Life After QE2 - August 4 2011

So this is what the S&P500 looks like in the month immediately subsequent to the end of QE2 (the second round of quantitative easing by the US Monetary Authorities), which was scheduled to complete on June 30 2011:



At the time of writing, the S&P500 has dropped from ~ 1338 on the close of July 1st 2011, to ~ 1221 on August 4th (1502 EDT), a swoon of just over 9% in a month.

Which definitely supports the idea that there is no real recovery, and that equity price increases (and inflation) are purely a monetary phenomenon, an idea that is again supported by the lack of associated improvement in employment.

The good news (especially if your are of the view that the Fed requires further commodity price decreases/deflation in order to justify further inflationary money printing) is that crude oil is also down, from ~ $100 per barrel to ~ $87 per barrel, a well overdue 13% down.



And, if anyone needs a further indicator of the seriousness of the situation, the Bank of New York Mellon has stated today that it is going to charge a negative interest rate on any large deposit where the account balance is 10% or greater than its June average balance.

Reuters:

If customers' balances are more than 10 percent above their averages in June, BNY Mellon said it will pass along some of its costs by charging the fee.
...
The charge amounts to an annual rate of 0.13 percentage point, with adjustments if one-month T-bill rates fall below zero. It will affect accounts whose average deposit is greater than $50 million.

The bank offered the following rationale:

The bank said this week it is unable to invest the "sudden significant" deposit increases because of their "transient nature," but it is concerned the deposits will weaken its capital ratios and raise its deposit insurance premiums.

Smells like something is fishy in Denmark. However, a 0.13% annual loss may be a much softer blow than the 4.1% per day loss the S&P500 is experiencing as of 1533 EDT: