Thank Capitalism for Your Returns, Not the Money-Printing Fed

Now that the Federal Reserve is putting its six-year adventure into dry dock, let’s bury the idea that it accomplished anything significant. The notion that QE was behind the long-run rise in the stock market was ridiculous from the very start.

But first, let’s define QE:

QUANTITATIVE EASING

Noun: An unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the monetary base. (Wikipedia)

Yes, indeed, quantitative easing is a mouthful, which would be fine if it had done what the talking heads said it did. But here’s the plain and simple truth: It didn’t. QE eliminated bad debt in some banks, as the Fed intended, but the “experts” said it drove the stock market to new heights.

It absolutely didn’t. And it’s way past time most “experts” stopped saying it did, because they can’t and never could support their assertion with facts. Few ever tried to explain how printing money drove corporate earnings and stock prices higher. In fact, they scared away many investors who heard them say stocks were rising only because the government was printing money and that the market would crash when it stopped. I repeatedly challenged the “experts” who said this to prove it, to explain it, to offer some evidence of how it worked. I’m still waiting.

First of all, QE was and still is merely a process. The Federal Reserve literally invented it with the push of a computer button, and then it credited its own account with the money it invented, and then it placed this invented money in our banks in exchange for bad mortgages that were placed on the unaudited books at the Fed. Banks were flooded with “cash” that they could loan to qualified businesses and individuals.

It was ridiculous from the very start for anyone to say this was somehow responsible for stock prices rising. Just saying it defies any logic or knowledge of how and why the stock market moves, and I challenge anyone to prove otherwise. I’m calling out each and every pundit who shared that notion and spewed that nonsense. You didn’t do your homework, and you owe everyone an apology.

Listen up, “experts” … People rely on you to guide them. Your words have meaning, and that means you have a responsibility to know what you’re talking about — and with great specificity.

A year ago, I wrote:

Make no mistake about it, the printing of money is disastrous for our economy today and for tomorrow, but the printing of money isn’t the reason stocks have moved up. It just isn’t thatsimple and to attribute the rise to printing of money through quantitative easing is just flat out wrong.  

Here’s what you “experts” ignored for far too long: Printing money doesn’t make stock prices rise.

But you misguided, uninformed “experts” did succeed at one thing: You were great at spreading fear among many of the people who listened to you. Far too many of them stayed out of the market when they heard you say that stocks were rising only because of some Fed action and that they should be very wary about the day the Fed would pull back. Those would-be investors who chose to listen to your drivel missed the boat. That’s a shame, and you’re to blame. 

You “experts” said QE pushed interest rates lower, but it didn’t. The interest rate was set by the Fed, and quantitative easing had no effect on it whatsoever.

So I’m challenging you again. Please, explain to me how QE helped the stock market. I’ve spoken with professors at Harvard, Yale, Princeton, Wharton, asking them to explain to me how it works, how shifting around “money” that has been created out of thin air helps corporate earnings.

Now the program is ending, and I’m still waiting for an answer.

The problem with QE was that there never was a shortage of money to be loaned out. Instead, there was a shortage of qualified people and companies to whom the banks would loan it. It’s Business 101: Banks will loan money only to those who are qualified.

The other problem with QE — an even larger problem — was that you “experts” mindlessly gave credit to it and not to the real reason the stock market went up. You failed to give credit where credit was due: to the company CEOs and CFOs who did — and continue to do — a great job.

The credit goes to corporate America. Savvy businessmen and women — not quantitative easing — have been the real heroes of the last six years, and you haven’t been paying them due diligence. Every time you said stocks went up because of something else, you spat in the faces of the people who made it happen.

So I’m asking — begging — you talking heads of finance: Stop spouting nonsense. Please, take a step back and reflect on exactly what you’re saying, because the credit for the ongoing rise of the stock market goes to the CEOs, the CFOs, and all the hardworking people who have found a way to eke out better earnings in spite of new corporate taxes and government regulations like ObamaCare.

All of the “investable” funny money in the world does not replace the fundamentals of growth and good management. 

Let’s give credit where credit’s due. Give thanks to your favorite C-level executives. They’re the ones who gave you that number on your investment statement.