Posts Tagged ‘QE’

Bernanke Gets His Pink Slip

Bernanke Gets His Pink Slip

Courtesy of MIKE WHITNEY, originally published at CounterPunch

Question: What is the difference between a full-blown Depression and an excruciatingly "slow recovery"?

Answer--Inventories and a bit of fiscal stimulus.

Message slip

On Friday, The Bureau of Economic Analysis (BEA) reported that 3rd Quarter GDP rose by 2% meeting most analysts expectations. The real story, however, is hidden in the data. Inventories added 1.44 percentage points to the 3Q real GDP, which means that--absent the boost to existing stockpiles-- GDP would be well-below 1%. If it wasn’t for Obama’s fiscal stimulus (ARRA), the economy would be sliding back into recession.

Improvements in consumer spending were too meager to indicate a "rebound", and residential investment dropped off sharply following the expiration of the firsttime homebuyer credit. The economy is in a coma and desperately needs more government support. But if Tuesday’s midterm elections turn out according to predictions--and the GOP retakes the House of Representatives--there won’t be any more stimulus. Instead, the economy will sputter along at a snail’s pace until festering bank woes (this time, the foreclosure crisis) trigger another contraction.

There’s no doubt now, that the Fed’s efforts to engineer a sustained recovery have failed. The fact that Fed chairman Ben Bernanke is planning to resume his dubious Quantitative Easing (QE) program is an admission of failure. That said, I expect the Fed to “go large” on November 3, and purchase another $1.2 trillion of long-term Treasuries adding roughly $100 billion per month to the money supply. That should placate Wall Street and keep stock markets sufficiently “bubbly” for the foreseeable future. After 12 months of QE, unemployment will still be stuck at 10%, the output gap will have narrowed only slightly, and confidence in the Fed will have plunged to historic lows. Monetarism alone cannot fix the economy.

The fiscal remedies for recession are well known and have effectively implemented with great success for over a half century. QE is a pointless detour into uncharted waters. It is like treating a hangover with brain surgery when the bottle of aspirin sets idle on the bedstand. Why bother?

Bernanke is convinced that pouring money into the system will produce the results he wants. This is how the Fed chair pays homage to the great monetarist icon, Milton Friedman. Friedman had unwavering faith in the power of money. Here’s what he…
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How You’re Going to Get Cornholed Thanks To Obama

How You’re Going to Get Cornholed Thanks To Obama

Courtesy of Karl Denninger of The Market Ticker

The economy, that is.

This is a must-read from Chris Whalen.  He’s spot-on, and I will reprint only the conclusions – read through for the why, what and how.

  • The U.S. banking industry entering a new period of crisis where operating costs are rising dramatically due to foreclosures and loan repurchase expenses. We are less than ¼ of the way through foreclosures. The issue is recognizing existing losses ??not if a loss occurred.

  • Failure by the Bush/Obama to restructure the largest banks during 2008?2009 period only means that this process is going to occur over next three to five years – whether we like it or not. Lower growth, employment are the cost of this lack of courage and vision.

  • The largest U.S. banks remain insolvent and must continue to shrink until they are either restructured or the subsidies flowing from the Fed, Fannie Mae/Freddie Mac cover hidden losses. The latter course condemns Americans to years of economic malaise and further job losses.

Yep.

The bottom line folks is that the fraud – massive and outrageous concealment of losses, intentionally making bad loans in the mid-2000s (now admitted to under oath by Citibank’s chief underwriter, among others) and the selling of that paper everywhere and anywhere that the banks could manage, along with holding much of it themselves, condemns us.

The opportunity to take these banks into receivership in 2007 existed.  It existed in 2008 too.  I counseled on doing exactly this during those years. 

Instead, both Bush and Obama decided to protect those who had committed these offenses.  First by attempting to bail them out, and then when it became obvious that $700 billion of taxpayer money was literally trying to **** on a forest fire to put it out they decided instead to paper it over by extorting FASB so the losses could be swept under the carpet instead of recognized.

