Honestly. Why is everyone so confused and conflicted about whether or not we’ll have another round of money printing from the central bank, more politely referred to as QE3 or “quantitative easing” part III.
It’s as simple as this:
- If U.S. stocks threaten to fall 20 percent – what most investors will see as a new bear market – the Fed will ride to the rescue since, as we all learned last fall, Ben Bernanke added a third mandate – perpetually higher stock prices.
- If U.S. stocks don’t threaten this mark, then there will be no QE3.
In this report at CNBC, hedge fund manager David Tepper said as much:
No More Fed Easing Unless Stocks Drop More: Tepper
Noted hedge fund manager David Tepper doubts the Federal Reserve will continue its intervention in the markets unless things get considerably worse.
The head of Appaloosa Management and source of the “Tepper Rally” that generated a huge run in the market last September said in an email to CNBC that stocks would have to fall considerably more before the Fed would start another round of quantitative easing, or QE.
“If (the S&P 500 falls) a couple hundred points and financial conditions tightened maybe they would reconsider,” Tepper wrote. “But there is no logic to QE3 now and the only result might be more food and energy inflation.”
Tepper made his influential call in a September CNBC appearance in which he said stocks were in a win-win situation: Either the economy would improve and drive a rally, or the economy would drop and the Fed would undertake another round of easing.
If the S&P500 falls 200 points from it’s current 1277 level, that would be another 15 percent decline in addition to the five or six percent drop from the recent peak, so, the “couple hundred points” would be more than enough to get the Fed’s attention, at which point, the oil price might be back in the $80 range with gasoline prices barreling back toward $3 a gallon and Ben Bernanke will have adequate cover in the renewed concern over de-flation.
It’s not that complicated.
