by Mike ‘Mish’ Shedlock
Mish Talk
John Hussman has an interesting take on “Quantitative Easing!” vs “Quantitative Easing” in his latest monthly missive Counting the Chickens Twice
After decades of successfully navigating complete market cycles, my greatest investment mistake (particularly between 2012 and 2017) was to underestimate the extent to which the idea of quantitative easing would infect the minds of investors and abolish their discernment.
As a policy, quantitative easing is very straightforward: the Federal Reserve buys interest-bearing Treasury securities, and pays for them with zero interest base money (currency and bank reserves) that someone has to hold at every moment in time until that base money is retired.
That’s it. That’s the entire mechanism by which QE has any hope of “supporting” the stock market. Investors become so uncomfortable holding a zero-interest asset that they feel compelled to get rid of it by purchasing some other asset that they imagine will provide them with a better return.