The problem is that unlike long-run spending problems like Social Security and Medicare, which will detonate in ten year or more, this is a current account cash-flow problem and the deterioration continues month-by-month as the payments are not made.  It’s like a barrel of dead fish.  The next morning it starts to stink.  Every day it stinks worse.  Putting a…
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QE2 Won’t Save Our Sinking Ship

Randall’s portrayal of Ben Bernanke’s thinking reminds me of a professor I knew who was trying to prove his own version of the Krebs Cycle.  He designed experiments that would theoretically prove he was correct, but – strangely – the students in his lab kept failing to achieve the proper results.  Rather than changing his theory, he realized that something must have gone wrong in the experiment, and he would have the students do it over, and over, until the right results were obtained.  A lot of rats were killed in the process, but no matter--no one really cared about the rats. – Ilene 

QE2 Won’t Save Our Sinking Ship

economy, ship By L. Randall Wray, courtesy of New Deal 2.0

The Fed is between a rock and a hard economic outlook.

Fed Chairman Bernanke is signaling that a second round of quantitative easing will soon begin. In the first round, the Fed’s balance sheet nearly tripled to nearly $2.3 trillion as it bought $1.7 trillion in Treasury securities and mortgage-related securities. Since the Fed appears to want to unwind its position in mortgages, QE2 will probably target federal government debt.

During Japan’s long stagnation, Bernanke was famous for arguing that the Bank of Japan could have done far more to fight deflation. Since the BOJ’s overnight interest rate target was effectively at zero, the conventional policy of lowering its interest rate target was not an option. Hence, Bernanke advocated quantitative, rather than price, activity — the BOJ would purchase assets from banks, driving up their excess reserves, until they would finally make loans to stimulate spending that would reverse the trend of prices.

So when he had the opportunity, he put theory into practice in the US, driving short-term interest rates effectively to zero and filling bank balance sheets with excess reserves by purchasing their assets. So far, the impact has not been significantly different than Japan’s experience. Indeed, Bernanke has been publicly warning of the dangers of a Japanese-style deflation, as US inflation has dropped nearly to zero, well below the Fed’s informal target of two percent.

And so we are now set for round two of QE — more of the same old, same old.

In truth, the Fed has done only two helpful things. First, during the liquidity crisis of 2007 and 2008, it lent reserves to financial institutions that faced a liquidity crisis.…
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WHY MORE QE IS DESTINED TO FAIL

WHY MORE QE IS DESTINED TO FAIL

Courtesy of The Pragmatic Capitalist 

This might be the most succinct and accurate description of why the Fed’s next great “fix” is destined to fail. While I’ve been arguing these same factors for months now it appears that more credible sources are finally starting to agree. These comments come courtesy of Bank of America’s Chief Economist Mickey Levy:

Source: CNBC


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Drunken Horses and Drunken Horses’ Asses in Academic Wonderland

Drunken Horses and Drunken Horses’ Asses in Academic Wonderland

Courtesy of Mish

The stock market and commodities are rallying once again over the upcoming QE announcement. Every bit of news, no matter how trivial, supportive of what everyone already knows (that QE is coming), gets market participants get more excited every time.

Will the actual announcement of what we all know result in the biggest sell-the-news event since the Fed’s interest rate cut in January of 2001?

While pondering that, please consider Fed Minutes Lend Weight to Stimulus

The minutes of the Sept. 21 meeting of the Federal Open Market Committee indicated that several officials “consider it appropriate to take action soon,” given persistently high unemployment and uncomfortably low inflation.

Now, with unemployment near 10 percent and with inflation well below the Fed’s unofficial goal of nearly 2 percent, the Fed is considering renewed intervention: creating money to buy long-term Treasury debt. That would put additional downward pressure on long-term rates, making credit even cheaper.

Former Fed officials interviewed on Tuesday appeared to be just as divided as the current ones.

“If you lead the horse to water and it won’t drink, just keep adding water and maybe even spike it,” said Robert D. McTeer, who was president of the Federal Reserve Bank of Dallas from 1991 to 2005 and is a well-known inflation “dove,” particularly attuned to the harm of joblessness. “You definitely don’t want to take the water away.”

H. Robert Heller, a Fed governor from 1986 to 1989, had the opposite view, urging the Fed to show restraint.

“I would do nothing,” he said, expressing concern that the Fed might appear to be “monetizing the debt,” or printing money to make it easier for the government to borrow and spend.

