have declined in real terms.

    * For most families the biggest expense is housing expenses. I guess you will agree with me that housing price increases has been muted in the last couple of years (it was red hot until 2007)

    * If you really want to talk about inflation, you should be talking about Healthcare and Education costs. Given these are the biggest offenders, it is head scratching that Americans are told that heath reform is not in their best interest and they are made to advocate against it.

    * Inflation numbers quoted is an overall index. Each person has his/her own personal inflation figure based on what services and goods he/she consumes. For example, later in life you consume more medical services and inflation in these services will make your life much more miserable. On the other hand you use less food, clothing and if you have paid your house, housing related inflation is also less important for you. Government also calculates some other inflation figures (say for retirees). Nothing is hidden. It is weighted differently. You cannot publish zillion inflation figures so the one published is an overall index considering the whole country.
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  • edited September 2012
    Reply to @Investor: Investor, I'm glad you find gas prices not too bad where you are. $4.08 in parts of Michigan. Attached is a link to historical gas prices. Note that during 1998 it averaged $1.03 per gallon. (Clinton was President at the time)
    http://www.consumerenergyreport.com/2012/03/14/charting-the-dramatic-gas-price-rise-of-the-last-decade/

    I'm also glad that beef prices have come down where you are. Attached is an article from late April: "Shrinking Supply Pushes Beef Prices to All Time Highs"
    http://www.palmbeachpost.com/news/business/shrinking-supply-pushes-beef-prices-to-all-time-hi/nN3PW/

    You are correct that my anecdotal listing of prices paid for new cars since 1970 was unscientific. No doubt the cars differed in features. And so I have deleted that portion of the previous post. In defense, I'll say it wasn't intended to be scientific, just to prod people to look at prices paid for cars over their lifetime as one indication of inflation's effect. Here linked is a chart comparing average prices of cars and many other items decade-by-decade back to 1930 - more substantial than my previous anecdotal effort. Regards, hank
    http://www.thepeoplehistory.com/70yearsofpricechange.html
  • edited September 2012
    Reply to @Investor: 2008 was actually quite an interesting year for gas prices in California: from 3.28 in January to a high of 4.59 in June to end the year at 1.81. Hardly a typical year. Right now, 4.18 or so in northern part of state. That's closer to the high than to the low, by a long shot. Supposedly due to a recent fire at our local Chevron refinery. But then, there's almost ALWAYS some kind of "unusual circumstance", no?

    Das Link
  • edited September 2012
    deleted.
  • edited September 2012
    Reply to @hank: Your anecdotal price for Michigan in 1998 seems correct. I remember buying gas around $1 in Palatine, IL in 1998. Oil prices have gone up mainly not because of monetary policies but because of supply and demand. In recessions, slow growth it goes down and in high growth it is sky high again. The fact that with high growth of emerging markets came high demand. The inflation source is not here.

    We will hit $4 $5 or more someday. People will be talking about alternative energy sources once more. Electric cars, solar, wind etc. will be popular again. High energy prices are its own poison.
  • edited September 2012
    Reply to @Maurice: I think immediate future is probably priced to a degree. So, we might get some breather as a wait and see attitude takes effect and as the effects of the program starts to show up, we might see continuation of the trend. Remember this QE is open ended until results are seen. So, it will be harder for traders/pundits to game it but I bet they will try and talk it down.

    I personally sold RPHYX and bought PONDX increasing my risk profile. I've also started min. investment in GPIOX in my self-directed 401k.

