Money's Already Quite Cheap

By: Mike Shedlock | Sun, Oct 31, 2010
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Quite often simple explanations are the best. There are dozens of reasons why another round of QE will fail, but much of comes down to "Money's Already Quite Cheap".

Please consider Schwarzman Says Fed Easing Won't Make Much Difference

Stephen Schwarzman, chief executive officer of Blackstone Group LP, the world's biggest buyout firm, said another round of asset purchases by the U.S. Federal Reserve won't have much of an impact on companies.

"It's not an enormous incentive to do something different with your businesses because rates are down a few basis points," Schwarzman, 63, said yesterday in an interview with Bloomberg Television's Margaret Brennan at the UBS Wealth Management Roundtable in New York. "Money's already quite cheap."

Schwarzman joins hedge-fund managers Paul Tudor Jones, Clifford Asness and Colm O'Shea in casting doubt on the effectiveness of more so-called quantitative easing. Asness, who runs Greenwich, Connecticut-based AQR Capital Management LLC, said he doesn't expect any long-term effects from such a move.

"Us printing money to buy our own bonds I don't think can matter long term," Asness said this week in an interview with Bloomberg News at the Buttonwood Gathering, a conference organized by The Economist magazine in New York.

Jeremy Grantham, chief investment officer of Grantham Mayo Van Otterloo & Co. in Boston, said in a quarterly letter to investors that the Fed's quantitative easing will be a "more desperate maneuver than the typical low-rate policy."

Tony James, president of New York-based Blackstone, said today he wasn't convinced pushing borrowing costs lower would have a positive effect on the economy.

"I don't see that lower rates are going to encourage American industry to borrow and build," James said today on a conference call with reporters. "It has a counter-stimulative effect. I don't think it works."

The junk bond market has already gone nuts as noted in Mad Dash Into Junk Sets October Record so what is Bernanke hoping to accomplish other than a bigger bubble in junk bonds, equities, and commodities?

Virtually none of that helps small business owners shut of from the bond market and hurt by rising input prices and collapsing prices for their goods and services.


Cost-Push Inflation?

Someone sent me a comment that I do not understand push-through inflation and that is why I don't understand hyperinflation.

Well for starters hyperinflation is not caused by rising prices, hyperinflation is a loss of faith of currency (typically caused by some political event). The result (not the cause of hyperinflation) is rising prices. For a further discussion of hyperinflation please see "Straight Talk" with Economic Bloggers

Second the whole idea of cost-push inflation is silly. An excerpt from $30 Billion Offer No One Wants - Small Businesses Hit by Deflation will prove it.

NFIB Small Business Trends

Inquiring minds are taking a look at NFIB Small Business Trends for September.

INFLATION

The weak economy continued to put downward pressure on prices. Seasonally adjusted, the net percent of owners raising prices was a negative eight percent, a four point increase from July. August is the 21st consecutive month in which more owners reported cutting average selling prices that raising them.

COMMENTARY

The Index has been below 93 every month since January 2008 (32 months), and below 90 for 25 of those months, all readings typical of a weak or recession-mired economy.

Inflation? Not a threat. Far more owners have cut prices than raised them for 21 months in a row. Deflation? It certainly feels that way to a quarter of the owners reporting price declines for the goods and services they produce and sell.

Here are a few charts from the article.


Prices Received

Prices


Actual Price Changes

Actual Prices Change

Cost-push inflation? Yeah right.

Meanwhile, QEII is punishing small businesses, the very lifeblood of the job creation engine.

 


 

Mike Shedlock

Author: Mike Shedlock

Mike Shedlock / Mish
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Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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