The official QE3 discussion thread

[berkshiremystery]

 

Gavekal's point of view on QE3, for anyone who might be interested.

 

"Ultimately, we believe QE3 will be counterproductive. The chances of higher investment have fallen and the likelihood of wholesale capital misallocation resulting in a future financial crisis has increased. What the US economy needs (and the global one for that matter) is the confidence provided by a predictable future – not more cheap money."

 

giofranchi

 

 

The second concern is that by funneling $40bn per month behind the dam, the Fed has increased the chance of an eventual burst— and the flood that will follow will inevitably be bigger. We cannot know when this will happen and what exact form it will take. What

we do know is that it will mean higher inflation, demanding interest rate increases. As a result, we would be wary of any investment predicated on 0% interest rates through 2015.

 

------

 

At least good for banks such as BofA, while they will get widening interest spreads.

[giofranchi]

Mr. Alan Abelson's point of view on QE3, for anyone who might be interested.

 

giofranchi

Two_Cheers_for_QE3.pdf

[alpha231616967560]

This podcast offers an interesting perspective on the alternative to QE3. After all, Bernanke and the Fed are really just conforming to our culture's Keynesian roots with so-called QE, so it is thought-provoking to consider a Hayekian alternative: http://m.npr.org/story/160195703?url=/blogs/money/2012/08/28/160195703/episode-398-obama-ryan-and-two-dead-economists

 

If Romney / Ryan were to be elected, it would likely be a whole different ball game.

[PlanMaestro]

This podcast offers an interesting perspective on the alternative to QE3. After all, Bernanke and the Fed are really just conforming to our culture's Keynesian roots with so-called QE, so it is thought-provoking to consider a Hayekian alternative: http://m.npr.org/story/160195703?url=/blogs/money/2012/08/28/160195703/episode-398-obama-ryan-and-two-dead-economists

 

If Romney / Ryan were to be elected, it would likely be a whole different ball game.

 

I guess you have not read what Taylor, Mankiw, and Hubbard believe ... that is not much different from  what Milton Friedman believed, not from what Ben Bernanke is implementing.

 

I never expected to see the day when even Milton Friedman would be considered a lefty Keynesian. Sorry Monetarists, I guess the whole economics profession is Keynesian now.

 

 

[Guest rimm_never_sleeps]

if romney and ryan were elected it would be no different. scratch that. they would be printing even more money to fund ever higher military spending for their expansive view of the USA as policeman of the world. go review how Ryan has voted in the house. he is a Keynesian through and through.

[ERICOPOLY]

Romney: The Closet Keynsian

 

http://www.slate.com/articles/business/moneybox/2012/09/mitt_romney_closet_keynesian_the_gop_nominee_may_be_getting_ready_to_ditch_austerity_.html

 

 

[alpha231616967560]

Ryan is an avowed Ayn Rand disciple, and by that measure I guess so was Greenspan, so who knows what could happen, but the economist that they interview (Nicholas Wapshott) describes an interesting "Hayekian" alternative to Keynesian econometrics in which each state is basically its own little participant in the free economy. Something like Milton Friedman meets Ayn Rand.

 

Obviously it wouldn't be this drastic, but I wonder what Mitt Romney has in mind when he repeatedly refers to the market response to the various QEs as a "sugar high".

 

Nobody really knows what a new administration would bring, but it's a fair bet that a Romney / Ryan administration would want to make some sort of a statement with a new fed chief with all the chatter about the need for economic austerity in the Republican camp.

 

 

[Liberty]

Ryan is an avowed Ayn Rand disciple, and by that measure I guess so was Greenspan, so who knows what could happen, but the economist that they interview (Nicholas Wapshott) describes an interesting "Hayekian" alternative to Keynesian econometrics in which each state is basically its own little participant in the free economy. Something like Milton Friedman meets Ayn Rand.

 

Obviously it wouldn't be this drastic, but I wonder what Mitt Romney has in mind when he repeatedly refers to the market response to the various QEs as a "sugar high".

