Quantitative Easing from an investor's perspective

lvader

Glen_Clark wrote: »

Interesting piece in the FT saying that whilst equity prices have risen 40%, Company Earnings are about the same. So in real terms our shares, just like our houses, are not worth any more. We still have the same share of the same company producing the same income.

This sound like crap!, 40% compared to when and are they comparing company earnings from the same time frame? If it were true that PE values would have increased by 40%. They havn't if anything PE values are lower.

EdGasket

QE devalues the average investor's cash savings but helps borrowers. It is fuelling the same type of problem that caused the need for QE in the first place i.e. trying to get people to borrow more than they can afford. Effectively prudent savers are being robbed by QE fuelled inflation (it will go a lot higher!) to bail out the reckless banks and reduce the real cost of government debt.

mspoppins

Thanks everyone. The essay was received very well

DiggerUK

As you have shown a courtesy to all who responded to your thread, a thanks to you.

Could you summarise your take on QE, a new angle is always welcome.
..._

talexuser

Glen_Clark wrote: »

The difference is that wages were inflated at the same time, and interest rates were near to inflation.

But surely that experiment ended with Denis Healy going cap in hand to the IMF because the country was broke, and our tax and spend policy dictated by the money lenders rather than by any elected government? Policy that was then taken up enthusiastically by Thatcher et al when Labour made itself unelectable via Foot and Kinnock (and then Brown... and probably Milliband).

Glen_Clark

talexuser wrote: »

But surely that experiment ended with Denis Healy going cap in hand to the IMF because the country was broke, and our tax and spend policy dictated by the money lenders rather than by any elected government? Policy that was then taken up enthusiastically by Thatcher et al when Labour made itself unelectable via Foot and Kinnock (and then Brown... and probably Milliband).

Our National debt now is a lot bigger than it was when Denis Healey went to the IMF.
And it was Murdoch who made Labour unelectable. For example those who actually heard Kinnock's speech at the Labour party conference were apparently very impressed with it. But then he went out on the beach still in his suit and fell over dodging a wave. So the picture of Kinnock falling arze over tit on Brighton beach was front page news - no mention of his speech or policies at all.
It was only when the sycophantic Blair sucked up to Murdoch that New Labour became electable.

talexuser

Hmmm, I'm not political one way or the other, but at the time everyone I knew thought Kinnock was just a windbag and could not imagine him as prime minister material - the beach faux pas was just the nail in the coffin - like Brown's "racist" little old lady.

Blair became electable because he dropped clause 4 and convinced the voters he could run the economy "tory light". And he had the advantage of being up against some dead beat tory leaders trying hard to be almost as bad as Kinnock.

Glen_Clark

talexuser wrote: »

everyone I knew thought Kinnock was just a windbag and could not imagine him as prime minister material

Thats the way Kinnock was put across in Murdochs papers because Murdoch wanted Thatcher in power to help him bash the print unions at Wapping. When that was accomplished Murdoch didn't mind a 'New Labour' (Tory B Team) Government.

Jegersmart

I think there are some people here that are a little confused and possibly making this either too simple or too complicated!

Quantative Easing is basically an activity that is designed to prop up the financial system (mainly banks). This is because banks are in trouble, although this is not really in the news. QE *could* have a positive effect on the wider economy but let's get back to that shortly.

The BOE are buying gilts from the government with money it creates out of thin air (it has a mandate to allow it to do so). This "money" then goes to the government and where do we all store "money"? In a bank of course. Once the money hits a bank the fractal reserve system kicks in which results in even more currency created through loans, if they are offered and such demand for a loan exists of course.

At the moment, banks seem to be using quite a bit of this new capital to shore up liquidity ratios and I suspect deleveraging because not much of this money (and the fractal reserve multiplier) seems to be finding it's way into the wider economy or taxpayers. But there is a reason for this, and personally I think there is a lack of demand. Lack of demand from taxpayers who are more unemployed than they have been for a long time, who are paying off debts more than they have because they are worried about the future and are being hit by rather large increases in energy and food costs.

So the money deposited in banks through QE that is NOT used to shore up ratios and deleverage has to go somewhere. Well, since 2009 there has been massive asset inflation across most sectors. Equities, bonds, gold, - you name it - it has gone up. I made 65% in 3 years on bonds.....I don't remember that happening before.

Additionally, interest rates have been set very very low. There are many "effects" of this. Traditionally, interest rates have been low to stimulate an economy. Savers get jack but at the same time people can borrow money cheaply too - so it is designed to encourage spending. In the current environment, this benefits companies and institutions the same way - very few places to get a good return and very cheap money which can be put to "good" use. No wonder company profits are looking good, they are restructuring their debt and probably paying half or less of what they used to. Most companies are fairly geared so this makes a big difference to their earnings and all the other factors relating to that - so much so that even with weakish demand it still looks good.

Now this whole scenario is T.H.E. very definition of "wealth transfer". As opposed to well publicised "bailouts" of banks, QE is an ongoing theft from the taxpayer. The government is funded by us and are borrowing money at unprecedented levels to stimulate the economy/bail out the financial system (delete as necessary) to "help us". I for one would rather not use my own money to help myself especially with the application of interest attached to it - what would be the point of that? The bottom line is that whilst there may be secondary positive effects in the wider economy of QE, this is really NOT done for our benefit.

Someone mentioned above that they prefer QE to the "balanced budget" approach of the 1930's. Well, either that person is very old to have experienced that or they are misguided in in their understanding of what happened. We have all seen the panic and the queues of people outside banks standing in line or rioting trying to get access to their money. This was actually a GOOD thing in the larger view, because it made us face and have to have an opinion on what this meant in terms of banks, why they exist and what our financial system is. This was a very harsh and upsetting experience, however nowadays a lot of people are like the poster I refer to, who prefer to keep their heads in the sand and do not want to face or have to take a view on what reality offers up. The fact is that in 2008-2009 there would have been multiple bankruptcies of major banks, perhaps the whole financial system as such and it would have forced us to draw a line in the sand and really discuss and face up to the problems of our institutions and the system they uphold. Would it have been a bad thing? A tough one to answer, but the world still produces heat and food and gasoline despite a banking system disappearing suddenly. Emergency laws could be passed to ensure the continuance of core requirements, human spirit could come together to help each other...whatever...but this was too difficult and so bailouts at our very expense was decided upon....no one even asked us....

So, where does this leave us? In my opinion, these cycles will keep on happening and will probably get far worse over time. Sooner or later things will get so bad that even the taxpayer sheep will have had enough and maybe, just maybe things will change.

Until then, I will read the comments on these boards with some amusement - "I don't care - my portfolio has gone sky-high", "QE has been a success", "the BOE can just sell the gilts when they want" and so on.

I say this as a person who does extremely well in the current system, but can see the fundamental flaws and fraud being committed by governments and institutions every day. It si even there in the commercially-controlled media quite often, but people do not recognise it or will not recognise it for what it is.

Good luck all.

J

talexuser

Glen_Clark wrote: »

Thats the way Kinnock was put across in Murdochs papers

Sorry, it was the way he came over every time he opened his mouth on telly to lose twice. Anyway he and his wife soon got on the EU and Lords gravy train showing just how left wing they really were.:rotfl: