I wrote an exclusive article for Seeking Alpha in which I expand on the following points:
- Quantitative Easing-induced wealth effects may be wishful thinking;
- Earnings are the primary drivers for equities and they have peaked;
- QE3 could be highly counterproductive if commodity prices rise as a result like in previous QEs;
- Another problem with Bernanke’s wealth effect thesis lies with the new reality in America. Lately, income and assets have been so significantly redistributed that only a tiny few actually feel a wealth effect from rising equity prices;
- The “wealthy few” may nevertheless have much less after-tax income when politicians finally address the looming fiscal cliff. It is these wealthy people who run American corporations, keeping them lean and mean and flush with cash.
- The less affluent — the other 250 million people — are little concerned by an eventual wealth effect but highly, directly and immediately impacted by the side effects of all these QEs, namely rising commodity prices and near zero interest rates.
- At previous QE program launches, equity markets were similarly undervalued, but economic trends were then more positive.
- If the Fed has it all wrong and the only effect of QE3 is to boost inflation, only God knows what will happen.
- Bankers are merely experimenting with totally unproven ways hoping to gain enough time until more responsible politicians emerge. Given the significant risk still facing us until Godot arrives, investors should await more evidence that either earnings resume their uptrend or some kind of miracle(s) happen.
The complete article with charts is right here.