Are you looking for a stock?
Try one of these
Financial market participants sometimes act like spoiled brats. If they don't get the instant gratification, they make it painful for everybody around them. And that's what happened last week when Helicopter Ben didn't deliver QE3.
I was aghast at the number of commentators predicting the Fed to announce QE3 at last week's meeting of the Federal Open Market Committee. With the European debacle having pushed 10-year U.S. bond yields 50 to100 basis points (half to a full percent) lower than they'd otherwise be at this time, there's little point for the Fed to move now.
First, as one after another FOMC member quipped, it's debatable that further monetary easing would do much to stimulate growth at this time. The cost of money isn't the problem in the U.S. The problem is that young people can't find jobs, Freedom 55 has become Freedom 70 for many baby boomers and too many of the homeowners in between those groups are buried in mortgage debt and continue to see their income grow at rates less than their household bills.
Second, and most important, regardless of the outcome in Europe, the Fed knows times are going to get tougher for the U.S., so why use your bullets now.
Say the June 28-29th European Summit delivers the definitive answer to Europe's problem. I know -- that's about as likely as the now 'Luke Schenn-less' Leafs drinking from Lord Stanley's hockey cup next year -- but bear with me. If Merkel and company capitulated and agreed to bring out their bazookas -- which they're going to have to at some point -- the capital flight from Europe is likely to begin to reverse, and that 50-100 basis points of lower rates America is now paying will be reversed.
Then next year, with even a portion of the 'fiscal cliff' kicking in, economic growth will remain mired at below-trend rates, the output gap (the spread between potential and actual GDP) will prolong the travails of the underemployed and the boost in higher interest rates will kick housing back down from its perceived improved perch of today. That's when the printing presses would get rolling again, so as to try and recoup that reversal of 50 to 100 basis points on long bond yields.
Of course the more likely scenario has politics continuing to prevent the ‘European bazooka’ from being utilized. In this scenario, key European leaders continue to skirt real solutions, causing inevitable defaults and increased trauma for the global economy.
While U.S. long term interest rates would likely fall even further from current levels, the boost from this situation would be overwhelmed from the impact of a more challenged outlook for global growth. Again, this would be the time for Helicopter Ben to launch QE3.
When economies fail to reach "exit velocity" they often stumble back down to levels below what is commonly viewed as their 'long term trend' rate of growth. When this occurs, negativity seems to feed on itself. The economy then continues to grow at less than it needs to in order to put the current population back to work, let alone new entrants to the workforce. That’s when economic leaders have to get to work.
It's with this knowledge that Bernanke has to pick his spot to expand the Fed's balance sheet once again. Think of it like the adage of the boy who cried wolf. The bigger surprise for me last week would have been if Bernanke did more than he did.