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If Quantitative Easing is stopped or renewed, what is the outcome?

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  • If Quantitative Easing is stopped or renewed, what is the outcome?

    http://www.ritholtz.com/blog/2009/09...-real-economy/

    9/16/09 from M. Ramsey King Securities, Inc. The King Report

    Yesterday Bernanke said the recession has probably ended. If the recession has ended shouldn’t the Fed at its meeting next week at least stop QE and the massive monetization of mortgages?

    Benito: “Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time”.
    .
    .
    Traders and investors must contemplate what course of action the Fed will announce and enact after next week’s FOMC if ‘the recession is probably over’.

    If QE, which is due to expire, is renewed, stocks should rally but commodities, gold and inflation plays should rally far more. The dollar should tank. China should go apoplectic. Benito will look foolish for saying “the recession is likely over”. Bonds might rally initially but then look out below.

    If QE is not renewed, stocks and commodities should tank; the dollar should soar and bonds after initially declining should rally. China will be appeased. Benito will have validated his rhetoric with action.

    Given that the select few have been informed about coming policy before the non-connected, it is incumbent upon investors and traders to scrutinize the usual suspects for hints about Benito’s next ploy.

    So which will it be?
    Jim 69 y/o

    "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

    Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

    Good judgement comes from experience; experience comes from bad judgement. Unknown.

  • #2
    Re: If Quantitative Easing is stopped or renewed, what is the outcome?

    more qe. bernanke is a scholar of the great depression, and he knows what happened in 1937. he also is quite aware of how weak the economy is, though happy talk is part of his job. so more qe.

    Comment


    • #3
      Re: If Quantitative Easing is stopped or renewed, what is the outcome?

      Originally posted by jk View Post
      more qe. bernanke is a scholar of the great depression, and he knows what happened in 1937. he also is quite aware of how weak the economy is, though happy talk is part of his job. so more qe.
      Right now it looks as though the markets are reacting to: If QE, which is due to expire, is renewed, stocks should rally but commodities, gold and inflation plays should rally far more. The dollar should tank. China should go apoplectic. Benito will look foolish for saying “the recession is likely over”. Bonds might rally initially but then look out below vs. any notion of true fundamental improvement in the economy.

      jk, do you agree with that as a possibility or as perhaps the most reasonable explanation for at least some of the 56% SPX rally off March lows?
      Jim 69 y/o

      "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

      Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

      Good judgement comes from experience; experience comes from bad judgement. Unknown.

      Comment


      • #4
        Re: If Quantitative Easing is stopped or renewed, what is the outcome?

        Originally posted by Jim Nickerson View Post
        Right now it looks as though the markets are reacting to: If QE, which is due to expire, is renewed, stocks should rally but commodities, gold and inflation plays should rally far more. The dollar should tank. China should go apoplectic. Benito will look foolish for saying “the recession is likely over”. Bonds might rally initially but then look out below vs. any notion of true fundamental improvement in the economy.

        jk, do you agree with that as a possibility or as perhaps the most reasonable explanation for at least some of the 56% SPX rally off March lows?
        i agree that qe powered the rally. now, however, it could be just momentum players and money managers worred about career risk if they're left behind.

        Comment


        • #5
          Re: If Quantitative Easing is stopped or renewed, what is the outcome?

          Originally posted by jk View Post
          more qe. bernanke is a scholar of the great depression, and he knows what happened in 1937. he also is quite aware of how weak the economy is, though happy talk is part of his job. so more qe.

          Comment


          • #6
            Re: If Quantitative Easing is stopped or renewed, what is the outcome?

            uh, oh. looks like we're headed in a market-ticker direction...

            Comment


            • #7
              Re: If Quantitative Easing is stopped or renewed, what is the outcome?

              Of course they ease Jim, moderate inflation is basic itulip dogma. It is just a matter of when and how. The Fed mission is a slow dollar decent that everyone in the world is happy with, they just won't likely get it without a fair bit of turbulence. The Fed wants to find a moderate inflation sweet spot between deflation and high inflation that enables the debt burden to ease. With a shrinking GDP pie, that is a tall order. My feeling is that in a global game with many fearful greedy players, one player of consequence will get scared and jump ship. Who, when, why? I have no idea, but we can all guess and look at the possibilities. It is likely to happen because increasing credit is a path that only exacerbates the issue and the other option, QE, is TNT. The vise is tightening for everyone and that will continue.

