Enis’s Macro Wrap – Central Bankers’ Magical Potions

by Enis November 20, 2012 8:03 am • Commentary

While the Moody’s downgrade of France stole the headlines last night, the main event for today is Ben Bernanke’s speech midday, at which some are speculating that he might outline QE4.

I’m not quite sure why some are continuing to label iterations for QE programs.  Since QE3 was essentially designated as untied to any timing deadline, it should be considered an ongoing, perpetual QE program.  As such, any modifications from here on out are simply that, modifications, not new programs.

In that sense, the Fed might have made a mistake in launching QE3 in September.  The ever-present QE possibility had been a major boon for equity markets.  With that possible support now perpetually employed, its psychological effectiveness has been diminished.  Look no further than the lack of impact from Janet Yellen’s comments or the FOMC minutes last week, both met with indifference by the market.

That’s why the market’s reaction to today’s comments will be crucial.  If indifference reigns once again, then the perceived magical potion employed by central bankers (which I view more as a placebo effect) will take another hit in reputation among market participants.  Perhaps 2013 will expose the dangers of relying on the placebo effect when the patient learns that it’s just a placebo after all.

Markets overnight:

  • Asia was mostly red by the close, unable to sustain a green open
  • Europe opened red as well, but made a brief move into the green.  However, it’s now back in the red, down about 0.4%, with financials leading the move lower.
  • SPX futures have been in a tight range overnight, now down about 0.25%
  • HPQ reported a very weak number, missing even low expectations, and the stock is down 10% in pre-market trading.
  • Bernanke’s speech begins at 12:15 pm EST today