no corresponding stock market rally. Better yet, the scenario imagined by the Fed-reverent would give the impression of a “great rotation” out of low-yielding bonds and into equities over the last 10 years. Except that the 10-year Treasury note yielded 3.26% in 2009 versus 1.55% in 2021. There’s just no story there.
Translated for those who need it, in order for a QE- deceived bull to express optimism in the stock market, a sober QE bear must be able to express an equal amount of pessimism. In markets, the passions of the bulls are leavened by the pessimism of the bears... by definition. you’re tongue-tied, it’s with good reason. Subsidization of government spending wouldn’t trick the markets, nor would the central bank doubling down on housing consumption. various QE programs by putting to work bank reserves held at the central bank. In particular, the Fed purchased Treasuries and mortgage bonds with an eye on pushing interest rates down at the long end, and with its mortgage security buys, the Fed was working to prop up the housing market. OK, but what about the subsidization of government spending or the propping up of housing consumption (the very consumption that ended in relentless tears in 2008)? Both would boost forward-looking markets... If Some say that the Fed, in pushing yields of bonds so low, engineered a rush into higher- yielding investment opportunities that could only be found in the stock market. It sounds intriguing at first glance, but a cursory second look at the yield curve in Japan over the decades shows lower rates across the curve, but
OPTIMISTIC BULLS AND SOBER BEARS
Still others will point to the Fed “printing” trillions of dollars that had to find a home, ending up in U.S. shares. Nice try, but there’s nothing to this, either... Indeed, if we ignore that the Fed isn’t “printing” money in the first place (it’s borrowing existing bank reserves held at the Fed), we can’t ignore that in any market there are always and everywhere buyers and sellers. Translated for those who need it, in order for a QE-deceived bull to express optimism in the stock market, a sober QE bear must be able to express an equal amount of pessimism. In markets, the passions of the bulls are leavened by the pessimism of the bears... by definition . Such central bank mysticism also ignores how equities are valued in the first place. Stock prices represent the market’s expectation of all the dollars any company will earn throughout its existence. Looked at through the prism of QE, what would the Fed’s bond buying have to do with equity prices? And for those who think QE represents currency devaluation, and that devaluation is good for stocks, please think again... When
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October 2021
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