Is Quantitative Easing the Last Gasp Bubble?

By Todd Harrison  JUN 25, 2010 11:30 AM

How big will big become?


Syracuse great Don McPherson shared an awesome quote with me during his visit to the 'Ville yesterday.

When he speaks to student athletes, he asks them if they know the difference between a million and a billion. He then shares a different lens to prove his point: “One million seconds is twelve days. One billion seconds is 32 years.”

Yesterday, Ambrose Evans-Pritchard, International Business Editor of the UK Telegraph, reported that key members of the Federal Reserve five-man Board are quietly mulling a fresh burst of asset purchases, potentially pushing the Fed’s balance sheet towards an eye-popping $5 trillion.

Five trillion! To put the magnitude of the number into perspective, I’m gonna borrow a page from the talented #9. Five trillion seconds is 158,445 years, which is almost as old as Grandpa Neil Glassman!

Is it conceivable that we’re In Too Deep? Is the only realistic strategy is to continue pumping the patient full of drugs, pushing risk down the road, and hoping against hope that something -- anything -- comes along in the next few years to magically save the system from imploding under the weight of a synthetically structured world?

It’s possible; akin to a liar who continues to fib, digging himself into a deeper and deeper hole until the world awakes to his true nature, policymakers may have no choice but to throw good money after bad at the cumulative imbalances and toxic assets that loom large beneath the surface.

That, of course, opens the door to the “other side” of a potential binary outcome, one we’ve discussed through the years in the articles below:

As discussed, my sense is that when the dust settles, The Phantom of Deflation will pave a path through The Eye of the Storm and deliver us to The Other Side of the Crisis where profound opportunities will await those who proactively persevere. I was schooled to believe that nobody is bigger than the market and if capitalism is to survive, this is the only intuitive process to reset the system.

To be sure, the ramifications of these particular paths are profoundly different. Should deflation arrive, asset classes as a whole would trade lower and the greenback would rally as folks hoard cash and pay down dollar-denominated debt. If we print and reprint, the greenback would debase and anything measured in that currency would appreciate in relative dollar terms.

My tune hasn’t changed -- I still believe all roads lead to deflation -- but as we pride ourselves on seeing both sides in the ‘Ville, I wanted to offer the variant view.

I will say this: I used to believe that debt was the MOAB (Mother of All Bubbles) but I was wrong. and quantitative easing are the last global gasp and should that bubble burst, flickering ticks and bottom lines may be the least of our concerns.

The Here and Now

Don and I have a habit of deep-diving into our shared passion (effecting positive change) so I was away from my turret during what turned out to be a fairy ugly close.

Some folks bantered that S&P 1080 was ‘the' level but I don't see it. You know my view -- it's all about S&P 1040 and should it breach, the door opens for the 20% head and shoulder boulder.

That’s not a given even if it triggers -- technical analysis is a better context than catalyst -- so we'll have to take our journey one step at a time.

The fact that it seems oh-so-obvious and is fairly loud in financial circles also triggers a nose scrunch, although I’m trying not to out-think myself as it pertains to my current risk profile (which we discuss in real-time on the Buzz & Banter).

I will also say that I hope I'm wrong. If my sense is correct, the next wave lower is gonna be entirely more painful then the first front. But then -- good news! -- once we take our medicine, and that’s a procedure we’ll have to endure together, we should finally be in position to build a sustainable foundation for future growth.

Position in S&P