Did the Fed just restart quantitative easing?

The Noise

  • President Trump’s impeachment debacle rumbled on this week; after the White House announced that it would refuse to cooperate with the investigation, the Democrats doubled down on their offensive with numerous subpoenas and interview requests aimed at Rudy Giuliani, Energy Secretary Rick Perry and Secretary of State Mike Pompeo, among others. 

  • Another round of formal trade discussions between the US and China kicked off this week, despite the broad based diplomatic tensions – the US began the week by listing 28 Chinese entities it accused of human rights violations – initial talks seem to have struck a fairly positive note, leading to a slight lift in Asian markets. Of course expectations were low to start with; at the beginning of the week there was widespread speculation that Chinese officials would walk out of negotiations on day one.   

  • Jerome Powell was at pains this week to stress that the fact that the central bank would resume its purchases of Treasury securities was “in no sense” a return to quantitative easing. Yet a cursory glance at the Fed’s balance sheet expansion begs the question; what’s the difference?

The Numbers


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The Nuance


“If it looks like a duck, swims like a duck…” You know where we’re going with this; Powell’s announcements this week resolutely failed the duck test. Because frankly, whatever you call it, expanding the central bank’s balance sheet through Treasury purchases has the same net effect on markets as quantitative easing. Because it’s the same thing.

Luckily markets are about to have more tangible things to chew on than loose statements and excessive political noise. In the next few weeks we will enter company earnings season, and the real work of analysing revenue streams, profits and corporate fundamentals can begin. And despite the general clamour in market news, we’ve actually had a very quiet few weeks in terms of company news flow; it will be interesting to see the extent to which the complex macroeconomic picture has fed through to the earnings of different types of companies. We maintain our focus on companies and investments that have strong balance sheets, dependable earnings and demonstrate less sensitivity to economic conditions.
 

Quote of the week


“I am more intelligent and clever than any employee of the criminal police agency that much is sure” Michael Jauernik, convicted bank robber
 
This is but one of the “excessive digressions” involved in what would turn out to be a 20 hour closing statement from the 71 year old German bank robber this week. Despite numerous descriptions of his intelligence, fitness regime and ethical justifications for robbing banks (citing corruption in the financial world) the judge presiding over Hamburg’s district court was unmoved, and had to take the unusual measure of curtailing his statement when it hit the 20 hour mark. Jauernik has been sentenced to 12 and a half years in prison.
 
Source: theguardian.com

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