QE3 looming

pmbug

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Emphasis and markup are my own:
The Federal Reserve will roll out a third round of quantitative easing — asset purchases from banks — and steer the economy away from a fresh recession, says Goldman Sachs Chief Economist Jan Hatzius.
...
Get ready for QE3, Hatzius tells Forbes.

"We expect QE3 in six to nine months, probably in a seamless transition from Operation Twist," he says, referring to Operation Twist, another Federal Reserve policy under which the Central Bank shuffles its Treasury holdings around to keep long-term interest rates low.

With QE3 and other loose monetary policies, the U.S. economy should grow 0.5 percent in the first quarter of 2012, narrowly avoiding a recession, Hatzius says.

"It won't be largely effective, but it helps at the margin," Hatzius says, adding that "the idea of monetary easing in response to a weak economy has been the right strategy, and it has been useful."
...
http://www.moneynews.com/Headline/Hatzius-Fed-recession-QE3/2011/10/17/id/414679

Sure it has Mr. Goldman Sachs. The question is... for whom?
 

pmbug

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When we first reported on Bill Gross' massive surge in duration and accelerated purchase of Mortgage Backed Securities a week ago, we said, "That's either what is called betting one's farm on Operation Twist, or, betting one's farm that the next thing to be purchased by the Fed in QE3 or QE4 depending on how one keeps count, will be Mortgage Backed Securities." It was the letter. Confirmation that Bill once again frontran the Fed comes courtesy of Daniel Tarullo who in a speech at Columbia University, talking about the labor market of all things, just said the following: "I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets." ...
More: http://www.zerohedge.com/news/bill-...member-tarullo-calls-restart-mbs-monetization

Daniel Tarullo is a Fed board member.

:popcorn:
 

DSAbug

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I read that article yesterday evening. Making a move like this would be incredibly aggressive.

I also think something like this could pass through relatively easily politically. The public is clueless about the MBS market and really wouldn't complain about having lower mortgage rates.
 

pmbug

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Federal Reserve Vice Chairman Janet Yellen said a third round of large-scale securities purchases might become warranted if necessary to boost a U.S. economy challenged by unemployment and financial turmoil.

The central bank should also give “careful consideration” to Chicago Fed President Charles Evans’s proposal to tie the near-zero interest-rate pledge to specific levels of unemployment and inflation, Yellen said today in a speech in Denver.

The remarks signal Fed officials may be prepared to delve further into unprecedented monetary territory and take criticism inside and outside the central bank for expanding the balance sheet. ...
More: http://www.bloomberg.com/news/2011-...anted-if-more-easing-needed-for-stimulus.html

:popcorn:
 

pmbug

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...
Actions by the U.S. Federal Reserve appear to be helping fuel a shift among central banks toward a more benign stance, according to Hastings.

Such a path implies policies of lower interest rates, which favor economic growth, as opposed to a hawkish stance, which implies higher interest rates to fight inflation.

The Fed is considering a range of tools to boost growth, William Dudley, the president of the New York Fed Bank, said in a speech Monday, hinting at the option of a third round of quantitative easing.

“The Fed seems to be pushing the global agenda towards continued dovishness and accommodation and easing,” Hastings said. The Fed also is “pressuring the global yield curve lower in order to force easing around the world, which would of course prevent the U.S. dollar from declining too much against other currencies.”

The need to push the yield curve lower, he added, is “logical” since, regardless of how Europe and Italy play out this week, “there is a need for global central bank collaboration on more stimulus and more long-term funding of various initiatives.”
...
http://www.marketwatch.com/story/central-banks-new-thinking-could-boost-markets-2011-10-25
 

DoChenRollingBearing

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A timely thread!

My guess is that QE3 is inevitable. Hyperinflation seems to be the most likely dénouement we face, but hey, my ability to predict the future is PROVEN to be terrible (short-tern anyway, 0 / 6 in making money in options, so I don't do that anymore).
 

pmbug

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I believe it's coming even if they don't announce it at today's FOMC.
 

pmbug

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Federal Reserve Bank of Minneapolis President Narayana Kocherlakota:
--Kocherlakota: Fed should provide clarity about policy under different scenarios

--Says Fed still has easing tools at its disposal

--Adds Fed could respond with accommodative policies if financial panic develops in Europe

--Kocherlakota one of more outspoken internal critics of Fed policy
...
More: http://www.gfmag.com/latestnews/latest-news-old.html?newsid=1.1877703E7
 

white&yellow999

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QE3.... QE4.... QE5.... QE6.... QE7.... QE until the dollar collapses, not that I want that but it is certainly foreseeable.
 

pmbug

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The "lackluster" recovery of the U.S. economy, dragged down by a weak housing market and high unemployment, may require additional monetary policy accommodation by the Federal Reserve if it continues, a central bank official said Tuesday.

