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Setting Sail on the QE Express

I’ve been managing money for over 25 years and rarely have I seen the level of craziness and insanity in both our politics and financial markets in the U.S.  I’m frightened of this deepening manmade disaster that’s unfolding in front of us right now in both the financial markets and the economy.  Too much faith is being placed in untested theories and that quantitative easing is going to cure all of our ills.  I’m frightened that we only care about what is happening today at the dire and escalating cost to our tomorrow.  One has to imagine that even John Maynard Keynes would be dumbfounded by the amount of government manipulation we have in our economy. But worse, with the U.S. Fed policy, other major world economies are following suit and we have a race to the bottom for sovereign currencies.
If government printing of money and spending continues, the nation’s debt is going to swallow us whole.   We can’t expect Washington D.C. to solve these problems because politicians are inspired only by the moment as they believe they were put on the earth to please their constituents to re-elect them now.  True future issues are given nothing more than “lip-service” by the professional politician.   Why do they care about 30 years from now as long as they “get theirs” now and can amass huge amounts of money for their heirs.  Washington is bereft of a true Mr. Smith and probably always will be.  The political machine is greased with the sweat of the proletariat and will continue to be until common sense and true honor hits Washington.  I am not sure that will happen in my lifetime, but I can hope.  Don’t get me wrong, I am absolutely against the distribution of wealth, but I am for an honest day’s pay for an honest day’s work.  I am not sure that we have that in most circumstances today.  This disparity is causing a much dreaded rift between classes and the rhetorical warfare will absolutely derail any chance to grow the middle class.    But as long as they can get elected, that is all that matters to them.  They have little consideration or worry about future constituents who cannot vote today.  This is why it’s up to us to take care of our clients and ourselves politically, personally, and professionally.  In particular where you have control in portfolios.
This leads me to a question I’ve asked myself lately.  What happened to the good old days when good news was good for the financial markets and bad news was bad for it?  The U.S. financial markets are making it harder to anticipate which way it will react to what is good or bad news. On Friday, November 8, the U.S. stock market finished the week much higher despite a 1% drop on Thursday.  The question is why?
The U.S. Labor Department released data on Friday that was a stronger than expected jobs report, so the market took off.   However, looking closer, the reported surge in this 691,000 full time jobs in September, was really the October payroll surge survey counting in furloughed government employees as employed.  Cute trick.
Looking at the household survey, it also included the furloughed employees as employed.   So although the U.S. Bureau of Labor Statistics admitted this was an error, they decided they wouldn’t correct it.  They are keeping the report the same.  At the same time, the increase in unemployment from those that were counted actually hides a decline in the longer-term unemployed that were moved out of the headline labor force.  The distortions from the U.S. government shutdown, and partial counting of furloughed employees as unemployed should reverse itself out in November reporting.  However, lying seems to be the government motto these days and they will likely keep the white lies.  The final tally for unemployment for October of 2013 is the U3 unemployment is 7.3%, up from 7.2% in September.  The U6 unemployment is at 13.8% in October versus 13.6% in September.  By measuring the whole unemployment picture in the United States, it is now 23.5% in October, up from 23.3% in September. This number includes those looking for work, those part-time workers looking for full-time work and those that would like to work, but are so disgusted with the economy and the administration that they don’t know what to do.
The underlining economic reality is extremely weak.  Weaker than the Fed predicted and the U.S. stock market ran up.  However, I believe these market negative conditions will begin to gain broader recognition.  Some way, somehow, financial market sentiment in the U.S. can shift with an imminent end to the QE strategy, whether it be QE3, 4, 5, 6 or who knows…  I believe everything is so negative and the truth is going to come out, and the Fed is finally going to admit it, however, the Fed will continue an expansion plan for Quantitative Easing, despite the destruction of the U.S. dollar.  The Federal Reserve is locked into QE by persistent problems that are beyond its control.  Everyone knows that after three QE’s, we are looking at a more of the same despite definitive proof that QE does not create jobs.  This is the elephant in the room.  Will the financial markets wake up to what is really happening?
And don’t even get me started on the lies and manufactured “truths” of Obamacare…

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