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Has the Market Become Addicted to Quantitative Easing?

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Or does the system need the extra liquidity?

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Minyanville's own Todd Harrison just sat on a panel for the Maxim Group Growth Conference in New York. Todd debated with Paul LaRosa, Maxim Group's chief market technician, and Ed Yardeni, president and chief investment strategist of Yardeni Research in a session titled "Perspectives on the Global Economic and Political Landscape." As in any macro debate, all kinds of contrasting opinions were getting thrown around. The panelists' discussion of monetary policy is particularly relevant today after the markets' Ben Bernanke-inspired rally.

Yardeni and Todd disagreed on one very central point. Yardeni, who moonlights as a movie reviewer, said that the European Central Bank's LTRO "bought us a lot of time and averted a financial meltdown last year," saying that Europe is going to be a "muddle-through situation," but not one as bad as Japan's increasingly inadequately monikered "lost decade."

On the Federal Reserve's monetary activism, Yardeni wishes "they would just get a life and leave us alone." He presented a chart showing diminishing returns of sorts from quantitative easing. The first round resulted in a robust rally on the S&P 500 (SPY) that petered out after it ended. Bernanke's 2010 Jackson Hole speech and QE2 did the same, but with less effect. Operation Twist, which we are still in the midst of, is looking a lot like a repeat of QE2.

Todd respectfully disagreed, pointing to the sheer amount of liquidity that it's taken to pull out the housing market and the job market.

When you come down to it, the argument for more or less monetary stimulus depends on your view of the job market. Is the glass half-empty or half-full? Is unemployment receding, or is it actually far worse on the streets than in the Bureau of Labor Statistics' numbers? Does the job market still need the liquidity fix? Let us know your opinion in the comments.


Twitter: @vincent_trivett
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No positions in stocks mentioned.
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