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Yellen: QE cannot go on forever

  • That didn't take long ... Is it QE-infinity asks an early questioner of Janet Yellen. No, she responds, as there are costs to QE, particularly the risk to financial stability. "We are watching them and taking them seriously."
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Comments (29)
  • RS055
    , contributor
    Comments (3638) | Send Message
     
    mathematicians have many definitions of "infinity" - so I guess this commitment does not box the fed in !
    14 Nov 2013, 10:45 AM Reply Like
  • spald_fr
    , contributor
    Comments (2803) | Send Message
     
    I remember the quaint days of yore when price stability meant money retained it's value and a low unemployment rate meant more people had jobs.
    14 Nov 2013, 11:25 AM Reply Like
  • joelkatz
    , contributor
    Comments (538) | Send Message
     
    Time is ripe to rake up some TMV shares, Yields should rise very soon. I'm going to buy TMV, bearish on ten yr bonds.
    14 Nov 2013, 10:47 AM Reply Like
  • mobyss
    , contributor
    Comments (2228) | Send Message
     
    Yes it will. At least $10B per month forever, to keep the "engine idling". I can't see the overnight rate over 5% again in my lifetime (hopefully another 50 years!).
    14 Nov 2013, 10:48 AM Reply Like
  • th3decider
    , contributor
    Comments (419) | Send Message
     
    Oh it will, it will go way over 5%. But it will be from the market forcing that rate, not the Fed setting it.
    14 Nov 2013, 10:53 AM Reply Like
  • mobyss
    , contributor
    Comments (2228) | Send Message
     
    I mean that the Fed will not raise their rate. You are right that eventually the market will set rates wherever they need to be (just like the market sets currency exchange rates). Then the Fed is completely impotent.
    14 Nov 2013, 11:26 AM Reply Like
  • financeminister
    , contributor
    Comments (1024) | Send Message
     
    So it seems the general consensus is that QE is too big to fail
    14 Nov 2013, 10:58 AM Reply Like
  • bbro
    , contributor
    Comments (10581) | Send Message
     
    Yellen's son...

     

    http://bit.ly/I0SbVx
    14 Nov 2013, 11:08 AM Reply Like
  • minecanary
    , contributor
    Comments (718) | Send Message
     
    Oh they are real concerned about the costs after spending $4 trill for a .25% gain in GDP. Their only concern is people recognizing it was all just a pump and dump scheme for the market/banks.
    14 Nov 2013, 11:20 AM Reply Like
  • gofx
    , contributor
    Comments (1247) | Send Message
     
    You suggest they "spent" $4 trillion... but in fact they have invested QE into an asset with any potential financial loss easily limitable -- under the assumption they don't cash them out as interest rates eventually rise.

     

    Now, the effects of all this bond buying are certainly arguable.
    14 Nov 2013, 11:43 AM Reply Like
  • minecanary
    , contributor
    Comments (718) | Send Message
     
    The losses aren't easily limit-able. When the rates rise, the value of the bonds will decrease, and they will have to get bailed out themselves...or more likely, back to the printer until death do us part
    15 Nov 2013, 10:07 AM Reply Like
  • bbro
    , contributor
    Comments (10581) | Send Message
     
    Doesn't anybody want to know her favorite cookie recipe?
    14 Nov 2013, 11:36 AM Reply Like
  • mobyss
    , contributor
    Comments (2228) | Send Message
     
    Allright, here we go.

     

    The market sees Yellen as a "QE forever" kind of person, so we need to look ahead at the market based on the performance over the last 12 months.

     

    The S&P is basically growing at a 45 degree angle (450 points per year during QE-infinity). So, extrapolating that out linearly gets us to S&P 2200 by Nov '14, 2650 by Nov '15, 3100 by '16, and so on. Am I wrong? How? QE simply cannot be ended or tapered EVER, period.

     

    A linear estimate is actually very conservative. Maybe it will be exponential. Then if the 33% yearly growth rate in the S&P that QE-inf supports is continued, then we see 2380 by Nov '14, 3170 by '15, and 4200 by '16.

