This article is a follow-up to a previous one that I wrote about quantitative easing (QE), which generated a lot of debate and was even picked up by some main stream investing sites. Thanks to Andy for allowing to do a follow up guest post. In my earlier forecast I had thought the Fed would announce QE3 back in August – well I wasn’t that far off. It was announced in early September. To rehash a few things:
- Bernanke needs Obama to win (in order to keep his job), and we all know that the way to ensure a swift victory for the current President is to lift up the stock market.
- We all know that QE does little to help the economy (despite the Fed’s repeated insistence that it does) – it’s all about the stock market.
Now the more I look at the effects of QE3, the more I have to say “wow, this Bernanke is one hell of a genius”. Here’s how the story goes.
In July and August, one of the biggest things that was preventing Bernanke from releasing QE3 was the fact that the economy was not noticeably slowing down. If Bernanke had announced QE3, a lot of people would have attacked him for using the Fed’s last bullet at a time when the economy wasn’t facing any serious trouble.
A few weeks ago, the initial jobless claims were announced (for the month of August). The numbers were bad, which really shocked me because the economy in August did pretty well – there was no reason the unemployment numbers should have been that bad!
This gave Bernanke an excuse to trigger QE3, because he essentially said “See? The economy is doing badly. We have to release QE3 now, or more people will lose their jobs!” So Bernanke initiated QE3, and stocks have been flying the past few days. Now here’s where the story really gets interesting.
A few days ago, the initial jobless claims for August were revised. The result? A positive revision of 60%! In other words, the revised version was 60% better than the previous version! This number was obviously cooked (editor: Tony’s opinion and not my own), which is why guys like Jack Welch said to the Wall Street Journal “there’s no way those initial claims where real.” In other words, Bernanke found a way to mess with the unemployment numbers and vastly understated how great the economy really was doing so that he could release QE3.
Now some people will call this a conspiracy theory, but let’s be honest. I can understand a 20% revision, but a 60% revision is way, way off the charts (not even China’s numbers are that cooked). The only logical answer is that someone tampered with those numbers, and the only person who would benefit from such tampering would be Bernanke (who supports Obama).
Why Was QE3’s Timing So Ridiculously Clever?
3 things were happening in September:
- The market was topping. The typical double-heads pattern on the stock charts made everyone believe that stocks were topping. (Indeed, even without the help of QE3, the market would likely have topped)
- The economy will enter into a recession sometime early next year. Even legendary investor Jim Rogers agrees, saying that “once every 5-6 years, the U.S. enters into a recession”.
- The stock market is very close to it’s all-time high.
Everyone expected the Fed to release another round of QE, so if Bernanke simply released QE3 like they did QE1 and 2, there would be no big effect on the market. Thus, Bernanke “wowed” everyone by essentially making QE3 into unlimited-QE – “we’re going to keep buying until things go up up up!”. This really shook the markets, making the short-sellers scared, because they don’t know when to start shorting anymore.
All the Fed needs to do is make the stock market break it’s old time high, and the market will enter into a “self-fulfill prophesy” and shoot upwards on its own. Why? It’s a standard fact that whenever stocks break the old time high, they will continue shooting upwards because people think “good times are back again!” Because the stock market is already so close to the old time high, all the Fed needs to do is give the market a little push, and the market will break the old time high and move upwards on its own. Genius move, Bernake.
What Does This Mean For the Stock and Commodity Markets?
They’re both going up, of course! Based upon my technical indications (how I got there is a whole other post), I believe that the S&P will at least exceed 1600.
However, beware. I also believe that the economy will enter into a recession early Q1 of next year, simply because by studying history, you’ll see that there’s a recession once every 5-6 years. History repeats itself.
This was a guest post by Tony blogs at Intangible Investor, where he analyzes the basic fundamentals of companies and stocks using the 5 P’s. Check out his view on Facebook’s early years based upon the 5 P’s.
7 thoughts on “How I Think QE3 Will Affect Stock and Commodity Markets”
Hmm, interesting analysis of QE3. Truthfully, I had always thought that the Federal Reserve would “randomly” throw money at the U.S. Economy through QE at times of economic stress to pacify any complaints. Good move, Bernanke… Good move.
I had typed a comment critical of your 60% analysis, but then I realized you were referring to the “initial jobless claims” rather than the change in employment as I had thought. I’ve been unable to find what 60% positive revision to “initial jobless claims” you’re referencing.
I’m not sure I’ve even seen monthly numbers for that; it’s a weekly statistic, though there is the four-week average as well. Could you, perhaps, cite what numbers you’re actually referencing? I good conspiracy theory should at least have some underlying data….
Initially I voted for Obama, but ended up frustrated by the frozen congress. I was believing that Romney would be better, but after hearing him lie and repeat Obama in debate. I realize that Romney couldn’t run the country because he has no actual plan or direction. He doesn’t have a stand for anything. Although, I am Republican, I am voting for Pres. Obama. There is no choice. What does this have to do with government possibly manipulating for position. Every thing all administrations manipulate just like Romney is doing. So, stock markets only are a false prediction of the future economy.
“So, stock markets only are a false prediction of the future economy.” Regarding that comment, keep in mind that
1) the stock market is a lagging indicator, not a leading (or else the stock market would be predicted the 2008 recession).
2) in the short term (which is basically 1 month, now until the elections), the stock market does in no way reflect the market. but in the long term it does
Regarding Romney, I find the guy to be a little too honest (which is why in the debates he really brushed up on his “political skills”). One does not call 47% of Americans lazy bums – even if that’s what he truly believes, that’s something a true politicians doesn’t do. I guess he’s finally learning the ropes of the trade – tell the public what the public wants to hear.
The revisions do look strange. But I seriosuly doubt a conspiracy since the BLS has been releasing the unemployment numbers for over 30 years and through multiple adminiatrations. Most of the people who work there on the final numbers are phd economists and lifers. They would not risk their jobs and reputation over this.
Regardless of how moralous we think the government might be, let’s face facts. You may be right, but I still think 60% is way, way to big of a revision.
I’ll be sticking around for any comments. As for my political views, I’m sorry if they’re against that of yours.