Thoughts on QEIII
I’m glad that I haven’t shown y’all the negative posts I’ve written and not published in recent months, because QEIII makes me super stoked. More stoked than I have been since nearly getting a job with an enzyme maker. QEIII is going to put hair on the economy’s chest and I want to be long equities and out of treasuries and that boring old dollar.
In general, I believe that a loose form of the efficient markets hypothesis holds, and that policy makers shouldn’t try and out guess traders. This said, markets are at least briefly inefficient (someone needs to trade them to efficiency after all) and I think that today was a great buying opportunity. I personally went from 100% USD on Monday to 50% long certain companies on Wednesday, before going 100% long after learning that QEIII would be open ended.
Open endedness is the key and I think market’s probably underreacted to the statement. If QE becomes like a new Fed Funds rate, then we could be back to 5-6% NGDP growth for a while and the economy could turn heads in the speed of its recovery. This is of course a big if, and I will pay to express by bullish view in the markets. Can’t wait to see what happens in coming weeks.
Also, it goes without saying that you should check out Lars and Scott today for their insightful readings. I look forward to the responses of other market monetarists over the weekend, though I generally dread reading the interpretations of the “push down long rates !!!” crowd. Monetary policy is not about interest rates.
P.S. Here are some plots which show the awesome power of monetary policy