     

    Earnings, consumer sentiment, unemployment - these things just don't matter anymore. Any fool who thinks about them (and I include myself) just doesn't "get it" - the stock market will never drop by more than 5% again as QE is extended over and over for as long as Yellen is in office. How long is a Fed President term, 4 years? Then I need to go out one more year:

     

    Linear growth - S&P 3550 by late '17
    Exponential growth - 5600!
    14 Nov 2013, 11:41 AM Reply Like
  • RS055
    , contributor
    Comments (3638) | Send Message
     
    haha- nice! On the other hand.....
    Earnings could well disappoint in a big way - Cisco, Walmart are precursors. China is trying to make a shift to a consumption driven economy ( from a massively investment driven one). Even if they succeed in this endeavour, it is likely that the economy will be disrupted and have to traverse a valley before getting to the other side.
    US fiscal spending is slowing dramatically - not good for US growth.
    So.. in a nutshell, stocks have a lot of air below them. And in today's trading world of millisecond response times, we could have a big gap down come out of nowhere.
    14 Nov 2013, 11:57 AM Reply Like
  • mobyss
    , contributor
    Comments (2228) | Send Message
     
    Why do you laugh? I'm not kidding at all.

     

    And there will be no "big gap down". Earnings? Fiscal spending? You're living in the past my friend...

     

    Unless something changes the S&P will be at 3500 by the end of Yellen's first term. Earnings might only be about $150, but that's a PE of 23.4 - far lower than in previous bubbles. Again, I'm really not joking. What happens after 3500 - who knows and who cares. This time it really might be different...

     

    But it won't be, so I'm with Yellen: F the people who buy at the top and lose half their money, just F them. Same as it ever was.
    14 Nov 2013, 12:24 PM Reply Like
  • RS055
    , contributor
    Comments (3638) | Send Message
     
    OK , I admit , I thought your comments were tongue-in-cheek - apologies!
    Look, anything can happen. But on a CAPE ( Shiller) basis we are already valued higher than any previous peak, except the 1999 dot-com peak. What you are suggesting is we could have another 1999 style super-bubble. I cant deny that it could happen, but I doubt it.
    14 Nov 2013, 12:33 PM Reply Like
  • RS055
    , contributor
    Comments (3638) | Send Message
     
    Oh - and my point on possible earnings disappointments may mean S&P earnings , currently a bit over $100, may not go to $150 - but rather to $80 .
    Global growth is just not there to let Revenues grow. So Earnings have been primarily reliant on Margins - ie. cutting costs. Margins are already sky-high and I am skepical they can keep rising.
    14 Nov 2013, 12:39 PM Reply Like
  • mobyss
    , contributor
    Comments (2228) | Send Message
     
    That's ok - I wasn't trying to be rude.

     

    But I really think that the Yellen Fed will continue QE at $85B per month for the next four years, ESPECIALLY if earnings drop to $80. Anything and everything will be an excuse to continue QE without interruption.

     

    In 1999 the S&P PE went to 45, and that was a massive bubble. So, hard as it is to believe, we COULD go back to a PE of 30, 35, 40. Then my estimates are way off. A PE of 35 in 2017 with earnings of even $80 means S&P 2800. $150 means 5250.

     

    I'll admit that I've been skeptical about the markets over the last four years. My return (on my whole investment account) has been about 12% per year as the S&P returned almost 25% per year on average. I was in cash far too much.

     

    I'm throwing in the towel. Yesterday convinced me that the only thing that matters - the ONLY thing, is QE.

     

    I'm probably done posting on SA too. Why bother? Just put all your money in the market and hold on. Don't fight the Fed. The market can stay irrational longer than you can stay solvent. PE expansion is a normal part of any bull market. Plenty of old sayings to choose from.

     

    Good luck to all - over and out.
    14 Nov 2013, 01:04 PM Reply Like
  • McGonicle
    , contributor
    Comments (1406) | Send Message
     
    "give the boy a cigar" pink floyd

     

    You hit the nail on the head--a fedflationary market is the goal and the profits of individual companies have nothing to do with their performance relative to one another, much less to act as a P/E or P/R for the SnP. If company performance mattered, why were so many profitable companies flushed in 2009 to the same level of price destruction of those that nearly went bankrupt (AIG, MBIA?).

     

    That can never be adequately explained by rational means.

