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"Blood in The Streets" As QE2 Could End in April?
By Dian L. Chu, EconMatters
Federal Reserve Bank of St. Louis President James Bullard, when speaking to reporters in France on March 26, stated,
“If the economy is as strong as I think it is, then I think it may be reasonable to send a signal to markets that we’re going to start withdrawing our stimulus, and I’d start by pulling up a little bit short on the QE2 program… We can’t be as accommodative as we are today for too long, we’ll create a lot of inflation if we do that.”
So, it seems that QE2 will get a serious review during the Federal Reserve`s April meeting, and could be cut short by two months in order to send financial markets the message that they will not allow inflation to get out of control (See chart below comparing the Dollar Index to Crude, Silver, and Copper post Bernanke's Jackson Hole Speech on Aug. 28 2010).
The problem is that the current market perception is at odds with the possibility that QE2 could end early.
Wall Street Camp #1 –QE3 Cheerleaders
There is a camp in Wall Street that still believes that QE3 is a distinct possibility, and they have invested accordingly. These investors would be in for a rude awakening if QE2 was cut short – think in terms of Silver investors who bought at the top of the market thinking silver was destined for $50 an ounce.
Wall Street Camp #2 – QE2 Partiers
Another camp in Wall Street believes that QE2 will continue through to its scheduled June conclusion without any hiccups along the way. This is the more moderate camp who have parked capital in Gold, Silver and Oil, who didn`t buy at the top of the market, but had planned to close out positions once QE2 ended in June.
This camp would also be caught off guard if the current asset buying program ended ahead of schedule – this group would include hedge funds, pension funds and money managers who are overly weighted in commodity oriented funds currently, and would start reducing their exposure to reflect the changing monetary policy.
Wall Street Camp #3 – QE2 Front Runners
Now, there’s also the third Wall Street camp that already knew that QE3 was a non starter, and QE2 would probably finish according to schedule, but wanted to front-run the selling by positioning themselves for the inevitable asset realignment by being in position in late April (after April options expiration for example).
Well, this group of investors would also be caught flat-footed and would have to speed up their timetable by getting into position immediately. This would means getting out of any commodity related positions ASAP, and then entering additional short positions, buying puts, and going long the US Dollar.
Biased Towards Commodities
Remember, there are a whole lot of crowded trades in areas all revolving around the QE2 Monetary Program that were initiated as far back as the Jackson Hole Speech. Therefore, an early end of QE2 would bring some considerable unwinding, disproportionately biased towards commodities, as the broader equity market would still have support from increasing corporate profitability, and relatively reasonable valuations, as compared to commodities.
Off Guard Mass Unwinding
In other words, expect significant selling in commodity related funds as a result of major players unwinding large positions – the selling could go on for months if QE2 ended abruptly. This is in large part why the Federal Reserve likes to send signals ahead of time, which Bullard appeared to be doing, to prepare market participants so the unwinding of positions is done in an orderly fashion.
One thing for sure is that nobody on Wall Street is currently positioned for an ending of QE2 in April. If the Federal Reserve through its various communication channels of member speeches, media conduits, and personal interviews starts in the next few weeks reinforcing this notion of QE2 ending ahead of schedule over the next couple of weeks, i.e., sending Wall Street the ‘get prepared’ signal, one could expect a whole lot of market volatility as fund managers try to reposition themselves accordingly.
‘Blood in The Streets’?
Since commodity prices tend to move in unison across the board, there could be some massive selling ahead - the proverbial “Blood in the Streets”, at least for anything commodity related, where large and liquid commodity index linked funds, popular with institutional funds (pension, 401k, etc.) such as Goldman Sachs Commodity Index (GSCI), Fidelity Series Commodity Strategy (FCSSX), could see huge volatility with large liquidation.
