# This is why I haven't invested heavily on the US market - yet.



## dubmac (Jan 9, 2011)

http://canadianmoneyforum.com/attachment.php?attachmentid=347&d=1385943255&thumb=1&stc=1
Nice graph shows just how heavily correlated QE is with US market increases.


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## GoldStone (Mar 6, 2011)

This chart is garbage.

Left hand axis: 180 / 60 = 3

Right hand axis: 4 / 1.5 = 2.66

Plot two data series. Stretch left and right axises to the different scales to align the graphs. Voila!! You can prove any point you want.


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## GoldStone (Mar 6, 2011)

Here's a chart that uses the same technique. This is a joke, obviously.


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## uptoolate (Oct 9, 2011)

Lies, damn lies and statistics!


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## Rusty O'Toole (Feb 1, 2012)

So what? That is GOOD NEWS to me. If I had known in 2009 that the Fed was going to be doing QE for 5 years I would have bought the S&P and gone on vacation.

In fact I think I will do that tomorrow. But watch like a hawk and bail when it starts down. Do not wait till they announce the end of QE let alone when they actually stop. The big boys will be getting out before the news is released and that is when I want out too.


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## jcgd (Oct 30, 2011)

Do you guys think the index will drop 55% when they cut QE?


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## dubmac (Jan 9, 2011)

You can take issue with the graph - but do you agree that there is a direct correlation between the two variables plotted in the chart? 
Is there a probable cause and effect relationship between QE and the increase in the S&P 500?


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## GoldStone (Mar 6, 2011)

dubmac said:


> Is there a probable cause and effect relationship between QE and the increase in the S&P 500?


Yes there is. So what? Market gains have been spectacular. Is QE responsible for 100% of the gains? Or, maybe, just 70%? How about 50%? Why should I care?

Barry Ritholtz:
How Much is QE Driving Equity Markets? (Hint: Not 100%)


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## My Own Advisor (Sep 24, 2012)

I'm sure there is but how much, I don't know. The bigger question is, do I have any control over that or my investment returns? Nope.


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## alingva (Aug 17, 2013)

*Is your financial advisor a salesperson or s/he shares fiduciary responsibility?*

I found an interesting topic in another forum that asks 2 questions:
Is your financial advisor a salesperson or s/he shares fiduciary responsibility? Should you invest or should you cash out some of your gains now?

source http://www.moneyinside.ca/forum/viewtopic.php?f=23&t=216



> I want to adress buy and hold strategy. Many people say that you have to buy and hold forever because Warren Buffett said once that his favorite holding period for a stock is "forever". It is not true, he said this but he never really meant it. For example he recently purchased Exxon but it was not his 1st time he purchased it! He sold silver long before it reached its peak couple of years ago.
> Many advisors lie saying that you cannot predict when stocks/bonds would go down and that's why you should stay invested 100% of your money 100% of the time. It is not true, in many cases you can predict when you should reduce your exposure to stocks (for example). Just because your advisor tell you to be invested it does not mean you have to. Many advisors are SALES PEOPLE and their job is to make money from you. If you sell and stay in cash they do not make much.
> So when should you invest 100% of your money? When valuations are low. You make money when you buy and not when you sell. If you buy when market reaches extreme level in pessimism - you will make money eventually. If you invest when everybody wants to invest - you will probaly lose money.
> So what situation do we have now?
> If you go to your financial advisor he or she will probably point out how much (stock) market moved up. Ask him or her if you should cash out your investments and put at least 30% of your money in cash. If the answer is no - you know that your advisor is a salesperson. S/he forgot the first rule of investing - buy LOW and sell HIGH.


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## Guban (Jul 5, 2011)

alingva said:


> I found an interesting topic in another forum that asks 2 questions:
> Is your financial advisor a salesperson or s/he shares fiduciary responsibility? Should you invest or should you cash out some of your gains now?
> 
> source http://www.moneyinside.ca/forum/viewtopic.php?f=23&t=216


Huh!?!? What does this have to do with the thread? I'm confused.


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## alingva (Aug 17, 2013)

some people do not want to invest in US stock market because of QE. Ask your advisor if he or she thinks you have to invest NOW. I was thinking it has direct correlation


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## Rusty O'Toole (Feb 1, 2012)

There is no question that QE is boosting the stock market artificially. Experts have known this since the beginning, that is what it is for. At least, it is one of its functions or side effects.

