A lot has been made of the fact that QE3 is open ended. It can go on for as long as our financial stewards deem appropriate. Many have dubbed this QE – infinity, and in the end, maybe that is what we will get as many have questioned whether QE is the right tool to do the job of improving the economy and lowering unemployment. Like the Energizer Bunny, QE will just keep going and going and going.
QE – infinity is the wow factor of last week’s announcement, but it really isn’t anything new. Ever since QE2 came on the radar screen back at Jackson Hole 2010, the Fed has been implementing some sort of liquidity operation nearly 90% of the time. Starting with the expectation of QE2 back in August, 2010, the markets have been focusing on and influenced by QE in some form or another. QE – infinity didn’t start last week. It started in August, 2010, and it has been with us for 97 out of the last 108 weeks. The only difference between last week’s QE3 announcement and the past 2 years is that the Fed is acknowledging that QE will be open ended even though it has been essentially open ended for the past 2 years anyway.
The next figure is a weekly chart of the SP500. The yellow vertical line is Jackson Hole 2010 when Ben Bernanke hinted at QE2. The green vertical line is the actual FOMC meeting where the Fed announced a $600 billion program to purchase Treasurys. The red line is the completion of that program (QE2) in June, 2011. Then the markets went 11 weeks without any kind of intervention or liquidity operation. Oops! That wasn’t such a good idea. September, 2011 brought us Operation Twist (the dark gray vertical line) and June, 2012 saw the extension of that program (the light gray vertical line). The green vertical line is Jackson Hole 2012. The blue vertical line is the start of QE3.
Figure 1. SP500/ weekly
In essence, we have had QE- infinity for the last 2 years. We just didn’t know it.