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Stocks Up On Hopes Of More Stimulus (QE3)

From Bloomberg:

Stocks Rise on Bets of More Stimulus

By Michael P. Regan and Rita Nazareth – Aug 3, 2011

U.S. stocks rose, reversing earlier losses and preventing the longest Dow Jones Industrial Average slump since 1978, as investors speculated the Federal Reserve will start another stimulus program

The Dow halted an eight-day drop, gaining 29.82 points to 11,896.44 at 4 p.m. in New York. The S&P 500 rose 0.5 percent, rebounding after yesterday’s plunge drove it to the cheapest price-earnings ratio in more than a year…

Speculation the Fed will embark on a third round of asset purchases to stem off a recession grew after the Wall Street Journal said three former central bank officials support the approach

Stocks recovered after the Wall Street Journal reported that former Fed officials Donald Kohn, Vincent Reinhart and Brian Madigan said the central bank should [sic] consider a third round of bond purchases to help the economy.

Pacific Investment Management Co. and BlackRock Inc., which together oversee almost $5 trillion, say the U.S. economy is stalling. Bill Gross, who runs the world’s biggest bond fund at Pimco, and Peter Fisher, head of fixed income at BlackRock, say the Fed is preparing measures to counter the slowdown.

The Fed may [sic] arrange a third round of quantitative easing, known as QE3, Gross said. The central bank purchased bonds to cap borrowing costs in the first two easing efforts…

“I believe the Fed is dusting off contingency plans if the economy does not improve,” he said in a report that BlackRock distributed by e-mail today…

It seems to me that these are some pretty thin reeds to lean on. But the investors seem to be desperate for any good news.

Meanwhile, we are being told QE3 won’t happen, via Reuters:

Analysis: Obama, Bernanke out of ammo to boost jobs, growth

By Alister Bull and Jonathan Spicer
Wed Aug 3, 2011

WASHINGTON/NEW YORK (Reuters) – The United States has a jobs problem and there’s not a lot President Barack Obama or Federal Reserve Chairman Ben Bernanke can do about it.

In the face of rising risks of a recession that could imperil his re-election chances next year, Democrat Obama wants Congress to extend a payroll tax cut and emergency unemployment benefits that are due to expire in December.

Clearly, Mr. Obama is of the Nancy Pelosi and Austan Goolsbee school of economics that believes that giving out more unemployment benefits is the best way to grow the economy.

But the Republican-controlled House of Representatives is emboldened by budget concessions it made Obama swallow to lift the country’s debt limit this week and he has little political leverage to win significant fresh spending to aid growth

It looks like the mean House Republicans are being set up to take the blame for the White House being out of ammo. (And what is with all the violent imagery?)

"It seems we’ve thrown everything at it. We’ve had QE1 and QE2, Stimulus 1 and Stimulus 2, and the unemployment rate is still 9.2 percent," said John Makin, an economist at the American Enterprise Institute in Washington. "Maybe there are just not many options here at this point," he said…

JPMorgan’s Michael Feroli estimates fiscal policy will subtract about 1-3/4 percentage points from growth next year as spending cuts kick in, if the earlier payroll tax cut and unemployment insurance extensions expire on schedule.

"Given that GDP growth has been 1.6 percent over the past four quarters when fiscal policy has been much less of a drag, this doesn’t bode well for next year," he said

Hilarious. These so-called experts think allowing more money to stay in the private sector will be bad for the economy. No wonder they never get anything right.

JPMorgan has cut its first half 2012 growth forecast to 2 percent from 2.5 pct due to fiscal drag.

Oh boy, we have a new term to replace ‘Bush’s fault.’ ‘Fiscal drag.’ And never mind that we only got news of this new ‘fiscal drag’ August 2nd.

Bernanke also seems to have few options at his disposal.

The Fed is not expected to announce an extension of its so-called quantitative easing, or QE, measures to stimulate economic activity at a policy meeting on Tuesday, despite the sense of gloom descending on the economy

"Everyone is really looking to the Fed to support the economy, and I think (Bernanke) would realize that you could only do so much with monetary policy," said Mike Knebel at Portland, Oregon-based Ferguson Wellman Capital Management…

Somebody better get on the phone to the investors in the Bloomberg story, and set them straight.

This article was posted by Steve on Thursday, August 4th, 2011. Comments are currently closed.

4 Responses to “Stocks Up On Hopes Of More Stimulus (QE3)”

  1. Right of the People says:

    Yowza, I’m starting to feel a tingling in my leg from the thought of getting stimulated again!

  2. Petronius says:

    Well, one swallow does not make a summer.

    Yesterday’s piddling gain (30 points on the DJIA) was quickly erased within moments after this morning’s opening bell.

    This morning the DJIA is down 250 points and sinking like a stone. The DJIA is down over 1,000 points in the last week and a half. So imagine if this drop had occurred on one day, instead of incrementally over eight days?

    Bloomberg, by the way, seems to have interpreted Bill Gross’s prediction of QE3 as good news for stocks. But is that really what he has in mind?

    Gross’s investment outlook for the US is not optimistic :


    Gross recommends moving out of US dollar based assets (includes stocks) to developing nations, switching out of US government bonds to safer countries like Canada, Mexico, Brazil, and Germany, and purchasing commodity based real assets (e.g., gold).

    A sad day when Mexican bonds are safer than US bonds.

    His comments on the debt ceiling compromise :

    • “the fun times are over”
    • “a stain on our reputation”
    • “a scarlet ‘A’ for budgetary ‘Abuse’”
    • “dysfunctional government”
    • “Banana Republic”
    • “debt man walking”

  3. proreason says:

    Here are the dirty secrets of “Quantative Easing”. As a foundation, you have to realize that it is simply a way to reduce the debt and interest on the debt today, at the expense of creating inflation in the future. So the key to understanding it is “guaranteed future inflation”.

    Now for the secrets they won’t tell you:

    1. Any LARGE business that knows that future inflation is coming can reap automatic profits, because they know they will be able to increase their prices. This allows them to squeeze out their SMALL business competition today, because the large businesses have enough resources to survive but small businesses usually operate with much smaller amounts of working capital. Hence, Microsoft, Apple and GE will thrive. But the guys in your neighborhood who are working on much better ideas will go out of business. This is the marxists’ plan. First, facism to kill small businesses, then take over the much more pliable large businesses.

    2. QE is designed to help the politicians look good. a) it postpones spending today (by reducing interest payments on the debt). b) since the now infamous “baseline” is fixed at 7 or 8% growth in expenses (you hear different #’s), but the tax stream IS NOT, inflation beyond the norm predicted in their models will drive up the tax stream while the “predicted” expense stream is stable. This automatically generates “savings” even though QE actually lowers the income of Americans by creating future inflation. And the politicians don’t have to do a thing.

    3. QE, because it guarantees future inflation beyond what it ought to be, QE destroys the middle and lower classes. Like small businesses, poeple who are not wealthy live day-to-day. In other words they spend what they earn. They simply cannot save for a rainy day. Therefore, when the rain comes, their only means to cope are to either lower their standard of living or depend on government handouts.

    All three of these factors are key part of the Obamy / marxist strategy to accelerate the collapse of the economy and take over the United States.

  4. tranquil.night says:

    Remember right before BarryCare passed and big businesses started front-ending a lot of their quarterly income reports because they knew that they were going to have to hunker down through a barrage of new taxes and regulations?

    That was the peak of the “recovery” – one quarter in which everybody was cashing out assets to escape the Federal raiding parties. Everything else is illusions due non-stop printing and public bailouts.

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