Political  Calculations
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This time however, we see that the changes in the growth rates of both stock prices and future dividends are not deviating from each other as they did in the Fed's earlier rounds of quantitative easing. That suggests the following possibilities:

  1. The Fed is doing it wrong. In the two previous rounds of QE, the Fed purchased large quantities of U.S. Treasuries. So far in this round, the Fed is only purchasing Mortgage Backed Securities. The stock market just doesn't get the same bang for the buck as when the Fed buys up Treasuries, which acts to reduce long-term interest rates across a wider swath of the economy, which is really what helped boost stock prices in earlier rounds.
  2. QE, as an effective policy, is running out of gas. The interest rates that the Fed might hope to lower in its QE programs started off at a much lower level, and a lot closer to their minimum zero level, than in its previous incarnations. With less room to maneuver, the Fed's actions just don't have the same oomph they once did. Expected Future S&P 500 Trailing Year Dividends per Share, with Futures as of 6 November 2012S&P 500 Accelerations of Average Monthly Index Value and Trailing Year Dividends per Share, with Futures as of 6 November 2012

Charles Hugh Smith offers more thoughts on the factors that might restrain the success for QE.

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Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

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