Barclays Adds To Monetization Confusion: Not QE1.999 Or QE2 But "QE Lite"

Tyler Durden's picture

Barclays' Joseph Abate adds to the recent confusion over what path of QE (if any) the Fed will decide on at its August 10th meeting, and flatly disagreeing with Nomura which as we noted last week is now convinced the Fed will advise of further loosening in its language, believes that neither MBS roll offs (telegraphed earlier by Jon Hilsenrath), nor lowering the IOER to 0.00% will be sufficient to do much if anything to boost the economy, and instead he believes that the likely path the Fed will take is to allow the Supplemental Financing Program (which currently holds $200 billion in untouchable reserves on the Treasury's book) to roll off, by ending the 56-day Bill auctions, thus pushing almost a quarter trillion dollars into the banking system which can then be used to buy any combination of beta > 5 stocks. The result of this, according to Abate, "would likely push bill and repo rates well into the single digits." Of course with the 2 Year already at almost south of 0.50% one wonders just how much further along the curve does the Fed hope to have its impact felt. Could the Fed merely be trying to steepen the 2s10s by forcing 2s to zero? At this point, nothing would surprise us.

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trav7777's picture

Confusion, bitchez

Let them all fail's picture

thats for sure, what the hell is going on today, another efficient day in the markets...

Bankster T Cubed's picture

blah blah blah blah blah, blah blah blah.


huggy_in_london's picture

Probably right ... Joe's usually pretty good with this stuff (read : well connected)

Eternal Student's picture

If this news is correct, QE lite will have far less effect than what QE 1 did. Even if they did the same amount  as QE 1, the impact would have less effect, and start fading sooner.

I'm not sure what this small effort would accomplish, other than pay for the Banker Bonuses in December.

hack3434's picture

ie. Law of diminishing returns. The "small" effort will buy them some time as the crisis morphs into whatever comes next.  

Eternal Student's picture

Exactly. It might get them past the mid-term elections, in the best case scenario. Which may well be the entire goal here.

huggy_in_london's picture

yeah, i think you're right ... banker bonuses.  if these banks stopped paying out 50% of their revs then the banking system might actually heal a lot quicker.  From my experience working in banks, you could pay 80% of the people no bonus and a) they would still stay simply for the salary and b) it'd make two-fifths of fuck-all difference to your revenue.  

NOTW777's picture

sounds like a noise and confusion campaign. have various fin. houses float possibilities w/o doing anything except to keep a lite market, flighty.

what will more cash in the TBTF banks do for the economy???

vote_libertarian_party's picture

What will the extra cash in the banks mean?  They can hold out an extra quarter or two until they beg for a bailout when their losses catch up to them.

Hondo's picture

The logic escapes me.  Pushing yields to zero will help exactly who.  IBM borrows for three years at 1.0% (they already have enough cash on the books what does this accomplish?) where I guess they can find a cap-x project with a hurdle rate of 1.0% after tax and be still have to have demand.......and in the end it has to be consumer to company demand is fine but eventually the final company will have to sell something to the individual consumer.  That isn't happening nor is it likely (no matter what Mr. Ben says).  The deleveraging process must go on and about when it's finished the baby boomers will be so old that won't be buying on credit for anything........??????????????????????

NOTW777's picture

LOL meanwhile, markets go green; shorting is outlawed and there is only one type of economic report - good

Ragnarok's picture

Of course the market is green, the real question is when will gold start its crawl higher?

NOTW777's picture

one cant ignore their ability to hold gold in check - frustrating to watch this dance around trend resistance and yet oil is up another buck on weak #s from last week - inventories tomorrow;

euro getting bid up again to 1.3250 and beyond

whatsinaname's picture

looks like BHI's earnings were not baked in ?

or PPT must have missed it out somehow..

etrader's picture

As Rosie pointed out the other week, their just "working the rounds"  in preparation of a

-ve 400 to -500K jobs report coming down the pipe line.

Battleaxe's picture

Quiet "liquidity extracting reverse repos" = no effect on markets.

Turn around and use the extracted liquidity for "QE lite" = MARKETS GO WILD!