Though the U.S. recovery is on slightly firmer ground, as seen in recent economic data, its "story is one of slow recovery from an especially severe financial crisis and recession, painfully gradual progress on unemployment, and receding inflation," said Federal Reserve Bank of San Francisco President John Williams in prepared remarks. He expects moderate growth, high unemployment and low inflation to most likely continue, rather than a rapid improvement in economic condition. He expects U.S. real gross domestic product to grow at about a 2.25% pace in 2012 and pick up to around 3% in 2013, though he said the unemployment rate will only drop to around 8.75% by year-end 2012 from the current 9%.

This scenario calls for "continued action" by the Fed to support a "fragile economy," he said.
...
More: http://online.wsj.com/article/BT-CO-20111115-710281.html

Rates could be held lower past the Federal Reserve's current guidance of mid-2013, said Charles Evans, president of the Federal Reserve Bank of Chicago.

Evans was speaking Tuesday with reporters after a speech at the Council of Foreign Relations in New York.

Evans said he is comfortable with having an accomodative policy until inflation reaches 3% and unemployment is at 7%.
...
More: http://online.wsj.com/article/BT-CO-20111115-710193.html
 

DCFusor

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I've just about got headline fatigue on this one. A lot of people are calling for this, but I think with politics as they are, the ongoing easing won't be as explicit and public as QE2 was. From what I can tell, various stealth easing has been going on the entire time anyway, with a lot of it going to Europe already.

I'm going to say something possibly heretical here, based on some data I got from hiring a forensic accountant for much of '09 to "follow the money". It's not cast in stone, but it has affected my outlook a good deal.

The measures of money supply are cooked/broken to a level not seen in mere CPI numbers. They are so wrong it's ridiculous, in fact, because due to various failures in law and regulation, the result of the credit boom was effectively allowing institutions to print money completely outside the government/fed system. I can fill in details as needed and give some examples (but that would make this a too-long post). Consider - where does the money for "leverage" come from in party to party transactions and you'll be at the start of the journey.

Thus, the boom actually created huge increases in the money supply. And I mean huge. But all this "fake" money went poof in the crash, almost instantly. We all feared hyperinflation from the Bernanke's printing - but it didn't happen, though there is some inflation (particularly in the things we need vs the ones we merely want). The reason is - get this -- all that printing has yet to make up for the loss of the fake, imaginary money created by various institutions during the boom!

Now, to admit that would be to admit just how much a failure, and how crooked our government has been. You don't often see that sort of mea culpa in politics, to say the least. Thus printing is unpopular politically too, because they cannot admit the reason for the need.

What a tangled web we weave! So further stimulus, unless we all beg for it (not just traders and pundits on ZH) - is going to be more in a stealth mode, plunge protection, little funny deals on swaps between central banks and sovereigns, stuff like that, rather than an outright flooding of the markets with cash - "these things must be done delicately" as the wicked witch said. This avoids revealing where the bodies are buried, and in many cases might actually do a better job per buck - but it lacks oversight so it's only a possibility it works better.

At this point we can't know what's on say, the PPT's balance sheet. While I am all for total openness in most cases, it could also be it's better we don't know (though I'd love to go along for the ride these manipulations create). A big question is whether there is cronyism, that benefits some TBTF institutions, and I'd vote yes, certainly, bet on it. Is this bad? I can't make a call. Personally, I'd just as soon see a few of them fail, but I'm not qualified to predict the ripple effects of that and how bad they'd be for the man in the street. There's no question it would hurt the "1%" bad.

If you just analyze the stuff we know about for sure - the stuff they admit to, you've got to figure that being able to borrow at the fed window at .25% and then buy our limp bonds at a couple percent amounts to bailing out everyone who can do that - ongoing, it's not a secret. Evidently, this hasn't been enough yet.

My big point though, is that since so much money went "poof" in the crash, money that was never on the gov't official reporting books, we actually do have some leeway to print without creating huge inflation.
The outright easing did - in commodities, and was thought of as "bad" in many quarters (including mine). So it seems they are adapting and trying other ways, maybe not such a big splash in the news as before, but still going on.

Here's ZH's Qe3 article of the day. And I really mean that - hardly a day goes by without one saying its imminent. But that's symptomatic of a stopped clock, you gotta take them withe a grain of salt pretty often. You can be right about where it probably will end without being right, or on time (all that matters to a trader) about when, and the path there from here.
http://www.zerohedge.com/news/supposed-deflation-october-blows-door-qe3-wide-open
 
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pmbug

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Some Federal Reserve policy makers said the central bank should consider easing policy further, according to minutes of their Nov. 1-2 meeting.

