Why Bernanke did not hint on QE3? and it all depends

There has been much hope if QE3 were to surface. It all depends. Global investors were keenly awaiting Ben Bernanke’s comments this morning.

At the International Monetary Conference this morning (3:45 am Singapore time), Fed Reserve Chairman Ben Bernanke (BB) delivered the US Economic Outlook. Prior to the delivery, global investors were watching for any clues in his delivery for possibility of QE3 surfacing.

If you were to ask my opinion, it would probably be FAT hope. BB would/could NOT provide any clues at all (BB does not have sufficient eveidence). But that does not mean it will not surface. (Readers should be familiar with the Global Financial Crises, QE1 and QE2).

QEs were launched to ensure the FEDs primary mandate of price stability and employment in the US. The questions I would ponder is

·         There were 3-4 months of good employment data with the exception for May

·         Inflation or CPI, at this point of time is in transition.

In other words, there is not enough evidence for him to collate and analyze. At this point, it is just ‘sit and wait’ until there is sufficient data for them to analyze (for any cause) and to result addressing the concern or to seek a FED solution. Just like Generals in the Art of War, there is not sufficient evidence if the ‘financial’ climate warrants any study or strategy to counter with any ‘defense or attack’ strategy. BB would need more time to evaluate the economy, the data and if this would be a concern?

And without understanding the US Economic Outlook, how would QE3 be even thought of? And if BB does not even have sufficient evidence and to pin point the actual problem, we would just have to sit and wait. Hence, do not HOPE for QE3 or wish that he would start printing US dollars again.

The rumours or speculation of QE3 is from people who does NOT know/understand economics, the situation that warrants a study and probably hope for a QE3 because they want stocks (higher yield assets) to go up. Just like a particlar Monday where global stock markets rose more than 2 per cent (just on the 'hope') of a Greece bail out and subsequently stock markets reversed.

And if you were to wish for any QE3, you should watch very closely for any

·         Unfavorable US economic data

·         Price instability in the US

·         Inflation concerns (cumulative CPI or Core CPI)

·         Leading indicators

·         Continued weakness in the major US markets, etc

As of late, there had not been any favorable data from the US nor China (the two world’s largest economy). Stock markets have been trending southwards into their fifth week. Problems in Europe had not been solved. QE2 is to end at month end.

As the financial climate is still filled with dark clouds, I would still be sideline (since early May) and until there are evidence of any positive sentiment or data, we just have to budget, spend wisely and be ready to sail when the climate is more conducive.


Updated June 11th. Roubini interview with CNBC - probability of QE3 by Year end

Markets can be much more illogical than you could be staying solvent. Live today and fight tomorrow for there will always be a market tomorrow! Click +1 if you like this article.