Must-Read: Barry Ritholtz: The QE Era

Must-Read: Here we have a fairly powerful visual argument that:

1. American financial markets did not expect QE to do much.
2. Nevertheless, QE had substantial effects: whenever the Federal Reserve went on a long-bond buying spree, those who had sold the bonds took a nontrivial share of their cash and piled into stocks.
3. That is the way it is supposed to work for QE to be effective.

But did the piling into stocks and the resulting rise in stock prices induce anyone to go short equities and purchase currently-produced goods and services on any significant scale? The theory of Tobin’s Q says that it must have. But is the theory of Tobin’s Q true?