Go Forth and Speculate!

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Although it was widely expected, it still is slightly disquieting to know that 'QE3' has just become 'QE4', with the total size of outright asset purchases per month henceforth running at a nearly 50% higher rate than 'QE2' had. Without a time limit to boot, although the FOMC did provide a sliver of 'guidance' as to what might provoke a tighter stance of policy. Naturally it is not yet known what other exigencies might present themselves should those targets ever be reached, so we should probably take these with a grain of salt.

Anyway, it was a loud and clear admonition to speculators to please stop ignoring all this free money they're showering us with and go out and buy risk already. After all, the announcement of 'QE3' turned out to be a damp squib: the stock and commodity markets topped out right with it. Readers may recall that we were scratching our head regarding the odd timing of that announcement, as it appeared to us that the planners were taking quite a risk (from their own point of view that is) by announcing 'QE3' with risk assets already overbought.  Judging from the market reaction to the announcement of 'QE4' on Wednesday, the effect of the money printing trick is getting ever more muted. This has a number of potential implications, such as the possibility  – regarded hitherto as unlikely – that the economy is in such bad shape that not even massive additions to free liquidity can lift the stock market anymore (judgment on that has to be reserved for now).

Given that 'Operation Twist' is about to run out, it was already speculated (or let us better say 'pre-announced') in a Hilsenmegaphone shout in the WSJ that more money printing was definitely going to come down the pike, with only the precise timing (December or January meeting?) still slightly open to question. So the market could only have been surprised if they had done nothing.

As things stand, we did get a substantially reworded FOMC statement this time, as opposed to the collection of carbon copies that was circulated at almost every other occasion this year. In the main the rewording concerns technicalities – on the scope of the asset purchases and the 'economic goals' (such as an unemployment rate of 6.5%) that have to be achieved before a policy change will be contemplated.

The WSJ provides the always useful 'FOMC statement tracker' for interested Kremlinologists. We take a look at one of the more interesting quotes from it below (it is mainly 'interesting' in the Chinese curse sense as it were).

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