“If they start to monetize the federal debt, they will dig themselves a much deeper hole later on,” he said. “That’s what we learned from the 1970s, when the Fed undertook a very expansionary monetary policy. It took a double recession in the early 1980s to wring inflation out of the economy. We don’t want to repeat that.”

William C. Dudley, president of the Federal Reserve Bank of New York, recently raised the possibility that inflation could be allowed to run above the implicit target for some time in the future, to make up for inflation today being lower than desired. That could


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STEPHEN ROACH: QE WON’T WORK

STEPHEN ROACH: QE WON’T WORK

Courtesy of The Pragmatic Capitalist 

At least one analyst out there actually understands how QE works.  Stephen Roach of Morgan Stanley says that QE is one big waste of time.  He understands that global imbalances can’t be resolved with kick the can policies.

Source: CNBC 


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Inflation Expectation Noise

Inflation Expectation Noise

Courtesy of Mish 

Scott Grannis on Seeking Alpha has written a pair of interesting articles regarding inflation expectations and Quantitative Easing. Grannis thinks that Quantitative Easing is working. I don’t, but that debate depends on the definition of "work".

In regards to inflation expectations as measured from TIPS, Grannis says Bond Market Bracing for Return of Inflation

Lots of important action in the bond market these days. 10-yr Treasury yields have plunged to a mere 2.36%. Recall that they hit a generational low of 2.05% at the end of 2008, when the entire world was terrified of impending economic death and destruction. Are yields today telling us that doom is just around the corner? Absolutely not. This time around things are very, very different.

The interesting part of the bond market action is in the TIPS market, where yields have plunged by much more than Treasury yields, and in the long end of the Treasury curve, where the spread between 10 and 30-yr Treasuries has widened to its steepest level ever. Since the end of August, when QE2 expectations started to heat up, 10-yr Treasury yields have declined by 10 bps, whereas 10-yr TIPS real yields have dropped by 50 bps. That’s a 40 bps increase in annual inflation expectations over the next 10 years. Using the more sensitive measure of inflation expectations—the 5-yr, 5-yr forward breakeven rate—inflation expectations have jumped almost 50 bps since the end of August. The spread between 10- and 30-yr Treasuries has shot up to a record-breaking high of 127 bps, up from 105 bps at the end of August.

Note in the chart above how the drop in Treasury yields in late 2008 reflected deflationary fears (with inflation expected to average zero over the subsequent 10 years), whereas the current drop reflects inflationary fears.

So the market is saying that it has little doubt that the Fed will ramp up its quantitative easing efforts, and almost no doubt that this will prove inflationary in the years to come. The plunging dollar and the soaring price of gold fully support this interpretation.

This is the best evidence you can find that deflation risk has evaporated. The question now is not how low inflation will be, it’s how high it will be in the years to come.

If the prospects for the economy are improving and inflation expectations are


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DAVID ROSENBERG ATTACKS THE FED’S INTENTIONAL PONZI APPROACH

DAVID ROSENBERG ATTACKS THE FED’S INTENTIONAL PONZI APPROACH

Courtesy of The Pragmatic Capitalist 

This weekend’s shocking admittal that the Fed is hoping QE will keep asset prices “higher than they otherwise would be” did not surprise David Rosenberg one bit.  In this morning’s note he said:

Brian Sack, a senior official at the New York Fed, had this to say about the powers of quantitative easing in a speech he just delivered:

“Some observers have argued that balance sheet changes, even if they influence longer-term interest rates, will not affect the economy because the transmission mechanism is broken. This point is overstated in my view. It is true that certain aspects of the transmission mechanism are clogged because of the credit constraints facing some households and businesses, and it is true that monetary policy cannot directly target those parties that are the most constrained. Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be. It seems highly unlikely that the economy is completely insensitive to borrowing costs and wealth, or to other changes in broad financial conditions.  ”

I just love that one comment to the effect that QE “adds to household wealth by keeping asset prices higher than they otherwise would be.”  When will these guys ever learn that maybe, just maybe, these Fed policies aimed at targeting asset prices at levels above their intrinsic values is probably not in the best interests of the nation? As our friend Marc Faber likes to say, the “Bernanke put” is cut from the same cloth as the fabled “Greenspan put” — only the strike price is different.

