This QE Bower My Prison
Eric Parnell has a nice post over at Seeking Alpha, with a series of graphs demonstrating asset classes which have diverged from the stock market trend. An excerpt:
I worry deeply about the road that lies ahead for capital markets and the investors that participate in them. I have never been of the opinion that artificially inflating asset prices was a proper or healthy way of trying to revive sustainable economic growth.
Recent history has shown that falsely high asset prices, as witnessed with technology stocks in the late 1990s and housing in the past decade, ultimately led to disastrous outcomes that have required ever greater restorative actions in their wake.
Yet policy makers, including the Federal Reserve, have continued to persist in their attempts to defy the natural economic cycle and pursue similar policies by this time artificially inflating stock prices under the unfounded belief that the associated wealth effect might lead to a measurably and sustainable stimulative effect on economic growth. It is with this very point that I am most dismayed.
For one might have had the chance to argue that the explosion of the national debt and the quintupling of the Fed's balance sheet were worth the expense had the U.S. economy at least achieved escape velocity so many years later.
Instead, we are still left with an economy that continues to sputter sluggishly along despite so much treasure continuing to be deployed and a stock market that is now at historically peak valuations across a number of measures that include earnings per share that remain well above trend, and profit margins well above historical averages. Fool me once, shame on you. Fool me twice, shame on me. Fool me thrice?
I worry deeply about the road that lies ahead for capital markets and the investors that participate in them. I have never been of the opinion that artificially inflating asset prices was a proper or healthy way of trying to revive sustainable economic growth.
Recent history has shown that falsely high asset prices, as witnessed with technology stocks in the late 1990s and housing in the past decade, ultimately led to disastrous outcomes that have required ever greater restorative actions in their wake.
Yet policy makers, including the Federal Reserve, have continued to persist in their attempts to defy the natural economic cycle and pursue similar policies by this time artificially inflating stock prices under the unfounded belief that the associated wealth effect might lead to a measurably and sustainable stimulative effect on economic growth. It is with this very point that I am most dismayed.
For one might have had the chance to argue that the explosion of the national debt and the quintupling of the Fed's balance sheet were worth the expense had the U.S. economy at least achieved escape velocity so many years later.
Instead, we are still left with an economy that continues to sputter sluggishly along despite so much treasure continuing to be deployed and a stock market that is now at historically peak valuations across a number of measures that include earnings per share that remain well above trend, and profit margins well above historical averages. Fool me once, shame on you. Fool me twice, shame on me. Fool me thrice?
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