More QE, No More Rally


Another day, another bank profit. NAB’s UK businesses performed well, pushing profits up 9% to $5.9 billion.

Here’s something more interesting: NAB’s Scottish bank, Clydesdale, issues its own unique bank notes. They don’t say ‘Bank of England’, or ‘British Pound Sterling’ on them, despite being legal tender across the UK.

image of a Clydesdale Bank bank note

No wonder NAB is making a mint (pun intended). Don’t try creating your own Aussie dollars at home though. You’ll get arrested.

In other news overnight, the Federal Reserve announced it would continue its $85 billion a month QE. Gold and shares soared…

Except they didn’t. Both fell a little. Hmmm…

American jobs data came in weaker than expected too. Usually that means more QE for longer. So stocks and gold should’ve gone up again. But they didn’t, again.

Clearly the world is broken. Money printing didn’t increasing stock prices and the prospect of more money printing to come didn’t either.

One narrative for this new sequence of events is that nobody was expecting a taper of QE this month anyway, so Wall Street just shrugged the news off. That’s a big change compared to the hullabaloo about the taper in September. Markets were all over the place on every hint of a taper or no taper.

Another interpretation to the stock market’s indifference, which Blackrock manager Larry Fink and Pimco manager Bill Gross put forward, is that the link between QE, asset prices and the economy is getting dodgy.

Going with yesterday’s analogy, QE was supposed to be like jumper leads are to a car. A quick start, not permanent fuel. The American economy is trying to merge on the highway with the jumper leads still attached. Any mention of taking them off results in a sudden loss of speed. But the merge lane is getting shorter. Look out for the crash.

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Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

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