 

Nobody really knows what a new administration would bring, but it's a fair bet that a Romney / Ryan administration would want to make some sort of a statement with a new fed chief with all the chatter about the need for economic austerity in the Republican camp.

 

Isn't the whole debate on "what woud obama/romney do?" a bit off, though, since the president has only limited powers when it comes to that stuff and congress has more impact in that area?

[alpha231616967560]

Isn't the whole debate on "what woud obama/romney do?" a bit off, though, since the president has only limited powers when it comes to that stuff and congress has more impact in that area?

 

The Fed chief is nominated by the sitting president - in this case, Bernanke's term ends in Jan 2014. He was actually initially nominated by GW Bush, and Obama re-nominated him. Alan Greenspan actually served for 18 years prior to Bernanke, but the punditry speculates that Bernanke would be replaced with a R/R administration.

[Liberty]

Isn't the whole debate on "what woud obama/romney do?" a bit off, though, since the president has only limited powers when it comes to that stuff and congress has more impact in that area?

 

The Fed chief is nominated by the sitting president - in this case, Bernanke's term ends in Jan 2014. He was actually initially nominated by GW Bush, and Obama re-nominated him. Alan Greenspan actually served for 18 years prior to Bernanke, but the punditry speculates that Bernanke would be replaced with a R/R administration.

 

That's true. I guess I was thinking more about addressing entitlements and dealing with the budget/taxes/etc...

[PlanMaestro]

 

And now for something completely different: I’m a bit puzzled by the tone of this FT report on how QE3 is doing so far, US inflation fears rise after QE3, which seems to imply that a rise in breakeven rates — the difference between the interest rate on ordinary bonds and inflation-protected bonds — is a danger sign. (Breakeven rates are a simple gauge of expected inflation).

 

On the contrary, it’s the whole point of the exercise. For almost fifteen years, some of us have argued that central banks can gain traction even in a liquidity trap if they can create expectations that money will remain loose after the economy recovers, generating modestly higher inflation. And that’s what the Fed’s new tack is supposed to achieve.

 

The right headline on that FT article should have been “QE3 working so far”.

 

http://krugman.blogs.nytimes.com/2012/09/18/inflation-expectations-a-feature-not-a-bug/

 

I was missing all the macro and politics threads of the last few weeks that suddenly vanish ;) ... too much time in my hands with a concentrated portfolio.

 

[LC]

 

 

I was missing all the macro and politics threads of the last few weeks that suddenly vanish ;) ... too much time in my hands with a concentrated portfolio.

 

Concentrated portfolio!? Are you crazy? Don't you know you have to diversify away all your gains and losses!

 

;D

[Kraven]

 

 

I was missing all the macro and politics threads of the last few weeks that suddenly vanish ;) ... too much time in my hands with a concentrated portfolio.

 

Concentrated portfolio!? Are you crazy? Don't you know you have to diversify away all your gains and losses!

 

;D

 

I know!  It's crazy.  I mean look at Graham and Schloss.  Those guys took smaller positions and did terribly.  They really were an embarrassment to the investing profession.  Look at early Tweedy Browne.  They owned literally hundreds or thousands of positions and didn't perform well at all.  Buffett I (partnership years) owned dozens of positions and I don't think he beat the market at all.  Maybe one year.  Take a modern guy like Paul Sonkin.  He has no idea what he's doing with smaller positions.  I guess if you have more than 3 positions, you just can't make it in this world.

[Liberty]

I don't think there's much debate to be had that both approaches can work (though it would be nice to see if the very diversified people got most of their returns from their bigger positions -- ie. I think someone like Peter Lynch had tons and tons of stocks, but some were basically just tracking positions while others represented a large fraction of his portfolio -- thats a different approach than having 100 stocks that are weighted at 1% each).

 

The real question should be: Which approach has the most chances of improving your results?

 

I think it depends on your temperament and your skill as an investor/how well you do your homework (which isn't the same -- if you're really good but you spend 2 hours a week on investing... well).

 

I would guess that overall, there are probably more good investors who are hurt by diversification than vice versa, and that there are more poor investors who are hurt by concentration than vice versa.