heard various views. From Kocherlakota who suggested that interest rate
should rise by the end of the year, to Dudley who made it pretty clear
that he thinks it would be a mistake to back off the gas pedal anytime
soon.
None of those speeches matter much. The only thing that counts is Bernanke. The Fed will end up doing what he wants. There
is no true debate at the Fed. All the speeches are show ponies to
demonstrate that there is open thinking at the Fed. I don’t believe a
word of it. But I do believe when Jon Hilsenrath echoes Ben’s thinking. I believe the Ben/Jon duo was at work in this WSJ article today. The critical words from Ben’s lips: (link)
a $600 billion program of Treasury bond purchases known as quantitative easing looks likely to run its course as planned in June. This will effectively mean the Fed is moving to a neutral stance of no longer easing while not beginning to tighten policy.
Mark Ben’s, Jon’s and my words. This is what the future will bring us. QE will end in June. But the policy of ZIRP will be with us for a long time to come.
There are so many factors at play in the big capital markets these days.
The Fed is just one element in the equation. But if you focused on just
their effort you would have to conclude that the end of QE but never
ending ZIRP will bring us the following:
-Long end yields are going higher. I think the Fed moves have set
us up for a 5% long bond and a 4% 10-year. Long bonds are a sucker play
when the Fed continues to pour on the gas.
-ZIRP is good for stocks. We shall see about this. One can’t deny that equities are a better place to be than in cash that has a negative return.
-The dollar is going to get crushed. The Yen is a wild card that
is influenced today by the uncertainties of Fukushima. We could see more
weakness there. But the rest of the currencies of the world are going
to have to move higher. I see the Euro over 1.5 the Pound pushing 1.7
and the CHF at around 85 to the dollar. The C&A dollars will be a
good place to hide as well.
-PMs have to move higher. We will maintain a policy of cheap money and dollar debasement. How could the metals not respond?
-Inflation is going to roar. The food and energy component of the
puzzle that Bernanke refuses to consider is going straight up in my
opinion. I wouldn’t be at all surprised to see the non-core CPI up by 5%
by the end of the year. We could easily see $5 gas in six months.
I think this is an insane next step for monetary policy. We will all pay
a very dear price for this. I think it is also insane to have monetary
policy conducted through speeches, innuendo and newspaper leaks.
What if there's another outcome? I would argue both bonds and equities have benefited from QE, so why wouldn't both decline when it ends?
I don't have a magic 8 ball so it's certainly a possibility that bonds sell off at the same time as equities into a stagflationary hell.
I'm thinking more along reductionist lines that equities, commodities and bonds are all bid due to artificial (POMO) stimulus while the wealth effect gives the MSM a nice line to sing about how economic improvement is here. Take away the stimulus and the economy is next so bonds are bid in flight to safety ... this view is inherently deflationary.
As Gross mused on Bloomberg Friday morning there are many ways to default, America is defaulting through inflation, devaluation and worst of all ZIRP, which is taking money from savers and putting in the pockets of corporations.
He went on to say that the only chatter that matters from the Fed will be when the "Doves Cry" referring to Yellin, Bernank and Dud.
As the saying goes: When rates are low, stocks will grow. Makes sense!
I doubt that the ch frank will trade at .85 to the dollar, did you mean 1.15?
I think of this in terms of the dollar. "The dollar is going lower". The CHF is now .9230. It is going to .85.
You look at it the other way. "The CHF will rise". It now costs $1.08 to buy one CHF. That cost will rise to $1.15.
Same thing.
$1.1765, to be (more) exact.
Ok., gotcha.
sociopaths scheme
inflation kills silently
those who trust liars
Germans sharpen knives
PIGS squeal murder
Pork gets chop.
Ben has new deal
Trades bonds for SPAM
Shiny pink meat
Presses turn, Cores burn
Endless Yen and dollars as
Ions into air.
Need to gird your loins
Lunchpail Joe did speak thusly
Loin much cheaper then
Plus one to you both
that was almost too funny
haikus are awesome
Waxed my car with SPAM
The finish gleams, water beads
hungry dogs chase it.
Ben and Tim relax
slowly drinking ice cold cans
Fukushima Light
Fukushima Light
"hot" sparkling brew satisfies
those that thirst for death
Made in Japan
Global paradigm
Dead next spring
Fool in kitchen
Rabbits run freely
Cleaver settles
QE to End
But ZIRP to continue
This doesn't end well
nice idea - but inconsistent with the 3-5-3 or more commonly 5-7-5 rythym of a Haiku and typical mention of a 'season' in last line
Some suggestions:
The QE demise
But with free money to stay
Summer inflation
or
No print from the sky
Free money everywhere
Geisha, in Fall take gold
Pigs in stinking sty
Gorge, fight, fuck, blind to reason;
Washington redux.
Thanks for all your good work Bruce.
Not sure if I agree with you on the consequences of a (temporary) end to QE. If you are right, liquidity will become more scarce, the price of money will increase, interest rates will rise, capital will begin to move from stocks to higher-paying fixed income, the dollar will rise, commodities will fall, and precious metals could move temporarily lower before it becomes clear QE-infinity is still a policy option.
Kocherlacota's speech the other day suggested a central bank could force default of a sovereign if choosing to stop printing and preserve the value of the currency.
We may not be there yet, but I would expect a few more deflationary and inflationary head-fakes over the next few years before Bernanke's principals show their cards.
I'm hedged for either scenario but more of my money is on that Bernanke is a convenient head-fake. He will be removed eventually and we will still have a deflationary depression.
