Ken Fisher Discusses Why Most Investors Misunderstand Quantitative Easing

Transcript

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one of the things that's caused certain
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amount of people certain amount of fear
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as we've moved through the summer is the
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fed's july announcement that
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later this year
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2021
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they would start tapering is the phrase
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they use off of their
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bond purchases
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in what otherwise is thought of as
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quantitative easing
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and this is commonly thought to be
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bearish because
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most people and i will say falsely
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presume that quantitative easing is
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stimulus quantitative easing is always
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described as stimulus quantitative
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easing is not stimulus
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now i'm just gonna
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say this simply
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i've written about quantitative easing
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since quantitative easing was first
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deployed in america
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now over a decade ago
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and if you just
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just
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hear me out for a second
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i'm going to tell you that quantitative
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easing is almost always and by everybody
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including the people that are supposed
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to be the most sophisticated people on
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all this stuff
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completely misunderstood upside down and
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backwards
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it is not stimulative it is not
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inflationary it doesn't create money
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it is contractionary and deflationary
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and always has been everywhere it's ever
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been applied
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the fact is in america or in britain or
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in japan
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where in in the eurozone where
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quantitative easing has been deployed
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it is not any of the things that people
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have thought it to be and i've always
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found it just stunningly amazing
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that that isn't understood better
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but i'm not going to take a lot of time
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on this now just a little bit
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but if you want to read me
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or see videos of me
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on why quantitative easing isn't
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stimulative inflationary up one side and
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down the other but is in fact
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contractionary and deflationary
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and therefore the tapering of it in
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reverse is actually stimulative
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if you just do a google search of ken
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fisher quantitative easing it'll take
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you to a lot of stuff going back a long
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time in lots of different formats of
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whatever type of format you'd like to
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read or see me in for that including
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videos
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including videos of me on tv doing that
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but the fact is banks are in the core
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business of taking in short-term
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deposits to finance long-term loans and
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the spread between them
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is
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parallel to their gross operating profit
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margin it's
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reflective of the profitability of
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subsequent loans that they will make and
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the bigger that spread is the more
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incentive they have to lend now
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central bankers and so many others have
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always thought of
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quantitative easing in the vein of we've
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got low short-term interest rates we
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push long-term interest rates down low
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at low interest rates people want to
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borrow
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and the lower interest rates are the
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more people do have a propensity to
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borrow that's true
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that's what you could think of as demand
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side thinking about
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interest rates and money lower interest
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rates will cause more people to want to
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borrow but with rates already low
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pushing them down a little lower
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does not have much
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effect on lending only it's a little
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tiny bit
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in fact the more you make that spread
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between short and long-term rates
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smaller
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which is what quantitative easing tends
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to do as central banks
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use
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their credit to buy bonds pushing up the
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price
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and down long-term interest rates
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inherently as you push the price of
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bonds up long-term interest rates go
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down you know that
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they reduce that spread and
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disincentivize banks from lending and
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the more they disincentivize banks from
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lending this is supply-side thinking the
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more banks don't lend when banks don't
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lend it's not inflationary it doesn't
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create money
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it is not stimulative in fact it's the
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reverse of all those things the tapering
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that motivates the central bank in their
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mind to be less prone to try to keep
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interest rates low that is they're not
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going to put so much on the demand side
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in reciprocity actually
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buoys up the bank's supply-side tendency
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to lend
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and whenever quantitative easing has
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been tapered off in the past
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it's very bullish
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it's stimulative it's great for stocks
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it's just generally great
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so this thing that they fear is a false
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fear
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false fears are always bullish
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tapering to the extent they really do it
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will be a good thing for stocks for the
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economy for lending
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it is just generally good all the way
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around and i've now after over a decade
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of this kind of given up on the notion
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that people will get this in their brain
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right they're going to keep thinking of
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it upside down and backwards but you as
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an investor should embrace the fear
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of
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tapering
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and not subject yourself to what some
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people would call a taper tantrum
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because there's nothing about tapering
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that's bad it's all good thank you very
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much for listening to me today
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[Music]
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