Way back in 2009 "somebody" was buying big wads of S&P calls in the after hours markets. Knowing whoever sold them, would hedge their position by buying stocks on the open. The morning rally usually followed through for an up day. This went on for months. The Plunge Protection Team was probably responsible. Yes there is a US government team dedicated to stopping the stock market from going down.

Then came QE, round 1 2 and 3, along with Operation Twist. Now QE has become a permanent part of the Fed's operations.

If I had known they would keep it up this long I would have jumped on the gravy train earlier.


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## BlackThursday (Apr 25, 2011)

Rusty O'Toole said:


> ..The Plunge Protection Team was probably responsible. Yes there is a US government team dedicated to stopping the stock market from going down.


cite?


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## Sampson (Apr 3, 2009)

dubmac said:


> You can take issue with the graph - but do you agree that there is a direct correlation between the two variables plotted in the chart?


No.

1) S&P 500 value triples during the whole time period.
2) S&P 500 value doubles during between 2009- and third quarter of 2010.
3) Fed Balance sheet is effectively flat during the 2009-2010 period.

Therefore 66% of the increase cannot be attributed to the Fed purchases of assets.

Any multivariate statistical method would show low correlation among Fed balance sheet, and the S&P 500 returns. - So No, I think the graph is hogwash.

Has the recent run up been extended due to the QE and other stimulus? Absolutely. But I think valuation metrics and CAPE show this more effectively, precisely, and really suggest we won't have a tumble back to 2009.


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## none (Jan 15, 2013)

^ This is equally no.

Yes there is a very strong correlation between the two time series as presented. Does that infer that one is at all related to the other and/or one predict one from the other? Not at all.

you could do a similar plot with the canadian housing market and the S&P500 and it would also be a strong correlation. Therefore are we to believe that if the Canadian RE market crashes so will the S&P?? No, that's silly.


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## ShowMeTheMoney (Apr 12, 2009)

Don’t fight the Fed
http://business.financialpost.com/2013/11/29/5-reasons-not-to-fight-the-fed/


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## Sampson (Apr 3, 2009)

none said:


> Yes there is a very strong correlation between the two time series as presented.


Show us the math?

Stimulus has been injected at very well documented rates. Its those events that must be attributed. My argument is strip away confounding factors and the correlation is gone.

But that's kinda what you are saying. I suppose I need to preface the distinction between the correlation and the OPs implied correlation-causation link.


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## Rusty O'Toole (Feb 1, 2012)

"How do you exit the market when you are the market?"

The Federal Reserve now owns 1/3 of the US government bond market (33.18% to be precise) up from 13% in March 2009.

Forget the Fed buying for a minute. Who's selling and why?

They're selling because the Fed is clearly paying above (otherwise) market rates. That makes sense. So, the sellers aren't putting their money back into Treasuries. It's going into other asset classes. So, the Fed's action is really pumping the stock market. 

In the meantime the national debt has gone from $8 trillion to $17 trillion but the interest cost is about the same or a little lower because interest rates are so low. Interest rates are low because the fed is paying high prices for bonds.

If they ever stop QE, and interest rates rise to a historically moderate 5% or 6% interest expense will double or triple. But the government can't pay it. They can't pay anything, they are running large deficits as it is.

This is why they can't stop QE. It looked like they were going to slow down a little but they chickened out when even the threat of slowing down sent rates up.


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## Rusty O'Toole (Feb 1, 2012)

BlackThursday said:


> cite?



Working Group on Financial Markets aka Plunge Protection Team

According to Wikipedia

http://en.wikipedia.org/wiki/Working_Group_on_Financial_Markets

According to the Washington Post

http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm

According to Rense

http://rense.com/general52/secretsoftheplunge.htm

Suspicious activities in the derivatives market were remarked on in the financial news at the time.


