Don't expect QE3

Investors hope to see a third round of quantitative easing, but the economy is growing strongly enough without it.

By Jim J. Jubak Aug 25, 2011 4:42PM
Jim JubakThe odds are climbing against any Federal Reserve announcement from Friday's Jackson Hole conference big enough to make global stock markets happy.

Stocks have rallied strongly this week, on hopes that Fed chief Ben Bernanke will announce a third program of quantitative easing and set off another rally in the stock market.

That would echo Bernanke's hints at a second program of quantitative easing at last year's Jackson Hole event. Those hints eventually turned into a 28% rally in stocks that peaked on April 29.

But recent data have turned against those hopes by delivering better-than-expected news. The U.S. economy isn't growing very strongly, the numbers say, but it is growing strongly enough so that dramatic action from the Fed would seem like overkill.

Wednesday, for example, durable-goods orders for July climbed by 4% after falling 1.3% in June. The consensus among economists surveyed by Briefing.com was for an increase of 1.9%.

Transportation orders -- aircraft -- made up the bulk of the gains, but even without that category, durable orders climbed by 0.7% in July. That was slightly better than the 0.6% gain in durable orders ex-transportation in June and much better than the consensus forecast for a 0.5% drop.

Digging a little deeper, the news isn't so positive, since the other growth sector for new orders came in primary metals. Almost every other sector was down in July, suggesting that demand for finished goods is slowing. That could lead to trouble in future months, with inventories building and sales slowing.

But I don't think these numbers are bad enough for the Fed to announce something as contentious as QE3. Bernanke might say that the Fed is going to do something less dramatic -- one possibility is for the Fed to stretch out the maturity of its portfolio without increasing its size, by buying longer-dated Treasurys when Treasurys in its current portfolio mature.

But I don't think anything less than the dramatic is going to leave traders dancing in the streets.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.

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18Comments
Aug 25, 2011 7:13PM
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Why would we want to go on another money-printing binge, thereby devaluing everyone's savings, while most likely fanning the flames of hate and discontent over at the new world reserve trading currency camp?  Can't you big-time investors see that all that QE2 did was create a cash bubble, while additionally damaging the economy on Main St?  Yeah sure, so a few lucky investor-types made some extra dough, but the vast majority of us lost our shirts.  Maybe it is time to pay-down our debt for a while instead of seeing just how high a debt we can run-up before real unrecoverable damage is done? 
Aug 25, 2011 10:07PM
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QE3 would be not do a darn thing except create more inflation.  Our economy is terrible because our inflation is higher than our GDP growth rate.  Inflation is 3.6% and our GDP growth rate is 1.3%.  Nuff said!
Aug 25, 2011 8:25PM
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I hope the Fed does nothing. What use would it be anyway because Wall Street already gave up the ship. Nothing left to save!!! Wall Street will cry no matter what he says!
Aug 25, 2011 8:50PM
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Hot We don't need QE3, the monetary policy is fine, we've got low interest rates until mid-2013 and plenty of liquidity. What we need is for the US Congress to reform entitlements, raise age one month a year for 24 years and raise FICA taxes .5% for employee and employer, and adjust spending downward and eliminate tax loopholes so that rates can be lowered 1% and eliminate corporate tax rate and tax capital gains and dividends as regular income. Let the Bush tax cuts expire in 2013.

Aug 26, 2011 1:45AM
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Lets hope Irene camps out over DC for a week or so!!!!! gqjunkbox.
Aug 25, 2011 7:35PM
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That would be a pleasant surprise, fly in the face of an orchestrated world currency crisis conspiracy and the need for a world FED to step in and manage our interests by creating a one world currency and their subsequent world domination.  Hmmm,... let's hope we don't lose our savings to inflation in a world gone mad with debt and cheap money for speculation and asset bubble formation.  
Aug 26, 2011 7:16AM
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QE1 and QE2 hasn't done too well has it? I mean just look at the end results right now.  Except making the 20% playing the Market richer.  The past bailouts hasn't done a d#mn thing good for the working Joe or average citizen.

If they want to do something to boost consumer spending,bring in fed tax dollars and give this economy a shot in the arm then GET A GRIP ON GAS PRICES! Every gallon sold brings in 18-25 cents fed taxes and gives everyone a break to spend elsewhere. High fuel prices has done more damage than anything else and they won't do a thing about it other than watch them gouge the public and point a finger at every other reason they can think off.



Aug 25, 2011 11:53PM
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Everyone knows that QE is very bad for the economy and rasies inflation, but what you guys dont understand, is that the FED WANTS to ruin our economy, they and the banksters want to collapse the dollar on purpose to create a New World Currency and new World Order.

THERE WILL BE A QE3, weather annouced tommarow, or next year, or under another name, but there will be a QE3. Mark my words, and prepare for the worst.

Aug 26, 2011 9:15AM
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Jackson hole      what a name       and that sums it up
Aug 26, 2011 10:09AM
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This country does not need QE3. The last thing we need now is to help the banksters and hurt the people in this country with QE3.....with higher fuel and food prices. The manipulation of the market by Bernanke needs to stop and he needs to stay out of the limelight and political arena.

Aug 26, 2011 8:37AM
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"The Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole," Heller wrote in an op-ed piece in The Wall Street Journal after saying the same thing in a little-noticed speech. "The stock market is certainly not too big for the Fed to handle."…

If the Fed did actively buy the stock market to try and put a floor under it, we can assume three things:

 

1)   The Fed is becoming truly desperate

2)   The Fed realizes QE isn’t helping

3)   QE 3, if it arrives, will be coming later down the line


http://www.zerohedge.com/contributed/did-fed-buy-market-stop-collapse



Aug 26, 2011 8:11AM
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It was just a couple of  weeks ago that Bernanke gave his previous speech where the pundits were falling all over themselves because he made a  clear statement about keeping interest rates low for the next two years.  

 

Of course, what I never heard "anybody" mention was the fact that low doesn't mean the Fed won't raise rates.   The Fed could raise rates more than a few times and they would still be "exceptionally low".   But, everyone seemed to read into Bernanke's statement that exceptionally low actually meant no raises at all.   I think that may well prove to be a false assumption.

 

Everyone was amazed in Bernanke's last speech as to the fact that he basically spoke in plain English, where everyone pretty much understood what he meant.   Today, with so much pleasure on him to say some magical words, my guess is that, instead of making clear concise statements that the markets can understand and react to, he'll revert to the usual Government double speak gobblety goop that takes a crystal ball, ouija board, and a couple of slightly used ebay voodoo dolls to decipher.

 

I hope I'm wrong about that.

Aug 26, 2011 9:59AM
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waiting for washington, there's a hook for a song    ,   America has issues  and   we know where the storm is  ,   so whats  the deal  ?   steve looks bad    but what one man can do another can   Hausta
Aug 26, 2011 9:02AM
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  jim    shave it all   the stash    the fringe     and go on vacation for 2years
Aug 26, 2011 8:44AM
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If you want the truth about the economy, check out James Quinn's blog at theburningplatform.com.
Aug 25, 2011 9:00PM
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Mr. Jubic .. Quite the contrary to your analysis, about the fed NOT announcing plans to stimulate the anemic economy.  The leak of President Obama's by-partisan job creation plans would call for vigorous investment by the fed, as well as simulation to create jobs coming out of Congress.  
Aug 25, 2011 8:03PM
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having a 40% traders tax on gas = having a 30 billion rope around americas balls why not stop this its a start
Aug 25, 2011 8:09PM
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Has this guy EVER said anything positive about the future?  Every time I see a comment from him, it's something negative.  What an ****.
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