In-depth analysis on Credit Writedowns Pro.

QE2 Is Failing?

I know I have seen that QE2 is failing a number of times in the last 24 hours. In support of such statements I offer the following two graphs from the 5 Min. Forecast:

Since QE2 hasn’t really started yet, it might be more accurate to state that the prospect of QE2 is a failure. However, I would offer the following as the most accurate statement:

There have been limited changes in stocks and bonds since the plan for QE2 has been discussed. Stocks are still more than 10% higher than they were at the end of August and bonds have not changed all that much in the past few months as well. The 10-year Treasury yield at 2.85% as this is written is below the rates seen in early August.

There are many possible reasons for the sharp losses in stocks and bonds the past several days. The prospects for QE2 may have contributed but, in this analyst’s opinion, that affect is very marginal compared to other factors that are current active. See yesterday’s article for discussion of some of these market factors.

There may be several reasons to question QE2, as Steve Hansen has discussed here and here and here. But screaming that the markets have entered a judgment about QE2 effects on securities prices before it has actually started is just plain poppycock based on the current evidence.

John Lounsbury

About 

John Lounsbury provides comprehensive financial planning and investment advisory services to a small number of families on a fee only basis. He has a background which includes 34 years with a major international corporation, 25 years in R&D management and corporate staff positions. John is also one of the ten most followed writers at Seeking Alpha and a Senior Contributor at TheStreet.com and Real Money. He is a founding partner and managing editor of Global Economic Intersection. Follow him on twitter @jlounsbury59.