Back

A New Hope

August 8, 2012

Market participants today certainly seem to be betting they will see more monetary action. It is difficult to interpret the recent stock market rally in the presenceof weak economic data and a lackluster earnings season where 60% of companies missed revenue estimates as anything other than hope for another round of Fed bond purchases (QE3).

-Dorsey D. Farr, French Wolf & Farr

August 8, 2012

Market participants today certainly seem to be betting they will see more monetary action. It is difficult tointerpret the recent stock market rally in the presenceof weak economic data and a lackluster earnings season where 60% of companies missed revenueestimates as anything other than hope for anotherround of Fed bond purchases (QE3).

The willingness to celebrate weak fundamentalsbecause they might trigger additional monetary actionis puzzling, since recent Fed actions have had littlediscernible positive impact on economic activity andjob creation. Proving what might have been is always impossible, but recent monetary maneuvers do notappear to have been particularly effective. To be fair, it does appear that QE2 worked to alleviate the deflationscare that was taking root in late 2010. But absent asimilar scare (which is inconsistent with current bondmarket yields), QE3 seems unwarranted.

Download the PDF

¦
Advertisement