Imagine running a policy aimed at getting people to spend money based on an artificial level of asset values — what an admission.  Then again, this is what the Fed has been all about since the LTCM bailout of 1998.  We’re still not convinced after reading this sermon that this next “pull-another-rabbit-out-of-the-hat” experiment is going to end with very much success.  There is something to be said about paying for our mistakes and to have the Fed try to rekindle an asset-based economy that has only ended up in generating a series of burst bubbles over the last 12 years, not to mention encourage a lifestyle of living beyond our means,


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How Did Ambrose Evans-Pritchard Go From Mapping Out More QE To Saying Kill the Fed?

How Did Ambrose Evans-Pritchard Go From Mapping Out More QE To Saying Kill the Fed?

Courtesy of Jr. Deputy Accountant 

We made it really obvious…
how can you NOT tell what this guy is up to?

On September 6th, A E-P made Bernanke’s way to more easy money extremely clear (after bashing America’s awful economic performance lately, as if he’d actually bought into the idea that we recovered from the last round and was genuinely disappointed by us) and gave him a treasure map to blowing up the bond market and pumping fresh "not money" into the system.

Check out Dangerous Defeatism is taking hold among America’s economic elites:

Get a grip, the lot of you. While there is no easy way out for the US after stealing so much prosperity from the future through debt, there is no excuse for this dead-end defeatism. Clearly, the ‘canonical New Keynesian’ model that holds such sway on America’s elites is intellectually exhausted.

The Fed has an arsenal of neutron bombs if it wants to use them, and uses them correctly. It can engage in "monetary policy a l’outrance" as Maynard Keynes propsed in his Treatise on Money in 1930, before he lost his way with the General Theory.

Blitz the market with bond purchases, but do so outside the banking system by buying from insurers, pension funds, and the public. This would gain traction on the broad M3 money instead of letting it collapse (yes, the "monetary base" has exploded, but that is a red herring), working through the classic Fisher/Friedman mechanisms of the quantity of money theory.

This is quite different from the Fed’s QE which buys bonds from the banks and works by trying to drive down borrowing costs. While Bernanke’s ‘creditism’ is certainly better than nothing, it is not gaining full traction.

By the 27th, he was calling to pull the plug on the Fed and begging for forgiveness, having seen the error of his easy money-pushing ways. 

That’s a pretty incredible turnaround in a matter of weeks for a guy who has pretty much been squealing for more easy money this entire time. When the European Central Bank finally dropped the monetary WMDs I’m sure he had to clean his screen after he wrote the fansite review of the ECB’s QE measures. Please. 


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THE ONLY NEWS THAT MATTERED TODAY

THE ONLY NEWS THAT MATTERED TODAY

Courtesy of The Pragmatic Capitalist 

Dead end sign with bullet holes

Bernanke is out of bullets.  Anyone who can’t see that by now is not familiar with the Japanese history of QE or the most recent impacts of QE (Ben clearly didn’t save the economy with QE1 or we wouldn’t even be having this discussion).  He says he will cut interest on reserves or alter the language in his speeches – total non-events in my opinion. They might get the market all excited for a few hours, but soon people will realize that none of these actions will actually fix the recession on Main Street.

Aside from all the jawboning out of the Fed, there was some actual market moving news today. Intel cut its Q3 earnings. According to the AP:

“Intel said it now expects revenue of $10.8 billion to $11.2 billion for the fiscal third quarter, which ends in September. That compares with a previous forecast of $11.2 billion to $12 billion.

On average, analysts surveyed by Thomson Reuters expected $11.5 billion.”

This is big news in my opinion.  Not only are semiconductors economically sensitive, but Intel has been crushing estimates quarter after quarter for almost two years.  As we mentioned the other day, we could be at a crucial turning point where the economy is slowing substantially and analysts estimates appear high.  If Intel is any early indication it would seem to verify this thinking which means we are likely to see more warnings and a lot of analyst cuts in the coming months.  Earnings are the linchpin holding this market together. A decline in earnings will certainly put pressure on the markets.


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Phil's Favorites

Coronavirus case counts are going to go up - but that doesn't mean social distancing is a bust

 

Coronavirus case counts are going to go up – but that doesn't mean social distancing is a bust

Empty parking lots show social distancing’s costs. It could take time to see its benefits. Pete Starman/The Image Bank via Getty Images

Abram Wagner, University of Michigan

The last few weeks have brought previously unimaginable changes to the lives of people throughout the United States. Americans everywhere are waking up to a new reality in which they can’t go to work or school outside the home and they have to stay six feet away...



