Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
For those around at the time one can remember hedge fund manager David Tepper famously said in 2010 before QE2 you can’t lose – either the economy improves and stocks go up, or the Fed steps in and stocks go up. You are hearing the same language lately – for example this morning it was either the labor data would improve and stocks would like that or the labor data would not improve and the Fed will step in. Certainly a “have your cake and eat it too”. Lost in the shuffle was a warning by semi bellweather Intel (INTC) on guidance – a severe one. This might explain why the semis have acted so poorly the past few weeks and frankly all summer aside for the few weeks after Draghi told us he would fix everything in late July. So in a span of a few days transport bellweather Fedex and semi bellweather Intel have warned – and yet the market chugs along since the central banks have everything under control.
As I keep saying this is a very different market than how it used to work. And I will also repeat that if the Fed does “unlimited QE” as has been rumored it will be a mistake in the long run. The reason is part and parcel of this smoke and mirrors trick is QE as a psychological experiment – each time it comes or is threatened every short runs for cover and people pile into stocks. Under the theory that stocks must go up in QE eras. Well in “unlimited” QE there is eventually going to be a serious correction of 10% or more – while QE is happening. So what will those who propose stocks can only go sideways or up (with tiny corrections) believe in then? It will be an emperor without clothes moment. And the psychology of the “warm embrace” and “central bank put” will be damaged severely. Something to watch later this year and into 2013 if “unlimited” QE heads our way.
Here is the video from Sept 2010
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
