Back in the summer of 2011, a short animated film was built using a website called XtraNormal. The site allows anyone to create a film and chose animated characters and voices. This one particular film sought to educate (with the creator’s strong opinions included) the audience on the Federal Reserve’s Quantitative Easing (QE) program, which then was in its middle stages. And boy, did it find an audience, with over 5 million people viewing it!
With QE ending recently in the U.S. but accelerating elsewhere in the world, we thought it was the right time to revisit this now-iconic piece of modern economic commentary. And while some of the things noted in the film have changed (gas prices now falling instead of rising, Janet Yellen replacing Bernanke as Fed-head, and the U.S. QE ended), much of what was discussed has stayed the same (QE has not yet staved off deflation, Yellen thinks like Bernanke, stock and bond prices still rising). And of course, the Fed is now holding enough U.S. Treasury Bonds on its balance sheet to build a city full of skyscrapers.
As we have said before, we don’t know when the negative impact of QE will be felt, and we position our portfolios based on a combination of factors. But when it hits the fan, we expect an “Xtra Normal” sized problem for investors who choose to carry on as if this market condition is not relevant.
© Sungarden Investment Research