Good Jobs Report, Bad news for Commodities
Furthermore, as the U.S. 4th quarter GDP was revised up to 3.1%, there is a fairly good possibility that strong numbers could be coming out of the unemployment report due out on Friday, April 1. Since this is the last major economic data release before Fed’s April meeting, good jobs numbers would actually be bad news for commodities, as that would add to the argument that Fed should end the QE2 early.
Hangovers - Commodities & Producers
For investors, if more hints from Fed officials regarding ending QE2 early start surfacing in the media, coupled with stronger jobs numbers, then take them as a collective indication that the time has come to cash in on some of the profits from commodity related investments.
In addition to the index funds mentioned earlier, this category also includes commodity ETFs such as SPDR Gold Trust (GLD), iShares Silver Trust (SLV), United States Oil (USO), as well as producer stocks like Freeport-McMoRan Copper & Gold Inc. (FCX), Monsanto Co. (MON), Dow Chemical (DOW), Exxon Mobil (XOM), Mosaic Company (MOS) and BHP Billiton (BHP).
Short-term Poppers - U.S. Dollar & Bonds
An early end of QE2 would strengthen the U.S. Dollar on a short term temporary basis, and could bring headwinds to commodity-based currencies such as the Aussie and Canadian dollars.
Ironically, one of the Fed’s objectives that QE2 has failed to deliver – to lower the U.S. long bond interest rate—would likley be achieved after Fed stopped the treasury buying program (QE2).
Although interest rate would still likely trend up in the long term, the short-term pop of the U.S. treasury brought on by the unexpected early end of QE2 would make Bill Gross regret not keeping some of the U.S. bond holdings in his Pimco Total Return Fund.
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marc faber: "they will print and print and print and print and print"
of course they are going to keep printing. they haven't destroyed the dollar yet.
“If the economy is as strong as I think it is"
Classic line, time will likey show it ranks up there with
"let them eat cake".
Who is this guy?
The regional Fed minions are such tools.
They are like the flying moneys in the Wizard of Oz gathering around the wicked witch to do her bidding.
Or, maybe blood in the streets (cubed) is exactly what they intend.
The world is overpopulated anyway, given its resources.
I wish some of the people on this page would understand something including the author, please everyone ask themselves these question and answer honestly.
What Is Money? How long does whatever is money last? The New Normal is the upside upside down of normal and consists of volatily to extreme. History proves that when a nation enters this cycle it either falls apart or is never the same again.
The very successful and rich do not worry about this new normal, they thrive by it.
Fed never has cared about the economy.
What's happening now is different from weimar germany because FRNs are the world reserve currency.
Fed needs federal govt to exist, so funding federal govt will continue and grow larger. Eventually we'll see 10 trillion of treasuries on Fed's balance sheet. Then 20 trillion. Then 50 trillion. Then 100 trillion. That game could go on and on.
But Fed is owned by banksters, and banksters love their gambling casino, so Fed will keep banksters supplied with gambling funds along the way by purchasing their losses. Eventually we'll see 10 trillion in (worthless) derivatives on Fed's balance sheet. Then 20 trillion. Then 50 trillion. Then 100 trillion. That game could go on and on.
It doesn't matter if they call it QE or something else, or simply do it quietly behind the scenes and don't call it anything.
The game will end when the rest of the world wakes up one morning realizing FRN's are worthless. Yes, I believe it will happen suddenly. Overnight.
Fed has no control over that.
I thought blood in the streets was the REASON for QE2. And QE1. Yeah, and QE3 (coming soon! can't wait!)
If the Fed stops QE , who will buy UST? If no one buys UST won't interest rates start rising? and if interest rates start rising won't paying the increased costs on the US be a big problem? just wondering.
Stopping QE2 in April would be succumbing to the pressure and admitting that they indeed create inflation. Bernank still believes that he can pull the slack in 15 minutes, raise the rates and quell the inflation dragon. He doesnt believe that time has come yet. Have you seen the housing starts lately? Hear about the wealth effect? Most people's wealth is in housing market. Not that Bernank worries about people's wealth all that much
QE 3, named or unamed, is a guarantee. Book it.