              Domestically, it may come down to a show between the Fed and Congress if/when that vise gets too tight and starts to unravel. (You might argue we are already there and most don't know it.) The show is an argument between high inflation and saving the dollar. High inflation leads to a broken economy, which pleases the voter transiently, but in the end is very destructive, and importantly very addictive. The current green shoots rally may have already placed us on this path! The other option is of course deflation and hitting the reset button on the economy which involves great immediate pain, but is probably a healthier position in the long run. It won't happen because we can print and printing is too tempting for all in power and also everyone at home. Batten down the hatches to be safe in my book.

              Comment


              • #8
                Re: If Quantitative Easing is stopped or renewed, what is the outcome?

                Originally posted by Jay View Post
                Of course they ease Jim, moderate inflation is basic itulip dogma. It is just a matter of when and how. The Fed mission is a slow dollar decent that everyone in the world is happy with, they just won't likely get it without a fair bit of turbulence. The Fed wants to find a moderate inflation sweet spot between deflation and high inflation that enables the debt burden to ease. With a shrinking GDP pie, that is a tall order. My feeling is that in a global game with many fearful greedy players, one player of consequence will get scared and jump ship. Who, when, why? I have no idea, but we can all guess and look at the possibilities. It is likely to happen because increasing credit is a path that only exacerbates the issue and the other option, QE, is TNT. The vise is tightening for everyone and that will continue.

                Domestically, it may come down to a show between the Fed and Congress if/when that vise gets too tight and starts to unravel. (You might argue we are already there and most don't know it.) The show is an argument between high inflation and saving the dollar. High inflation leads to a broken economy, which pleases the voter transiently, but in the end is very destructive, and importantly very addictive. The current green shoots rally may have already placed us on this path! The other option is of course deflation and hitting the reset button on the economy which involves great immediate pain, but is probably a healthier position in the long run. It won't happen because we can print and printing is too tempting for all in power and also everyone at home. Batten down the hatches to be safe in my book.
                Here are two guys who agree with you (as do so many others). From Sprott Asset Management Sept. Report, three pages.

                So how will this US debt crisis [they argue/estimate total US Financial debt to be 118.6 TRILLION] ultimately resolve itself? Let’s consider the options. It would appear from our analysis that the spending ‘promises’ are the crux of the problem now facing the US Government. If there isn’t enough new capital in the current environment to fund new Treasury bill issues (as we argued in “The Solution... is the Problem”), then there certainly isn’t enough capital to pay for the US’s unfunded future obligations. The choices, therefore, are bleak:


                1. Default on Medicare promises. (Unlikely given the current debate in Washington to expand medical coverage.)

                2. Default on Social Security promises. (Unlikely given the increasing average age of the voting public.)

                3. Put forward a credible plan to balance the budget. (Unlikely given the most recent budget projections.)

                4. Default on outstanding debt. (Unthinkable)

                None of these options are feasible for the US Government. So they realistically only have one option left – to print their way out of their debt crisis.
                The authors are Canadians, thus their use of "they and "their."

                The only problem with the "print their/our way out of their/our debt" is Bob Farrell's (Merrill Lynch strategist, I believe, for many years) rule number 9.

                9. When all the experts and forecasts agree - something else is going to happen.

                However, Farrell was primarily involved with financial markets, so perhaps there is no consideration that his rule no. 9 will apply with regard to the US debt. But for me personally, if I rule across a good rule, I tend to go with it despite its possible inexact application.


                Attached Files
                Jim 69 y/o

                "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

                Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

                Good judgement comes from experience; experience comes from bad judgement. Unknown.

                Comment


                • #9
                  Fed Clarifies QE Policy - Sort Of

                  What is QE, really now?

                  Pick your own definition says the Fed, we just do what we do . . .


                  Fed Clarifies QE Policy - Sort Of
                  http://www.zerohedge.com/article/fed...qe-policy-sort

                  " . . .
                  From Fed:
                  Thank you for your inquiry.

                  Regarding your question if the New York Fed's operations create reserves, the Federal Reserve is the owners/definers of "reserves". That said, the Federal Reserve has developed several programs in response to current economic conditions. Information on these programs is available on our website at this link.

                  Information is also available from the Board of Governors website at:

                  From this information you may choose which programs embody your own definition of quantitative easing. I hope this information is useful to you.

                  Regards,

                  Kimberly Hooks
                  Media Relations and Public Affairs
                  Federal Reserve Bank of New York

                  . . .


                  But if you define QE as an action that creates Reserves and it is new, then there are nine additional categories that can be included as part of the QE effort. My conclusion on this is that if the market believes that the Fed is limited to purchases of Treasury coupons, agency direct debt obligations or Agency MBS to achieve their QE policy objectives they are wrong. There are no bounds on this policy.
                  . . . "
                  Justice is the cornerstone of the world

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