QE3 is already prized in (… and the Fed will probably continue to print until the US is ‘running out of trees’).
By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
– John Maynard Keynes
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.
– Alan Greenspan
Quantitative easing = printing money = creating money out of thin air = increasing the money supply = inflation = hidden tax on monetary assets = theft!
– BofA: ‘CODE RED … RISK OF SELL-OFF IS HIGH’ (Business Insider, Aug 25, 2012):
Yesterday, BofA’s top North America economist Ethan Harris penned a bearish note on the the U.S. economy, writing that it “is in the eye of the storm” and that a number of troubling headwinds loom on the horizon.
BofA strategists Arjun Mehra and Cheryl Rowan have a warning more precisely aimed at the stock market. In a note to clients entitled Code Red, Mehra and Rowan claim there is “limited upside from here” and the “risk of a sell-off is high.”
The strategists point out that stocks have managed to rally even in spite of one of the worst earnings seasons in years and growth slowing in the U.S. and around the world. They think the explanation is the “Bernanke Put;” in other words, investors are expecting more monetary easing in the form of QE3.
But in spite of the dovish language from the Fed this past week, Mehra and Rowan are concerned that the central bank may disappoint.
From the note:
Risk of a sell-off is high
Economist Michael Hanson points out an interesting circular relationship between the stock market and Fed policy. There are some who believe the Fed will not launch QE3 so long as stock prices remain high, yet the stock market is high because it anticipates QE3. Should the Fed disappoint at the September 12-13 FOMC meeting, the risk of a stock sell-off is high. S&P 500 support on a correction is in the 1360-1325 area. Additional support is at 1300-1250. Attention will be on the Jackson Hole symposium next week to get a feel for the Fed’s tone.
Macro catalysts increase the risk of a correction
Our strategists see an unusually high number of macro catalysts over the next 3-6 months that could take markets lower. We expect economic growth to disappoint in the second half of the year in anticipation of the fiscal cliff. This would exacerbate any slowdown from the deepening recession in Europe and decelerating growth in emerging markets. There is also the ongoing tension in the Middle East, the potential for a US credit downgrade and accelerating downward analyst estimate revisions. To top it off, September is seasonally the weakest month of the year for stock price returns.
The BofA strategists conclude that with the VIX at record low levels, those looking to hedge against a correction should buy put options on stocks while they are cheap, echoing a message several Wall Street analysts have relayed on television and in client notes over the past week.