Whatever they call it and however they administer it the Fed will still be obligated to monetize the excess debt that won't sell at auction which will be most of it. Certainly at least the amount of interest on the existing debt and defense which is the majority. If they don't do that then the government fails and all their paper goes worthless. So call it what you will but until the political system is fixed which it won't be until the cost of elections and the influence of donor money is faced up to the printing presses will keep a rollin. All the rest of this is merely jawboning. Spin on spin.
I think it may be reasonable to send a signal to Federal Reserve Bank of St. Louis President James Bullard that he's a fucking idiot too!
and another thing; "GO CARDINALS"
"Blood in the streets" - the results of quitting QE - it's the economic/social equivalent of a junkie going cold turkey. Pretty damn ugly until the addiction is broken. How do you restructure a command economy that has become totally distorted by years of meddling by collectivist know it alls?
The Fed/banksters don't have the balls to do it. But, they're going to do it anyway, just not by choice. And the longer they wait the worse it's going to be.
I look forward to "Blonds in the Street", especially strawberry blonds wearing strawberry berets.
As soon as some protesters throw a rock through a window Obama, Boehner, Pelosi, etc will cave in and announce some variety of QE3.
ANYTHING that counters the "everything is going fine" MSM news will be frowned upon. Their First Priority is the unstated goal to get re-elected imho.
QE has been such a small part of the money we created. Maybe 5-10%. I think most will be shocked at the continued commodity rally for the next few years even without it. Stocks, bonds, and industrial commodities need QE. Food, energy, and money metals probably will continue to rise without it. They could get a little hit at first. But, nothing can soak up the trillions we created.
How about this scenario? The fed stops QE maybe even early. Huge money flows into cash and treasuries, stocks and commodities tank in panic like 2008, the bankers, insiders clean up. Then the fed has cover for QE 4 and 5, the bond gets breathing room the bankers and insiders clean up again, we mostly get screwed again.
I would say bingo but they played that game once - how many times will they be able to get away with that without a revolt?
probably at least once
The whole recovery is lip locked on QE2's nipple. Good luck weaning this f**ked up economy off the green juice.
I think that the ZH-ers have it on this one. QE must continue to keep the Kabuki Sovereign Debt Theater running until the NWO-ers can position themselves to crush all opposition, physically if necessary. This not-so-subtle signal is just an offer of free "blue pills" for the sheeple with terminal Cranial Rectitis.
does the Fed want growth to return in the first place? in my view if what the Fed wants is to keep QE then simply maintaining the QE will "ger 'er done." In short "it keeps the economy in panic mode" thus not allowing for the economy the "opportunity" to run on it's own engine. the Fed has an "interest" or perhaps an "interest rate" in doing this: by keep growth low they can continue to finance the Federal Government. Once the Fed "let's it go"--should this "vote of confidence" be materialized through growth it could also result in inflation--thus causing interest rates to rise further. Given the sheer size and magnitude of the deficits and debt I think any money manager can be forgiven for guffawing at the notion that the Fed wants to go from "rescuer in chief" to "bankrupter in chief." Of course we all know at some point this transition will have to be made.
I just have to wonder why the fed even wants the economy in the U.S. to recover, at what cost to them? What's in it for them? It seems to me that low interest rates are not in their best interest.
Of course the fed needs to be careful not to overturn the applecart, so they must try to ease into tanking the bond, but given that the Fed is nothing but a bunch of bankers looking to get more wealth and power, managing interest rates up higher on the back of a stronger currency ( gold backed? ) makes the most sense to me.
Does that mean a lot more Q.E.???
Anybody?
Fed will do what it needs to do to survive. It will stop QE2 or at least not do QE3. Self-preservation takes precedent over the economy.
Self-preservation takes precedent over the economy.