Question--how do you get ZIRP without QE3...etc?
Bingo.
I actually think Bernanke will be gone before yearend. let's face it, next year is an election year. we have 5-6 dollar gas this summer with food cost skyrocketing, the peasantry is going to be moving from grumbling to truly unpleasant and very noisy. the administration is going to need a sacrifice. Ben's a real target here.......
what's more, the chorus of people talking about his catastrophic mistakes is getting louder now, but mid-summer it should be reaching the sound barrier.
think of the potential sacrificial lambs......the possible other candidates...there really aren't any except Geithner.....but I think the two go as a package deal to show the peasantry that Barack is "really on their side'....
which is laughable as JPM's man is now Barack's right hand man.
inflation always runs out of control during tomes of war and sometimes leads to currency collapse.
http://covert2.wordpress.com
Insiders have quietly sold a good portion of their stocks without causing the markt to crash, but at some point all of this excess liquidity will rapidly leave the market as the major players cash out. Look for this to happen once the QE rug is pulled away. They'll blame it a fat finger, oil prices, etc., but there was really only one place all that newly created wealth would end up....in the pockets of the top .1%. The rest of us suckers will just wonder where the fuck 30% of our wealth just went.
Of course, this will be tyhe excuse the Fed needs to start the QE pump again, and we'll see the next bubble form.
Then rinse and repeat.
I think there is a ton of liquidity out there today. I wouldn't worry about a scarcity just yet. The pricing on this liquidity will remain at zero.
Take this to the bank. Monetary policy works. Cheap money will have the desired effect. Prices have to rise.
When I say it 'works', I mean it does what is intended. I don't mean to say that it 'works' in the sense that anything good will come from it. We will just be a good bit poorer as a result.
The rise in assets is "dishonest." I mean, it wasn't earned. Just money printing. It defies nature and is an abomination. There has to be a reversion. It will be terrible.
So, why has insider selling exponentially outpaced buying for so long?
Bruce,
Does no QE3 mean QE2 lite, i.e., not letting the Fed balance sheet shrink by reinvesting maturing securities?
How will the Federal Reserve be able to maintain ZIRP if they stop printing?
In other words, woudn't the Federal Reserve lose the ability to control the price of money if they choose to limit its quantity?
I'm not saying ZIRP will end the same day as QE. But how long will it take for the market to call Bernanke's bluff? His pockets aren't that deep. He's got assets of $3T against a credit bubble of $70T+.
ZIRP allows marginally profitable businesses and insolvent banks to stay in business. The longer poorly run businesses are allowed to stay in business, the longer the economy struggles.
ZIRP won't end because the banks cannot survive without it. As far as Ben is concerned that's all that matters.
Ask owners of Japanese equities how ZIRP has helped them. They've had ZIRP for 30 years now.
Bruce, your argument is all washed up. Japan, alone, proves it.
Chart the Nikkei from 1989 through present.
Fugly.
The mother of all stock market crashes is coming. Although historical context is different, we're going to see a 1929-1932 type event here, due to machinations of The Bernank.
Iniders are out, for the most part, already.
Bruce, you also claim that there's "a ton of liquidity" out there now, and you pay no attention whatsoever to the debt question. Big mistake.
Liquidity will be valued above all else in the 'new normal.'
"due to machinations of The Bernank"
inspite of...
The deflation will be in deflating and defaulting debt and a bond rout. commodities and stocks will rise as fiat keeps tanking.
Inflation and deflation can and will happen at the same time. True deflation can only happen under a fixed currency standard, which is obviously not in place.
Inflation // Deflation
The items you need will go UP and the things you don't need will go DOWN.
fuel, food // 65" HDTV, trips to Vegas
Do you really NEED PM's ? Where is the price going?
And so it goes ...
yes you need
PMs...they are shiny and all... but that is not really why you buy them. PMs are currently held by about 5% of all investors and make up about .7 as a percentage of all investment assets. As inflation increases PMs will become the only true store of wealth. The entire world is about to come to this conclusion at the same time
gold and silver are money...nothing else
So, if you were concerned that silver might be taken under that pretense, do you think that PLSV allegedly in a Canadian Mint vault would be a good hedge if you had to keep money available in account form?
Dyslexic typo- PSLV of course.
Not so fast. Silver is becoming a "strategic element" and subject to a nationalization similar to the fate of gold in the 1930s. Don't count out the distinct and rising possibility. That doesn't deter my acquisition of the shiny stuff, but it lurks in the back of my mind.
Most of the people that own gold and silver this time around also own a lot of copper clad lead. No one in their right mind will try to nationalize it.
Oh, they can nationalize it all they want -- taking it might be another matter, eh?
Try to move as much of it off-shore as possible.
As an aside, I wonder if we could all pitch in, buy and old freighter hulk and just float all of our stash in international waters like those oil tankers do (steering clear of the Horn of Africa). I hate weekends. I muse too much.
Ditto. Which is why state knowledge of purchases and whereabouts must be restricted at all costs.
'coons bury stuff, don't cha know ;-)
us'nz, we just wallow around. how useful is that ?
Will stocks continue to rise in the face of profit warnings, as higher input prices meet the reality of declining real incomes of the consumer base?
the two sides to the "will stocks rise" coin....
Stocks WON'T rise for the reasons you list
Stocks WILL rise to keep pace with declining dollar.
Net end is...? Probably a rising, albeit more slowly rising, market.
Stay long PM's and oil. Buy puts during run-ups, profit coming and going.
NO. That's why I don't believe a word of it.