Thursday, October 7, 2010


My guess is that the MSFT/ADBE takeover story is nonsense.

If it were true, I suspect MSFT's shares would have been schmeissed -- they were not.

Not So Fast on No QE 2

Considering Fisher's track record, however, it is likely that QE 2 is still very much an early-November event.

It should be noted, however, that Fisher has been materially wrong in his economic forecasting.

For example, he publicly suggested tightening in early 2008!

So, QE 2 is still very much an early-November event, as indicated by Bernanke, Dudley, "Sad" Sack and Evans.

Dallas Fed President Fisher says that further easing 'is not a done deal.'

Dallas Fed President Fisher is on Bloomberg saying that he hasn't made his mind up on further easing -- the markets has jumped too quickly to a conclusion.

Further easing, "is not a done deal."

Run, don't walk, to read some cautionary remarks from Gallup on September unemployment.

The Truth and Consequences of QE 2

This levitation of asset prices has unintended negative consequences.

I have been questioning the ultimate efficacy of a likely November QE 2 in a series of "quantitative wheezing" columns.

Stated simply, the first round of quantitative easing produced "shock and awe," but QE 2 will likely produce "shucks and aww."

From my perch, QE 2 will not meaningfully move the needle of domestic economic growth and will only have a limited impact on:

* the jobs market (we have structural unemployment);

* on housing (we will be continued to be haunted by a large shadow inventory of unsold homes); and

* on confidence (we are still mired in uncertainty regarding regulatory and tax policy).

Meanwhile, our fiscal imbalances multiply, and our currency craters (and a worldwide rush to currency devaluation offsets some of the normal trade deficit benefit). Plus, there are a number of other possible adverse consequences from the inefficient allocation of resources that is the outgrowth of the next tranche of monetary stimulation.

On Tuesday, the New York Fed's Sack anticipates that QE 2 will likely elevate asset prices above where they would be without it.

This levitation of asset prices has unintended negative consequences, too.

Just look at the $35-a-share loss in EQIX's share price yesterday, even though there was only a 1.5% sales miss, while earnings before interest, taxes, depreciation and amortization was above expectations.

Under the backdrop of the salutary impact of QE 2, the sharp rise in Equinix's shares (and many other high-octane stocks) created a speculative and what now appears to have been an unjustified rise founded in hype and an excessive valuation.

So, the bottom falls out of the shares (as witnessed yesterday) on the slightest disappointment.

Riddle me this: How does this Fed-induced bubble and bursting stock action buoy our economy, turn around our jobs market or make investors more confident?

Answer: It doesn't.

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