    Right now, I see the debt sequestration as the biggest risk to the economy which will be likely to be taken in the lame-duck session of congress. There is a high chance of a repeat of last year in congress. But assuming this will eventually be resolved it could also be considered a change to buy should there is substantial decline.
  • edited September 2012
    Reply to @Maurice: The new "Q" sounds bit different from its cousins 1 & 2 - as you have already noted. Fedspeak from couple other members this week suggests this Q could go on indefinitely until the jobs come back. (Guess that's what Ben said too.) ... Seems to me what you're really asking then is: how much of the eventual equity run is already baked into the cake? That's hard to answer since we don't yet know how big the cake will be. In fact, the Fed doesn't know either. If it turns out to be a Angle-food cake, they can get quite large, and also can be stacked layer upon layer on top of one another. On the other hand, "pineapple upside-down" cake tends to be rather flat and not stackable - but tastes good. Then, of course, there's cup-cakes (these ain't what they're after). ... All this aside, I'd say very little equity appreciation is currently baked in. Fund flows out of equities been negative for long time now. Skepticism abounds, which is usually bullish. Lots of money's still chasing those 1 - 2% bond yields. So, if the cake being cooked up by the Fed were to grow really really big over say - three, four, five, or ten years, than we probably only seen a few raisins and nuts so far - and maybe greased the pan. The mouth watering good stuff and frothy buttersweet frosting are still to come. - Not Martha Stewart - but hope this helps answer it.
  • edited September 2012
    Reply to @hank: "Fedspeak from couple other members this week suggests this Q could go on indefinitely"

    Open-ended QE. $40B monthly of MBS. If that does not work, size and other assets can be considered.

    You're going to have rolling short covering, as people continually attempt to short into money printing. There will certainly be down days and maybe even down periods, but the mid-to-long term depends on how far (and eventually, how large, as I fully predict they will take it to yet another level) QE goes. Dow at some ridiculous/unexpected level in a few years? Nominal vs real gains become the real question, then.

    As investor did, I am gradually adding risk here and there. A couple of small ultrashort positions were sold and added to things like Whitebox Tactical, Marketfield and elsewhere, although a primary focus will be resources and real estate.

    Apparently some people are still finding stock-specific shorts though, as legendary short seller Jim Chanos "sees no shortage of overpriced stocks." People are going to go, "Yeah, he's Chanos, of course he's going to say that", but I completely agree with him on Hewlett Packard (http://www.bloomberg.com/news/2012-09-19/chanos-sees-no-shortage-of-overpriced-stocks-in-u-s-bull-market.html), which is absolutely a value trap.
  • Reply to @Maurice:

    Hi Mo,

    Hope you're doing well.

    I agree with the others that much of QE3 is already priced into the market. However, as also stated, how long does this go on? Geez, my crystal ball is cloudy as usual, but they're monetizing the unfunded liabilities under the cover of stimulating the economy via making every stock owner feel so rich they'll spend money. The nut remains that they've got to address over $100T in promises with a combination of benefit reductions (broken promises), tax increases and monetization.

    er, they're gonna be printin' dollars for freakin years.

    The best I can suggest is to ride the train, but have your bag very close so you can jump off this sucker when appropriate. Have a little cash on hand should we fall off the cliff - which we probably will - as this should probably reflected in a market decline and represent a buying opporunity.

    I still really like bluechip dividend plays - NCV (11.7%) is a honey and for Michigan tax exempt, I like NZW (5.3%). Oh, and as a personal bias, I really like owning stocks that you have a vested interest in - we own both Consumers Power and Detroit Edison - the two major MI utes that are both paying 4.2%. Where do you buy your gasoline? Do you own there stock? Where do you shop?

    just some early morning mutterings,

    peace,

    rono
  • edited September 2012
    Reply to @scott: "There will certainly be down days and maybe even down periods ..." Yep, what some I think miss. Not a straight line. Up-down trends can last for months - even in a bull or bear market. Post-election blahs possible. And, the fiscal end-of-year road-block being assembled at the Capitol could de-rail the train. (To borrow one of Rono's metaphors, may need to take a cold plunge into the Patomic as the bugger leaps the tracks.)

    "Nominal vs real gains become the question." Absolutely! We're not talking about a all expense paid stay in Maui here. If the Fed gets what they want, most everything will rise dramatically in value over time. Pick your poison - stocks, gold, houses, standing timber, old comics & baseball cards. All would appreciate.
  • Reply to @hank: Maybe not baseball cards. Did that industry ever get ruined. Yeesh.

    "Absolutely! We're not talking about a all expense paid stay in Maui here."

    Yeah, that's all I'm saying - the fact that this is not a free lunch (although the Maui example sounds a lot nicer.)
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