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## dubmac (Jan 9, 2011)

Rusty O'Toole;209183
This is why they can't stop QE. It looked like they were going to slow down a little but they chickened out when even the threat of slowing down sent rates up.[/QUOTE said:


> I find it hard to believe that the Fed can continue QE indefinately. I do not have a finance background - but, where would they get the money to continue funding QE indefinately?
> 
> My understanding is that QE will...ultimately....wind down. Maybe I'm wrong on this - if so, I'd like to see a source that confirms it.
> The chart (that I rec'd from a financial advisor I should add) shows that from early 2011 to late 2012, QE was steady (ie: not increasing), and markets experienced some volatility (up & down).
> ...


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## none (Jan 15, 2013)

Sampson said:


> Show us the math?
> 
> Stimulus has been injected at very well documented rates. Its those events that must be attributed. My argument is strip away confounding factors and the correlation is gone.
> 
> But that's kinda what you are saying. I suppose I need to preface the distinction between the correlation and the OPs implied correlation-causation link.


Well you just need to look at them to see that they are highly correlated. If you actually want to test it install R and use cor.test(x, y) where x and y are the vectors of each time series.

Tons of things are correlated at least to some extent. That's just how data are. 

For example, I just compared two randomly generated series of 100 normally distributed values of mean 0 and sd of 1 and they showed a 27% correlation. I did it a second time they were 0.02%. Randomness can be annoying. Correlations can imply causation but is by no means even close to a smoking gun.


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## MoreMiles (Apr 20, 2011)

dubmac said:


> I find it hard to believe that the Fed can continue QE indefinately. I do not have a finance background - but, where would they get the money to continue funding QE indefinately?
> 
> My understanding is that QE will...ultimately....wind down. Maybe I'm wrong on this - if so, I'd like to see a source that confirms it.
> The chart (that I rec'd from a financial advisor I should add) shows that from early 2011 to late 2012, QE was steady (ie: not increasing), and markets experienced some volatility (up & down).
> ...


You may want to read this recent article. It specifically answered your questions. 

http://www.financialpost.com/m/wp/n...asons-not-to-fight-the-fed&pubdate=2013-12-02


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## Sampson (Apr 3, 2009)

none said:


> Well you just need to look at them to see that they are highly correlated. If you actually want to test it install R and use cor.test(x, y) where x and y are the vectors of each time series..


I suppose we really discuss two things. You write that my post is wrong, but your discussion focuses only on lack of kink between correlation and causation, but here we argue the same point no?

perhaps I lack the education, but correlations are meant to have extrapolative power. I still challenge to find a correlation between Fed stimulus spendinig and market returns during the period between 2009 and 2010. If any linkage or implied causative effect of stimulus and market returns existed, the. the correlation should hold across any sampled time period. If you now cherry pick a time point and show a mathematical correlation and suggest causation, then that hypothesis should hold into the future also.

Aside from the No, that i proclaim, and you are right, there is a correlation, any other problem with the other words that I wrote? I'm curious, because I still believe in everything else I wrote and that the periods where the correlation does not exist suggest that it may not be a reliable going forward?

Any problem with my suggestion that valuation metrics would be a more precise way to determine the amount of risk and potential downside in the market also? Curious to hear your thoughts about that.


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## none (Jan 15, 2013)

I think this will clarify your thinking on this matter:

http://en.wikipedia.org/wiki/Correlation_and_dependence#Common_misconceptions


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## Rusty O'Toole (Feb 1, 2012)

I find it hard to believe that the Fed can continue QE indefinately. I do not have a finance background - but, where would they get the money to continue funding QE indefinately? 

(They used to print the stuff but obviously, they can't print $86,000,000,000 a month or $1,032,000,000,000 a year without running out of paper and ink. So they do it electronically using 1s and 0s stored in a computer)

My understanding is that QE will...ultimately....wind down. Maybe I'm wrong on this - if so, I'd like to see a source that confirms it.

(If they stop QE interest rates shoot up, the government, banks, and big business run out of money and go bankrupt and we have a worse depression than they had in the thirties.

If they don't stop we get hyperinflation like they had in Germany in the 1920s which led to the rise of Hitler and World War Two.

Let us hope they choose wisely)

The chart (that I rec'd from a financial advisor I should add) shows that from early 2011 to late 2012, QE was steady (ie: not increasing), and markets experienced some volatility (up & down). 
At the start of 2013, QE increases - the S&P increases as well. Some agrue that there is no correlation, - and that the fundamentals in the US are improving...I accept that and from some of the material I've read - things in the economy are improving, but are they increasing at the same rate as S&P? But are there many here that believe if QE stops, that the S&P would drop - perhaps not in proportion to the amount contributed by QE - but drop nonetheless. 