John McCloy's picture

  The rumor machine flowing from the banking industry and Fed regarding QE reeks of desperation. Bazooka 2.0

Who needs QE when you can simply talk about it for a few months.

virgilcaine's picture

desperate measuers by desperate men.

traderjoe's picture

Dear Ben - 

Please stop all of the foolishness. There is no demand for loans. Large corporations can tap the bonds markets at attractive rates. Middle and smaller businesses don't want to go further into debt when demand remains uncertain. Consumers are over-leveraged and need to save a little for their retirement and a rainy day. There's nothing wrong with this process of de-leveraging if you anticipate it and the government allows for structural reforms of our economy. We'd be much better off for it.

There is also no reason for banks to loan money at these interest rates, which means they would have to reserve and take the risk that the economy worsens. Why worry about collateral, credit risk, etc. when they can play the interest rate curve with any amount of leverage? Most of the banks are insolvent anyway, so will more loans that could sour in 6-12 months really be a good thing?

I wish you would raise short-term rates so that you encouraged savings and thrift, and did more than encourage mindless consumption which hurts the long-term health of our citizens. There's nothing wrong with a recession and a retrenchment. It's a healthy process of capitalism. But we understand that your shareholders (the banks) like the current steep curve, not having to pay anything for deposits, and creating indentured servants of citizens in debt. Hell, with fees, they can actually make money from holding people's savings.

I wish it were different. It is not. I hope at least at some point in time that history will judge the actions taken during this time as short-term thinking that did nothing but hasten the demise of the economy. That everything done actually was contrary to what was needed to restructure our economy and build a self-reliant citizenry that harkened back to the strengths of our country. 

Thanks for listening, 

firstdivision's picture

Ha-ha-ha!  Today's market is quite laughable.  The Fed's unveiled how they plan on to produce more magical QE (which obviously will just help the TBTF's bolster their balance sheets, not loan it out), and the markets shoot to the moon.  Amazing how people expect different results from a smaller QE, that is trying to expand an economy on contracting credit.  Interesting how today earnings, consumer spending, consumer income, GM sales, all missed estimates yet the markets believe that Ben will ride in on his unicorn-shaped helicopter and save this pitiful economy.  This fall is going to be a blood bath of 2008's proportions if we keep falsly pushing the markets up with nothing to support the push. 

Good thing about this summer is that it allows for some nice positions on puts for fire sale prices.  Bring your A-game Ben, I'm prepared for your lunancy of playing Sisyphus to a "T". 

MachoMan's picture

All they can muster in this environment are going to be continued levels of decreasing QE...  controlled demolition.  We get maybe one more shot at an unbalanced budget and then we'll have to make the play...  either reign in spending or keep the pedal to the metal.  My vote is for the attempt of austerity, international austerity being the last bastion of our efforts.

QE 2.0 proper will spook the herd...  it's got to be stealth mode...  behind the scenes...  in the aggregate it may be a lot, but a little here and there and people hardly notice.  The goal is to buy as much time as possible until the rape van is full or the fuzz gets close enough, whichever occurs sooner (my bet is on the former), presuming they can keep it together that long...

DavidC's picture

Point of information, one doesn't 'reign' in spending, one 'reins' in spending - comes from horses and the reins used to guide/control them.


Bonesetter Brown's picture

True, but one could argue our government reigns in spending

overmedicatedundersexed's picture

Ben just get it over: mail those checks directly to the little people..claw back the tarp and talp

from the banksters and send it to the little will be a hell of a party short term  and nov elections will go the pols way.

it's just play money anyway. hit me with some of those bits and bytes.

RobotTrader's picture


TIME 3-Month 0.000 11/04/2010 0.13
-0.006 / -.006 12:00 6-Month 0.000 02/03/2011 0.18
-0.003 / -.003 12:04 12-Month 0.000 07/28/2011 0.25
-0.017 / -.017 12:00 2-Year 0.625 07/31/2012 100-06+
.52 0-02 / -.032 12:00 3-Year 1.000 07/15/2013 100-20+
0-06 / -.064 12:00 5-Year 1.750 07/31/2015 100-31+
0-14 / -.091 12:08 7-Year 2.375 07/31/2017 100-23+
0-18 / -.087 12:08 10-Year 3.500 05/15/2020 105-00½
0-15 / -.056 12:08 30-Year 4.375 05/15/2040 105-21½
0-09½ / -.019 12:08
lettuce's picture

interesting non-movement of the long bond today.

akenathon's picture

whether is lite, strong or whatever it will be a huge boost for Gold as negative real rates will act as a bomb...which now ticks...

senthil456's picture

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senthil456's picture

There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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