Do We Need Quantitative Easing (QEIII)? Ben Bernanke did nothing more to help clear the air. In his maiden return to the public domain, Bernanke could only extend the the anxiety of several investors and analysts, waiting to see whether their pragmatic predictions finally proved wizardry.
However, he did hint that there is a likelihood that the Fed will have to go for Quantitative Easing, as the economy continues on its slow recovery, amid high levels of unemployment, as featured in some of our recent articles.
Unfortunately, they will have to wait until mid September or thereabouts to learn the fate of their assumptions. A good example of these kind of investors, is Bill Gross, of Pimco, after he recently called for more Quantitative Easing.
At the end of last week, Bruce Greenwald, the founding director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, sat down for a Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital as part of the 13th Columbia China Business Conference. The chat spanned many different topics, Read More
Oppenheimer Asset Management, recently threw the gauntlet over the same question, claiming that this has indeed been the puzzle in a majority of people’s minds, especially since the previous minutes from the Federal Committee suggested that the decision to move for Quantitative Easing III was never automatic, two months ago.
However, Oppenheimer could draw some of the answers that he seeks from Marc Faber, always the bear, said that the markets will definitely need Quantitative Easing III. Failure to offer Quantitative Easing III would cause the second half of the year to experience a market crash similar to what was last witnessed back in 1987.
Nonetheless, even as a majority of analysts were burning the midnight oil, wondering what Ben Bernanke was to say a day before the announcement at Jackson Hole, on Friday, August 31st, Bill Gross could have easily drafted Bernanke’s thoughts, as he literally predicted that there was a probability that the Fed head, was not going to make the big announcement so soon.
These are just a few that have expressed the need for QEIII, and as sampled, the reasons behind their opinions are different, but all seem to narrow to one focal point, that is, we are unlikely to achieve the targeted economic growth levels without QEIII.
Meanwhile, Ben Bernanke, who is also a republican, can cross his fingers and hope that Mitt Romney does not pip Barack Obama to the State house come November, if at he wants to keep his job, as Mitt Romney has already stated categorically that he wont retain him.
Oppenheimer Asset managers analysts are of the opinion that the markets are doing too well, to warrant a third quantitative easing.
According to Oppenheimer’s analysis, all the indexes have more than 50% of their respective stocks trading above their 52-week averages. Illustratively, the S&P500 has 366 stocks trading above their 52-week averages, representing 73.20%, led by financials and telecom sectors.
These are clear indication of an increasing confidence in the market and certainly recovering economy. In Summary, Oppenheimer notes that on the YTD basis, the U.S averages continue to outperform foreign counterparts by significant margins.
In addition to this, the fact that a majority of the companies have outperformed their 12 month averages, all the sectors have registered positive returns as of August 24th 2012. The S&P500 index SPX Index, is up 12.21% over the last twelve months, while the consumer discretionary S5COND Index stands at 16.14%.
The information technology index S5INFT Index registered the highest returns over the last twelve months, beginning August 24th, 2011, to August 24th, 2012 at 19.60%, while the utilities index S5UTIL Index returned the least gains, at only 1.06%.
The question is, how sustainable is this, especially, considering the growing rate of unemployment that seems seems to large to crawl below the 8 percentage point?