“A few members indicated that they believed the economic outlook might warrant additional policy accommodation,” the Fed said in minutes released today in Washington. “However, it was noted that any such accommodation would likely be more effective if it were provided in the context of a future communications initiative, and most of these members agreed that they could support retention of the current policy stance at this meeting.”
http://www.bloomberg.com/news/2011-11-22/fomc-minutes-reveal-a-few-members-want-easing.html

Why did the Fed release this today?
 

DosZap

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Bug,
Maybe in response to the EU crisis.Shot across the Bow,so to speak.
Another QE in surprise mode, would not sit well with the American people. IMHO
Giving themselves some operating leeway.
 

Steven Douglas

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Thus, the boom actually created huge increases in the money supply. And I mean huge. But all this "fake" money went poof in the crash, almost instantly.
There is definitely something to that, but look at it in light of the so-called Keynesian "liquidity trap" when we look at the mechanics.

Lots of money is "created" but then destroyed. But that was all on the basis of debt-money created prior in the fractional reserve multiplier model. That model cannot survive, and must collapse, without continued expansion. That's the nature of the Ponzi beast. So when all that "money" goes "poof" (in the case of actual defaults), as it did, so did the artificial reserves used to create the money in the first place.

Banks are left with titles to overpriced "assets" of zero or questionable value, but they still have the problem of a reserve pool to contend with - the very basis of even the illusion of its solvency. Whatever can be liquidated can be used to refill the reserve pool, but that is usually at a loss, and most of it cannot. So even though the Fed can print more money (never "free", always as debt, the principle of which must be returned, regardless of interest), the banks cannot lend most of it out because their reserves have been so eroded that they have to absorb most of the new money just to cover their own insolvency and keep from going under.

So a massive influx of money into "the economy" (snicker - whose economy?) doesn't show up as inflation yet, because all it's really doing is filling the reserve vacuum created by all the money that went 'poof'. This only buys the banks time - the time it would never extend to those it wants/needs to foreclose on in a grab for liquidity.

IF enough time goes by, and with enough economic activity that there is a net accumulation of capital to reseed the banks, on top of the newly created debt-money received, the banks will eventually resume the creation of newly inflated dollars - and that's when the real effects of inflation - that massive refilling of all their reserves, kicks into high gear. In the long run, all the money that disappeared did was create a vacuum that already needed to be seeded by multiples of more inflationary debt before the Ponzi scheme could resume "normal" expansion. That resumed expansion is the long delayed response that suddenly floods the economy with everything that is being seeded by the Fed now, and that is when we feel the effects through rising prices everywhere, as the bill finally comes due, and everyone suffers the real loss of all the money that went poof as the value of the dollar is cut by an enormous fraction in a short period of time.
 

DCFusor

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One wonders if the "reserves" are even a positive number at this point. FASB 137,157 etc - mark to fantasy is still in effect. Thus I crack up when people say buy banks, they're trading below book value.

Last I heard, the banks were leveraged even more now than before the crisis. And what of all those CDS's that may or may not pay off - either by fiat pronouncement, as with Greece, or by counterparty risk, eg, when they declare they're hedged, are they, really? Gross exposure is the new net...

And that is why the Bernanke might just bail Europe - it bails his banker buddies, too.

Holding onto my shorts for now, but the weekend could be scary.
 

DSAbug

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6 days down on the market.. if you are going to be short, i'd be using an ETF like HDGE. That way you wont have the potential for having to sell your long positions if you are wrong on your shorts. Only having 1 trading day in the next 4 leaves me with a lot of angst on the short side so i'd rather have my short position be actively managed.
 

DCFusor

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I'll check it out, thanks for the tip. My "shorts" are just longs in spxu, euo, smn and the like - I'm a cash guy (and most of that in an IRA that can't directly short or play options). They're up quite a lot since opening the trades so it's a hmmmmm kind of decision. I notice on comparison that HDGE doesn't drop as much as say SPXU when markets go up, but isn't traded much either. I'll keep an eye on that one for future use.

And you're right - 6 days in a row usually gets a bounce. To my eye, however, this is more like the tankage in August, rather than the usual bounce around whatever trading range (which is usually more like 3-4 days, and exiting my shorts back then really opportunity-cost me), and to me it looks like there are a few percent to go there. That German Bund thing - hard to see what rabbit the pols are going to pull out of the hat that will make things bounce much (or for long).

Maybe I'll just trim them down. They've been making more than my longs have been losing, and my main intent was to hedge that; the longs pay huge divvies, so I'm trying to hold them till ex div date, about 2-3 more weeks. With Vix like it is, buying puts on those is kinda expensive just now...(which I can do, but in the "wrong" account).
 
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