--
yes!
iT'S A pr STUNT TO GET US TO THINK THE FED ACTUALLY CARES A BIT ABOUT PEOPLE AND NOT BANKS. PRETEND THERE ISN'T A HUNDRED PERCENT AGREEMENT TO SCREW OVER THE BOTTOM 95 PERCENT
I've been trying to ascertain what is different between the Fed's printing of USD and Weimar Germany's printing. My take is that this 'easing' hasn't yet flooded into circulation, even though the frictional cost of delivering is being handed to the Wall Street i-banks/PDs. I think - and someone chime in if this isn't right - the traders/desks make money through the mere volume being pumped through by the Fed. Perhaps the expectation is that this will 'trickle down' to the masses, but it has only goal seeked to commodities... thus, the current situation. So ending QE2 will only impact Manhattan real estate prices...
I'm not so certain that the 'easing' hasn't flooded into circulation, at least if circulation includes promoting and facilitating bank and hedge fund speculation in stocks and commodities. The FED's promoted notion is that bank reserves (which are typed into existence as one of the two main ways the FED generates the wherewithal to purchase assets, ie QE) just 'sit there' at the FED, earning a pittance in interest but otherwise doing nothing.
I suspect that the skyrocketing level of typed into existence reserves actually fuels speculation via the borrowing and lending in the FED FUNDS market, securities lending and related repo agreements. And it goes to the most profitable areas of speculation, lately stocks and commodities.
It is also not safe to assume that the end of QE (FED purchases of Treasuries) will mean an end to the gravy train (for the banks) of bank reserve growth. Since February, the FED has used typed up reserves not just to pay for QE purchases and to repay the SFP, but to cover Treasury checks written to pay for Govt. operations by the Treasury on the Treasury's checking account at the FED. In fact, that might of typing might increase.
Unless you know in advance, you'll have to trade the news like the rest of us. Who positions for a guess at a potential fed move. Hedge maybe
This article is going to just confuse the sheepie. Well, good job at that now
Head fake alert!!!
QE or not QE? Hmhmmh?!?! I don't think it matters anymore since pulling liquidity out of the "market" would mean...exactly..NO MARKET!!!
What I expect is some political wishy/washy to get some sort of "justification" for the peasents to keep printing, politicians already know it's coming! And they also really want it, I mean it's cheap "FREE" dough for crying out loud!!!
Little sell off say another 5-10% then bam!!! System has to reset itself until then there is no stoping to the printing, capisci?!?!?!
No, the federal reserve never says anything to make market transitions easier. Everything they say and do is designed to create massive "inside information opportunities" for their owners, the large banks and financial companies. Take a look at their comments about housing market, from "there's no bubble, and no chance of a crash" through "localized problems" to "it wasn't our fault".
Their recent statements are an attempt to keep the dollar from quick demolition. They want a controlled demolition of the dollar, with them at the controls.
The fed can no longer raise rates significantly. The government of the USSA is now primarily financed with short term debt. They had to do this because ONLY super-low interest rates would keep their musical chairs ponzi debt game going for another few years.
The most the fed can do is raise short term rates from 0.00% to 0.25%... or at most 0.50%. But they will not do that until they absolutely cannot avoid doing so. When they do that, they may pretend the increase is the first of a long series, as is usually the case.
But they cannot and therefore will not carry through. They can't. If they did, congress would end the fed in order to be able to borrow infinite funds at zero percent "forever" (meaning, until the dollar and the USSA itself totally collapses).
"I’d start by pulling up a little bit short on the QE2 program"
Bullard's been mainly against QE for a while now. what's the key word in that quote? "I'd"
sure, he would pull up short. does that mean they're going to. Certainly not. I don't see how this can be contsrued to mean QE is ending in April. Simply preposterous.
By your numbers, wouldn't silver be the metal to shoot for the moon, while gold merely heads into the ionosphere? If slv can't produce anything, all of its sheeple investors will go clamoring into the streets buying up physical (if anyone will sell it to them) at outrageous premiums. We already saw that mentality with backwardation in dec/jan.
