Wednesday, October 29, 2014


Quantitative Easing is no more.  Janet and the boys ended it today on a 9-1 vote precisely as everyone had predicted.  They left the discount rate a zero for a "considerable period of time," whatever that is supposed to mean.  The early line is that it moves up in march.

Now what was a bit of a surprise was the rather upbeat tone of the announcement, particularly in regard to "labor utilization," an economic term not understood by anybody in the real world, which the Fed believes is somewhat better.  Upbeat, too, in regard to the threat of deflation and to the overlying economy.

I guess what the Fed was looking at was the fact that jobs had finally reached the 2007 level which of course means at all the loses have been recovered.  Problem is there are 25 million more people around than seven years ago and the participation in the work force is at far lower levels.  Efficiencies from technology?  Aging of the labor force?  Lack of jobs?  Perhaps a bit of all of the above but there is little question that the recovery has been slow and remains such for what ever reason...except of course the lack of liquidity.  In that sense, unless one takes the view that the sky would have fallen with out it--and one can--QE was a dud...but not for the one percent.  As such it was not surprising to watch  the stock market today trying to figure out whether to rise or fall on the news.  At the end it traded slightly down waiting I suppose to review the full body of opinion tomorrow morning by hoards of people who know little of what they are speaking and then deciding as to whether the punch bowl has left the room or is just out for a refill.  I'll bet on the latter but then again, that's how I lost scads of money.

The FX guys showed no such hesitation and traded the dollar up against the Euro and the pound in conjunction with the Yen which seems to becoming more and more linked or am I missing something again.  The ten year moved to 2.36%; can you believe it was hovering around 1.70% a few weeks ago? My God, the short of all shorts.  Wonder who got that one right but more importantly whoever tells you that vol is dead, just point to that.

At the end of the day, QE was a lovely exercise in economic theory that proved little but did little harm as well.  Many of us argued at the time that it was unneeded and un-useful and we were probably right but it having now gone to economic heaven, there's hardly anything left to discuss of any importance.  Markets remain hugely liquid and the barriers to growth remain in place both Over Here and Over There.  Rather that trying out cutsie little personal economic experiments it strikes me that it's time to attack the real problems at their root source which may occur after the results of the election of next week.  Or, as the kids like to say, "Get real, guys."  It's time.

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