(Not just here but at the Federal Reserve and central banks around the world)

I've a few headlines in the globe about some soothe-sayers stating the US Equity markets are in bubble territory- and that QE is the *cause* for the bubble. When I saw the chart, it seemed to support that idea that the US was reaching bubble status.


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## MoreMiles (Apr 20, 2011)

Rusty O'Toole said:


> I find it hard to believe that the Fed can continue QE indefinately. I do not have a finance background - but, where would they get the money to continue funding QE indefinately?
> 
> (They used to print the stuff but obviously, they can't print $86,000,000,000 a month or $1,032,000,000,000 a year without running out of paper and ink. So they do it electronically using 1s and 0s stored in a computer)
> 
> ...


Yes. It does have an indefinitely amount of money. Have you read the article I referenced earlier? It's quite nicely explained, with a poker analogy.
http://www.financialpost.com/m/wp/n...asons-not-to-fight-the-fed&pubdate=2013-12-02


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## donald (Apr 18, 2011)

Where do you go?(asset class)You lose money in bonds/cash.
I read this is the least participated rally almost in history(nobody else)----everything I read keeps stating over and over again how seemingly ''everyone'' is underinvested.
QE aside......I have never witnessed what a bubble feels like but I'm sure many have in this forum,does this really feel like a bubble!?
Maybe I am naïve and under-educated(very true) but,how the hell is this a bubble?
In a real bubble is a bubble talked about everyday,-simplistic mass physc......
Imo peoples minds are still scared by the meltdown,this almost seems healthy people all day everyday talk about bubble this,bubble that-the wolf is ready to tear you limb by limb....the irony is it is the people on the sidelines that have watched,the train is moving and nobody is on it.
I don't understand much but if this is a bubble,what a let down(am I going to tell my grand kids about the bubble of 2013/14)and how insane it was-this is what a bubble feels like.2007 was the freaking bubble.how many god dam bubbles happen.lol


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## Rusty O'Toole (Feb 1, 2012)

There was the Long Term Capital Management collapse in 1998 which led to the stimulus of 1999, which led to the tech bubble of 2000, which led to the stimulus of 2003, which led to the real estate bubble of 2007, which led to QEternity which led to the wonderful bull market in stocks we have had since 2009 which is not a bubble and which will never end (sarcasm alert).


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## emperor (Jul 24, 2011)

I don't invest in the market because it's fake. It's the same reason I don't want to invest in houses but will eventually cave. Raise interest rates back to normal, get rid of the manipulation such as CMHC and QE and don't provide a safety net. Then we can see what prices really are. There is risk takers out there and people that play it safe. The risk takers are usually the people that have won before and the people that play it safe are usually the people that nothing ever goes right for them. For me to go heavy into markets there would have to be a lot less speculation and manipulation. Stock prices would need to go back to being based on how well a company is doing.


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## jcgd (Oct 30, 2011)

emperor said:


> Stock prices would need to go back to being based on how well a company is doing.


Which was true when?


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## MoreMiles (Apr 20, 2011)

emperor said:


> I don't invest in the market because it's fake. It's the same reason I don't want to invest in houses but will eventually cave. Raise interest rates back to normal, get rid of the manipulation such as CMHC and QE and don't provide a safety net. Then we can see what prices really are. There is risk takers out there and people that play it safe. The risk takers are usually the people that have won before and the people that play it safe are usually the people that nothing ever goes right for them. For me to go heavy into markets there would have to be a lot less speculation and manipulation. Stock prices would need to go back to being based on how well a company is doing.


What is interest rate? Think about it... why should a bank pay you to keep your money? So to pay you that "interest rate", they need to invest in capital markets or real estate markets. You are still part of "the system" even if you hold GIC. The only way to avoid a financial system, is to store food and grow livestock in your home.

Those people in 1980's will tell you that 15% interest rate is not a desirable situation no business will be spending at that time. Your boss will cut your salary... if you are self employed, your clients will ask you lower prices. It is still "not normal" as you say.


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