We already knew that QE3, or QEInfinity as it's now called since it's open-ended, consists of buying $40 billion in MBS per month. However, sometimes these dry numbers are hard to understand, and thus the market impact is hard to gauge. That's the reason why I'm going to write this article, to show just how much QEInfinity represents.
First, $40 billion per month obviously comes to $480 billion per year, if sustained over an entire year (as it's likely to be).
Compared to GDP
US GDP is around $15 trillion, so QEInfinity represents 0.48/15 = 3.2% of GDP. This doesn't seem huge, even if it exceeds China's recent stimulus package at 2.1% of GDP.
QEInfinity in Autos
The US new auto market is tracking towards sales of 14.4 million autos during 2012. These autos come at an average price of around $30k. This puts the entire US new auto market at 14.4mn * $30k = $432 billion.
Now things start to get interesting. The Fed is printing enough money to buy every new auto sold during an entire year in the US. And there's $48 billion to spare.
QEInfinity in New Homes
The housing market is always at the center of every discussion. So here, too, I will compare QEInfinity to it.
The US new home sales have been tracking at an annualized rate of 372k homes, but they're increasing so let us say 400k. The median new home price is $224k. What this gives us is that the new home market in the US is currently moving 372k x $224k = $89.6 billion per year.
Oh my, QEInfinity is enough to buy every new home sold in the US in a single year 5 times. Five times! And one would still be left with $32 billion in spare change, as well!
The printing program the Fed is embarking in is massive. Comparing the size of the program to physical realities one is used to dealing with, like the purchasing of a car or home, shows just how massive it is.
Naturally, such a massive intervention has a deep impact on the markets and the main indexes such as the S&P500 (NYSEARCA:SPY), Nasdaq 100 (NASDAQ:QQQ) or Russell 2000 (NYSEARCA:IWM). It's also no surprise that the Fed itself ends up gauging the success of its own intervention by how much these indexes have gone up, since the Fed decided they needed to go up faster.
Under this kind of manipulation, a strong rift develops between trying to predict every asset's fundamentals, and the sheer monetary impact that simply drives prices higher. It's possible for specific asset prices to go lower if faced with fundamental difficulties, but it's certainly much harder for that to happen, especially when faced with uncertainty (regarding the fundamental value).