     

    You dont even make the easy arguement, mobyss, that deflation will segway into high inflation eventually, which feeds the fire of this type of stagflationary market action anyways. This dynamic also makes the market unshortable, which is another tailwind and prevents prices from being checked by a "natural" mechanism.

     

    The numbers mobyss cites seem absurd, until you realize that the system itself is what is absurd.
    14 Nov 2013, 02:48 PM Reply Like
  • thotdoc
    , contributor
    Comments (1884) | Send Message
     
    We know 'It can't go on forever'. Forever s a long time...but it can go on long enough to create the inflation that is needed to get us out of the debt hole.
    14 Nov 2013, 11:59 AM Reply Like
  • RS055
    , contributor
    Comments (3638) | Send Message
     
    Its funny how after a couple of decades of inflation not being a big deal, everyone is so relaxed about it. i assure you no one was relaxed in the late 1970s. Inflation, once it takes hold is very difficult to control.
    14 Nov 2013, 12:42 PM Reply Like
  • The_Hammer
    , contributor
    Comments (4438) | Send Message
     
    thotdoc you sure u want higher inflation? when the dollar devalues in short order cost of living expenses are going to consume a greater portion of disposable income. it is going to get a little hairy short term as a larger % of the population falls into poverty. the free ride is going to end so be prepared.
    14 Nov 2013, 01:15 PM Reply Like
  • Deja Vu
    , contributor
    Comments (1581) | Send Message
     
    Just until I can complete my term and secure speaking fees, lecture fees and a comfortable well paid sinecure at some ivy league or world bank or think tank. All paid for by ibanks whom I'm enriching by printing money while your savings diminish in value.
    14 Nov 2013, 12:18 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (11910) | Send Message
     
    Yes QE someday will reverse just long enough to justify even more QE. A strong recession and systemic change is much better than a zombie economy and monetary brinksmanship which feeds bankers and encourages low interest home loans that are long term money losing which get dumped on taxpayers through nationalized Fannie Mae and Freddie Mac. Forget Obamacare, you have home mortgage care and it's destroying the entire nation.
    14 Nov 2013, 01:56 PM Reply Like
  • tunaman4u2
    , contributor
    Comments (3360) | Send Message
     
    Infinity minus 1 day
    14 Nov 2013, 02:27 PM Reply Like
  • pollyserial
    , contributor
    Comments (1088) | Send Message
     
    LOL 'we are watching them and taking them seriously' and 'we don't currently see any signs of excessive risk-taking'....

     

    what exactly are you 'watching', madame chairwoman?
    14 Nov 2013, 02:39 PM Reply Like
  • McGonicle
    , contributor
    Comments (1406) | Send Message
     
    "give the boy a cigar" pink floyd

     

    You hit the nail on the head--a fedflationary market is the goal and the profits of individual companies have nothing to do with their performance relative to one another, much less to act as a P/E or P/R for the SnP. If company performance mattered, why were so many profitable companies flushed in 2009 to the same level of price destruction of those that nearly went bankrupt (AIG, MBIA?).

     

    That can never be adequately explained by rational means.

     

    You dont even make the easy arguement, mobyss, that deflation will segway into high inflation eventually, which feeds the fire of this type of stagflationary market action anyways. This dynamic also makes the market unshortable, which is another tailwind and prevents prices from being checked by a "natural" mechanism.

     

    The numbers mobyss cites seem absurd, until you realize that the system itself is what is absurd.

     

    Keep on Yellen
    14 Nov 2013, 02:49 PM Reply Like
  • Cash King
    , contributor
    Comments (1071) | Send Message
     
    Yellen is in mREITs too. She'll keep the money flowing. lol
    14 Nov 2013, 02:54 PM Reply Like
  • Claude49
    , contributor
    Comments (42) | Send Message
     
    Government and Fed is Death of a thousand cuts to the market econmy. . . Start selling/bartering land masses to settle debt. One fifth of Alaska for 200 trillion Dollars settles it all. Otherwise there is continued stagnation. No growth.
    The Fed Fiction needs to get out of the way and let the free market economy prosper. Kill off the Quants and computerized trading programs that do not require human cognition in the loop. Otherwise there is no such thing as mutual exchange cognition. Got it!
    14 Nov 2013, 05:22 PM Reply Like
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