When is “Not-QE” QE? When Federal Reserve Chairperson Jerome Powell declares QE is not QE. We can constructively recall the story that Abraham Lincoln famously recounted in 1862: ‘If I should call a sheep’s tail a leg, how many legs would it have?’
‘No, only four; for my calling the tail a leg would not make it so.’
Calling QE not-QE doesn’t make it different than QE, but it does communicate the Fed’s panicky desire to mask its stupendous injection of financial cocaine into the financial system. The Fed’s level of panic is noteworthy, as is the absurd transparency of its laughable attempt to conceal its panic.
In the same fashion, the financial media is loudly declaring the current blowoff top in stocks is not a blowoff top. The delicious irony here is these denials are reliable markers of blowoff tops: the louder the denials, the greater the odds that this is in fact the blowoff top that many pundits have been expecting for some time, but always in the future.
Garsh darn it, maybe the future has arrived. The financial media denied the Q4 1999 – Q1 2000 blowoff top was a blowoff top, and it repeated its denial of a blowoff top in housing in 2006-2007. The pundits of 1929 also denied the Q3 blowoff top in stocks was a blowoff top.
If you want a reliable signal that the blowoff top has peaked, listen to the screechy adamance of the deniers. The list of reasons why blowoff tops can’t be blowoff tops is practically endless: sentiment isn’t bullish enough, there’s a Wall of Worry for stocks to climb (overlooking the inconvenient reality that there is always a Wall of Worry), the consumer is still looking good, corporate earnings will rebound, the soft patch is behind us, the Internet will grow for decades to come, they’re not making any more land, capital flows favor higher asset prices, we owe it to ourselves (paging Paul Krugman–the Keynesian Cargo Cult is about to dance the humba-humba around the campfire and you’re needed…), debt doesn’t matter (it never matters until it does), price-earning ratios have plenty of room to move higher, and everyone’s favorite, don’t fight the all-powerful Fed (and we command you not to look behind the curtain while we worship false gods and wave dead chickens).
But nonetheless, blowoff tops in asset bubbles remain a feature of asset overvaluation, which by the way has once again reached historic extremes (GDP to equity valuation, etc.)