Rock's view of QE futures

@Ican:
From this weekend’s thread, I believe Bailout Ben will continue with a new QE when this one runs out.

First, we all know the repurchase of the treasuries is a “tailwind” for equities. Ben said so when he testified before congress yesterday. We have no visibility into whom the Fed is buying from, but I suspect it’s mostly from Europe in order to backstop the Euro. If the Euro fails, or devalues substantially, the dollar will rise, and equities will fall. Ben has said he wants to see the stock market pushed up because in his belief, that will stimulate the economy and job creation. But that's an "also" reason.

I have it on good authority that Ben's not buying from China. It's a sealed bid process and the Fed doesn't have to tell. China has hired brokers, but somehow, I of course have no idea how, that information gets out, and the Fed doesn't accept those brokers' bids. Now think why: If the dollar continues to fall, when the RMB value goes up, we'll owe the Chinese less and less. It's a great plan. The other one this is helping is the Rock. Rock bought a whole lot of RMB from HSBC who have a 6% return (that's no typo) if you invest in RMB for 6 months, plus a 2% interest. I had to do this because I am so fearful of trading huge blocks of stocks, it is very frightening. I borrowed on my homes from Wells Fargo (who says they aren't loaning?) at a little over 4%, and I'm getting an 8% return. Not so bad.

But Rock's return pales in light of Ben's return on his buyback program. Assuming QE continues to be successful.

QE will continue until China fully floats.

We have seen failure of the job creation philosophy during QE1 and QE2. One can argue about job creation, and what the numbers say, and how the numbers are created, etc, but we see articles like Emmanuel117 posted that says R&D is moving offshore. Manufacturing jobs have already moved offshore, and because of the housing collapse, all the jobs tied to the housing market have disappeared, with no industry stepping up to fill the void.

I believe this is not what Ben was hoping for. I believe he was hoping by QE1 And QE2 propping up the market, some industries would prosper and suddenly demand would strike, causing these industries to prosper and add jobs, which would spread like a virus.

It didn’t happen. Yet. Frankly, I believe it won’t happen.

Now Ben has several new problems to face. The first is credibility. Ben is incredible. So to improve this, he is making more press announcements and putting his best shiny face forward in the press and hopefully sell the enthusiasm and heightened mood to the American consumer. And as my comment from the other day, he is trying to show he has some personality.

The second is pension funds, also called “entitlements”. Not only are the banks under water and should mark-to-market philosophy change, many will fail, but also the pension funds are under water as well. Should the market plummet, the pension funds will go broke fast, because expenditures won’t match the income from the value of the funds (plus the payments from entitlees). And the trend for fund income is down: state and local governments are shedding headcount and therefore lowering the fund income; income tax revenues are down so FICA wages are lower and FICA income is down.

The third which is beginning to raise it’s head is the credit rating of the US which is being impacted by the national debt (not Ben’s problem) plus Ben’s buyback policies, causing rating agencies’ impending reduction of the value of US debt. That's why Ben is continually saying that Congress has to get their act together and get spending down.

I hate to be doom and gloom, but I see no upside in the near term because there is no critical need at the consumer level, neither in the US, nor worldwide. Everybody’s got a TV or access to one. Cars are being replaced, but again, no critical need (and assembly lines have been substantially mechanized). Food is being grown, but again the robots have replaced workers. New housing starts are effectively zero. There’s no critical need that I see which will create jobs. And once there is a critical need, it will take a long time to retrain the construction workers, the flooring layers, the stonemasons, the toilet casting foundry workers, all those workers that won’t have the skill to fill a position in the new critical need field.

We’re toast.

The only method Ben has is the repurchase of Treasuries or other assets that will keep the market artificially high and hope for the best. Interest is already effectively 0.

So there will be a QE3.

How will I trade this? I plan to spend more time with fundamentals, and start paring my watchlists to companies showing an uptrend in revenues (not income, so the evaluations will be difficult and time-consuming, each requiring multiple balance sheet study). I believe consumer goods companies won’t be showing uptrends in revenues, but companies supplying technology or components in a B2B environment will be the ones prospering. IBM, Oracle, Qualcomm come to mind. Also I plan to watch more carefully the structurals so that when the US puts a fine on Chinese Steel Pipe, I’ll go buy X (I already did that when it fell to the bottom of it’s uptrend channel).

I know y'all will cheer that there's no charts this week. But I could ask to replace one of the other posters, because I have a Rock's view of Moving Averages already created.

ICan, thanks for asking.