{"id":31923,"date":"2012-08-29T01:29:12","date_gmt":"2012-08-29T05:29:12","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/08\/to-qe-or-not-to-qe-why-it-wont-matter-to-the-long-term-investor\/"},"modified":"2012-08-29T01:29:12","modified_gmt":"2012-08-29T05:29:12","slug":"to-qe-or-not-to-qe-why-it-wont-matter-to-the-long-term-investor","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/08\/29\/to-qe-or-not-to-qe-why-it-wont-matter-to-the-long-term-investor\/","title":{"rendered":"To QE? Or Not to QE? Why it Won\u2019t Matter to the Long Term Investor"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

Every year around this time, the world\u2019s most powerful market movers gather in a US holiday resort and make their plans for the global economy.<\/p>\n

I\u2019m not talking about some conspiracy-theory-laden offshoot of the Bilderberg Group here. I\u2019m talking about the annual central bankers\u2019 shindig in Jackson Hole, Wyoming.<\/p>\n

This Friday, Federal Reserve chief Ben Bernanke will be delivering his big speech.<\/p>\n

Plenty of investors are holding their breath, hoping he\u2019ll make some hint at injecting a load of new money into the US economy.<\/p>\n

But I think they\u2019re in for a big disappointment…<\/p>\n

<\/span><\/p>\n

The Fed Needs to Keep its QE At the Ready<\/h3>\n

<\/center><\/p>\n

\u00a0The Federal Open Market Committee (FOMC) last met to discuss the state of the US economy at the start of this month. The minutes from that meeting came out last week, and got everyone very excited. That\u2019s because the FOMC suggested that it might be ready to do more \u201cfairly soon\u201d unless the US economy<\/a> improved.<\/p>\n

By \u2018more\u2019, everyone assumes they mean more money printing. So they\u2019re hoping that this Friday, Fed chief Ben Bernanke<\/a> might give a hint about just how much more printing they plan to do.<\/p>\n

But there are many reasons why anyone betting on a third batch of quantitative easing<\/strong> (QE3<\/strong>) from the Fed this year might be disappointed.<\/p>\n

There\u2019s Europe, for starters. Plenty of tripwires lie ahead of the eurozone<\/a> in the next month or so. There\u2019s the German constitutional court\u2019s decision on whether or not the eurozone\u2019s big bail-out mechanism<\/a> is legal or not. And there\u2019s the usual to-ing and fro-ing over Greece\u2019s financial situation<\/a>.<\/p>\n

Any nasty surprises on these fronts could send the markets into a spasm of panic. So it strikes me that the Fed will probably want to keep its powder dry, in case of emergencies.<\/p>\n

Also, the Fed will want to keep the pressure up on Europe<\/a>. If the European Central Bank (ECB) follows through on its promise to do \u201cwhatever it takes\u201d to save the euro, more QE<\/a> in the US may be unnecessary.<\/p>\n

But if the US prints more money, it takes some of the pressure off the Europeans to get their act together.<\/p>\n

The US Stock Market Doesn\u2019t Justify QE3<\/h3>\n

<\/center><\/p>\n

However, the main reason I don\u2019t think we\u2019ll see a full-blown QE3 is because the US stock market<\/a> is in remarkably good health. Previous bouts of QE have been announced at points where investors have been screaming for the Fed to \u201cjust do something!\u201d That\u2019s not the case now. The S&P 500 recently hit a four-year high.<\/p>\n

It also doesn\u2019t help that food prices<\/a>\u00a0and oil price inflation<\/a> are back on the radar. QE is meant to be an emergency measure, to prevent the economy from sliding into deflation<\/a>. With neither deflation nor a stock market collapse panicking investors, it\u2019ll be hard to justify any extreme action.<\/p>\n

In other words, the stage is being set for a big disappointment. When Bernanke speaks at Jackson Hole at the end of this week, people will read what they want into his speech. But if the next Fed meeting in September delivers little more than a commitment to \u201ckeep interest rates low<\/a>\u201d, then US markets could take a tumble.<\/p>\n

The good news is, if you are a genuine long-term investor, you don\u2019t have to fret too much about what\u2019s going to happen with QE.<\/p>\n

We\u2019ve said it before a number of times, but it bears repeating. When it comes to the long-term \u2013 which is what we all claim to be investing for \u2013 the key to success is to buy stocks when they represent good value<\/a>.<\/p>\n

History shows that if you buy a market when it\u2019s at a historically cheap level, you\u2019ll make a decent return if you hold for the long term (five years or more). If you buy a market when it\u2019s already expensive, then yes, it might get more expensive. But you don\u2019t have much room for error. And you have to make sure that you get out before everyone else realises that it\u2019s expensive, or you\u2019ll lose money when the bubble bursts.<\/p>\n

The point is that stocks tend to get cheap when the outlook is gloomy. There\u2019s an argument to be made that the US has better prospects than many developed economies. The US housing market<\/a> has suffered a proper crash. Its banks are closer to having healthy balance sheets than most other developed nations. And it has the wild card of shale oil and gas<\/a> up its sleeve.<\/p>\n

But it\u2019s in the price. The S&P 500 trades on a CAPE (cyclically-adjusted p\/e ratio \u2013 which smooths out earnings over ten years) of around 22. That compares to the long-run average of around 16. So if a strong recovery doesn\u2019t materialise, there\u2019s a lot of room for disappointment.<\/p>\n

Both European and Japanese markets, on the other hand, are cheap by historical standards, based on the CAPE. So they are pricing in a lot of misery. If things get even a little less worse, then their markets will benefit.<\/p>\n

John Stepek<\/strong><\/p>\n

Contributing Editor, Money Morning<\/strong><\/p>\n

Publisher\u2019s Note: <\/em>This article originally appeared in MoneyWeek (UK)<\/em><\/a><\/em><\/p>\n

From the Archives…<\/strong><\/em><\/p>\n

Read This Gold Price Warning Before You Buy Another Stock<\/a>
\n24-08-2012 – Kris Sayce <\/p>\n

Stocks Are Up – Is it a Good Time to Buy?<\/a>
\n23-08-2012 – Kris Sayce <\/p>\n

It’s About Freedom of Speech: What if We Couldn’t Write to You Anymore?<\/a>
\n22-08-2012 – Kris Sayce <\/p>\n

Things Are Looking Up for Gold<\/a>
\n21-08-2012 – Bengt Saelensminde<\/p>\n

The Good News About Europe’s Missing Pre-nup<\/a>
\n20-08-2012 – Nick Hubble <\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nTo QE? Or Not to QE? Why it Won\u2019t Matter to the Long Term Investor <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Every year around this time, the world\u2019s most powerful market movers gather in a US holiday resort and make their plans for the global economy. I\u2019m not talking about some conspiracy-theory-laden offshoot of the Bilderberg Group here. I\u2019m talking about the annual central bankers\u2019 shindig in Jackson Hole, Wyoming. This Friday, Federal Reserve … <\/p>\n

Continue reading “To QE? Or Not to QE? Why it Won\u2019t Matter to the Long Term Investor”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-31923","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/31923","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=31923"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/31923\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=31923"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=31923"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=31923"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}