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Biotech/COVID-19

Coronavirus case counts are going to go up - but that doesn't mean social distancing is a bust

 

Coronavirus case counts are going to go up – but that doesn't mean social distancing is a bust

Empty parking lots show social distancing’s costs. It could take time to see its benefits. Pete Starman/The Image Bank via Getty Images

Abram Wagner, University of Michigan

The last few weeks have brought previously unimaginable changes to the lives of people throughout the United States. Americans everywhere are waking up to a new reality in which they can’t go to work or school outside the home and they have to stay six feet away...



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Zero Hedge

Google Publishing Location Data To Monitor Social Distancing

Courtesy of ZeroHedge View original post here.

Google has launched a website which uses anonymized location data to show where people are taking social distancing more seriously than others.

Collected from their various products and services, the COVID-19 Community Mobility Reports site will show changes in behavior - such as shopping and recreation, from a top-down look at entire countries - to individual states.

...

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ValueWalk

Junior gold stocks offer a place of refuge in a falling market

By Michelle Jones. Originally published at ValueWalk.

Junior gold stocks have taken a beating alongside other stocks, but history suggests this could be the time to dive in. The Vaneck Vectors Junior Gold Miners ETF is down from where it was in February, although it’s starting to show signs that it could revive soon.

Q4 2019 hedge fund letters, conferences and more

Crescat likes junior gold stocks

In their March update to investors, Crescat Capital said junior gold stocks retested the lows of a nine-year bear market. ...



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Kimble Charting Solutions

Depression Coming or Is the Bottom Already In? Joe Friday Says Your Answer Lies Here!

Courtesy of Chris Kimble

Are we headed towards a Depression or is the worst already behind us? In today’s world, comparisons to the great depression are easy to find.

Are the Depression concerns well founded or are the declines of late already pricing in a bottom?

In my humble opinion, this chart and the upcoming price action of this index will go miles and miles towards telling us if we are headed towards very tough times or if the huge declines of late are actually in a bottoming process.

This chart looks at the Thomson Reuters Equal Weighted Commodity Index on a monthly basis over the past 54 years. The index has been heading south, reflecting weakness in demand for basi...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

http://www.insidercow.com/ more from Insider

The Technical Traders

Founder of TradersWorld Magazine Issued Special Report for Free

Courtesy of Technical Traders

Larry Jacobs owner and editor of TradersWorld magazine published a free special report with his top article and market forecast to his readers yesterday.

What is really exciting is that this forecast for all assets has played out exactly as expected from the stock market crash within his time window to the gold rally, and sharp sell-off. These forecasts have just gotten started the recent moves were only the first part of his price forecasts.

There is only one article in this special supplement, click on the image or link below to download and read it today!

...

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Chart School

Big moving Averages and macro investment decisions

Courtesy of Read the Ticker

When price is falling every one wonders where demand will come in.


RTT black screen Tv videos study the simplest measure of price (simple moving average). What has happen before guides us now. 














Changes in the world is the source of all market moves, to catch and ride the change we believe a combination of Gann Angles, ...

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Members' Corner

10 ways to spot online misinformation

 

10 ways to spot online misinformation

When you share information online, do it responsibly. Sitthiphong/Getty Images

Courtesy of H. Colleen Sinclair, Mississippi State University

Propagandists are already working to sow disinformation and social discord in the run-up to the November elections.

Many of their efforts have focused on social media, where people’s limited attention spans push them to ...



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Digital Currencies

While coronavirus rages, bitcoin has made a leap towards the mainstream

 

While coronavirus rages, bitcoin has made a leap towards the mainstream

Get used to it. Anastasiia Bakai

Courtesy of Iwa Salami, University of East London

Anyone holding bitcoin would have watched the market with alarm in recent weeks. The virtual currency, whose price other cryptocurrencies like ethereum and litecoin largely follow, plummeted from more than US$10,000 (£8,206) in mid-February to briefly below US$4,000 on March 13. Despite recovering to the mid-US$6,000s at the time of writin...



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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.