One important number to note, is that the gold/silver price ratio has fallen from 46 around the beginning of the year to a current 38. This ratio should hold steady for now, and will only continue to narrow as we head deeper into the long emergency...
@whoever posted the pic of the the Wall St. Mint 10oz silver bar with the WT center and other downtown skyline highlights, those bars exist, i have seen them.
Sounds like a headfake. FED knows economy is still fragile with continuing high unemployment, RE weakness, new ME war uncertainty impacting oil/energy costs impoverishing consumer and adding to cost of business. So continue printing, but keep Wall St. guessing and markets reasonably stable . The cycle now can only end with a severe world recession right after election of 2012
Gotta keep the bond going up without stopping liquidity flowing to keep the show going and then there is the derivative monster that needs to be fed.... No, I can't see tightening other than by jawboning and or by some other back door scam.
You mean my neverending gold bull is ending
Whodathunk?
Thanks dude, My Bus is locked and loaded for your crash call
double post
Hey Turd this guy is calling BS on your QE 18 call
let us hope they cease and desist.
I look forward to a washout in paper gold and silver. If 2% of those in paper silver try to get physical, when physical is not available, it should be a good show. 100/1 silver should be a blast. Gold on the other hand will be big moneys only place to hide. At 10/1 physical or higher and $trillions looking for safety, gold may be the moon shot.
Let's get physical, physical,
I wanna get physical.
here we go again ,, diaper clad analysis .. believing lies and propaganda,
the fed has spent 20 trillion. has hidden buyers in the cayman islands ,
has France , England and others buy like crazy ,, then sell to long nosed sam ,
what is this incessent will they or wont they .
they have no choice ,, Japan a cover for more , new debt ceiling and when will it reach another limit. spend spend ,
QE is as long as the noses of orchestrated canard of the fed governors ,,
the godfather banks who own the very souls of the Fed . will require it , those opposed will see horse heads in bed .
why any one goes over their speeches with some sort of understanding and sees changes of behavior.
are also buying bridges from the local flim flam street barker ,
yup...
Fed increases interest rates thus taking the blame as the bad guy who stopped the Federal government from operating?
Bwa ha ha ha ha ha haaaaaaaaaaaa.
This is going to sound super-bullish, but at this point, I don't believe an absence of QE3 will be the end of the silver bull market.
Kitco just released data suggesting 36% growth in industrial usage as of 2015. The metal still has strong potential. As things stand, the collapse of other economies will remain a driver of silver prices.
Things are not improving from a fundamental perspective. Even if QE3 is non-starter, the dollar is still in trouble, because of uncontrolled deficits.
That being said, I still think QE3 happens. Our Japanese brethren can't afford to buy...they have their own crises to deal with. The Chinese have had enough, and PIMCO has run for the hills.
So...yeah...Guess I'm reluctantly in Camp #1. It's not so much cheerleading, as the inevitability of it all.
I'm sorry, but that was a total joke of an article. QE is not about "stimulus", it is about covering up an insolvent government. You take that away, and the government goes into default. Its not the silver investors who need to worry. Its Tiny Tim and the Messiah.
Jim Rickard's position, according to the latest interview on KWN, is that the Fed has a big enough portfolio to simply keep turning over their current assets, which will provide enough heft to influence the rates. If that is true, then it would seem some kind of QE Stealth would be in the works.
Sr. Rickards position makes no sense. "Rolling over" earlier debt yields no help to fund this week's bankruptcy party.
Rickards also points out that no one on Zerohedge "understands" the fed's money manipulations. I.E. It's all smoke and mirrors?
It's interesting that Silver, which we can't get delivery of at US$35 will magically be available once more at: $30? $20? $10? $1?
Whoever wrote this krap should take up basket weaving.
Remind me again, in the absence of more QE, how does the USG fund it's deficit?
QE to infinity, all this stuff is more jaw-boning and posturing to rein-in PMs, Oil and all other commodities.