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Hoisington Investment Management Q3 Outlook and Review

Van Hoisington and Lacy Hunt outline the effects of QE3 and the likely direction of the economy in the months and years ahead. I consider this one of the best analyses I have thus far encountered with regard to the negative side effects of quantitative easing on the economy and consumers at large. It turns out the side effects are much worse than the symptoms targeted by the Fed, creating a massive bifurcation between the small portion of the population that benefit from quantitative easing and the much larger portion that suffer as a result. The latter suffering creates a much greater economic drag than the "wealth effect" on a small minority, which in turn simply reinforces the negative economic spiral. Thus far, this negative cycle has only spurred the Fed to increase the dosage of the medicine that is creating much of the problem in the first place. One can quickly surmise where this is headed.

Two of the most fascinating charts that are provided to back Hoisington and Hunt's assertions are included below:

The first chart shows the effects of QE and no QE on the stock market, gasoline, and food prices. The point of the chart and the particular section of the article was that the "wealth effect" of a rising stock market does little to offset the incredibly negative impact of the rising cost of living on GDP growth. 

Quantitative Easing Chart

This second chart illustrates the same point, but from another angle, showing that real earnings actually decreased materially and with a nearly perfect correlation to the last two rounds of quantitative easing.

Average Hourly Earnings

Hoisington and Hunt conclude that we are headed into a global recession and that there really is not much the Fed can do about it, other than speed our decent with the negative effects of additional quantitative easing.

[To read the full article, please click here: Hoisington Investment Management Q3 Outlook and Review]

Written By: Joshua Ungerecht
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QE3, Quantitative Easing, Recommended Reading