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CLSA's Chris Wood Says Bernanke Will Continue "Mad Experiment" Until He Kills US Dollar Paper Standard, Looks Toward QE3

Tyler Durden's picture


CLSA's Chris Wood is in fine form today.

From CLSA's Fear and Greed

The announcement of QE2 has come in as expected, namely an incremental approach. Still, the approach is sufficiently gung-ho to continue to give the benefit of the doubt to the risk trade. Investors should remain overweight Asia and emerging markets which will again prove to be the major beneficiaries of quanto easing. Macro investors should also remain long Asian currencies against the US dollar, with the Singapore dollar remaining GREED & fear’s favourite currency on a risk-adjusted basis.

GREED & fear’s view on QE2 remains that it will not precipitate releveraging of the American economy, just like the first version did not. But it will probably take some time for the equity market to work that out reflecting the natural bullish bias. Still when the releveraging hopes are dashed attention will then turn to QE3, which next time may include a formal inflation target and purchases of private sector debt.

Billyboy will likely carry on with his mad experiment until he precipitates the collapse of the US dollar paper standard. The Fed’s attempt to combat the perceived problem of deflation will end up creating a far bigger problem. That is the systemic risk posed by the anticipated ratcheting up of QE. This is why the view here remains that America will turn out to be a case of “Japan-heavy” not “Japan-lite”.

GREED & fear continues to be surprised that US financial markets are not more concerned about the continuing foreclosure mess. There is also the separate but related issue of faulty representations and warranties made by originators of non-agency mortgage loans in the mortgage-backed securitisation process. The issue is whether this is institution specific or system wide.

There is a small but not zero risk that this securitisation-boomerang problem could turn out to be systemic in nature in terms of the losses it could impose on prominent commercial banks and investment banks in terms of billions of dollars of mortgage exposure being put back to them.

One way US consumption has been boosted at the margin in the recent past is the growing practice of “strategic default” where people stop paying mortgages but continue to live “rent free” on the increasingly correct view that the banks will take an increasingly long time to foreclose on them. Such a trend can only serve to delay further a housing recovery.

The US housing crisis is somewhat unique in the sense that it is a product of a home financing bubble rather than a house price bubble. This is why house prices can get ridiculously cheap in the US before there is a final bottom. The systemic risk posed by the socialisation of the mortgage market is growing not receding.

With some politicians already calling for a nationwide moratorium on mortgage foreclosures, it is surely only a matter of time that the same sort of people will be calling for mandatory mortgage debt relief.  This is a good reason for investors to sell exposure to US mortgage paper and US financial stocks.

The fundamental reason why such a mess exists is clearly that the repeal of the 1933 Glass-Steagall Act occurred without a realisation that such deregulation only made sense in the area of financial services if there was a similar deregulation in terms of allowing bad banks to fail. The most likely end game of a foreclosure crisis that turns systemic is another wave of taxpayer funded bank bailouts.

The renewed rise in PIGS spreads has not been accompanied by renewed euro weakness. This market action presumably reflects the news that the German efforts to impose some discipline on Euroland’s fiscal targets gives the euro more credibility. Still given the way both the Germans and the ECB blinked when the Greek crisis came to a head, it would be dangerous not to assume a similar reaction the time a crisis hits.

The Indian central bank is about the only central bank in Asia fundamentally comfortable with tightening independently of the US. This reflects the longstanding domestic demand driven nature of its economy and the resulting almost total absence of the export-orientated mercantilist bias so deeply entrenched amongst East Asian central bankers.


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Thu, 11/04/2010 - 14:43 | 700346 Jim in MN
Jim in MN's picture

For want of a bond haircut, the West was lost.

Thu, 11/04/2010 - 22:59 | 701787 GoldSilverDoc
GoldSilverDoc's picture

Actually what we need is a beard trim.

With a guillotine.

Thu, 11/04/2010 - 14:51 | 700348 SheepDog-One
SheepDog-One's picture

The day after QE2, everyones already looking toward QE3 and pricing it in, pure madness.

Thu, 11/04/2010 - 14:54 | 700399 mikla
mikla's picture

Ben is mad.

Ben is glad.

Ben is sad.

Ben is rad.

Thu, 11/04/2010 - 15:28 | 700564 SteveNYC
SteveNYC's picture


Thu, 11/04/2010 - 15:40 | 700606 EscapeKey
EscapeKey's picture

I doubt there will be a QE3 - mainly due to this paragraph:

"The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."

Essentially, Mad Ben can adjust the amount on a monthly basis, the total amount, and furthermore retains the right to adjust the program itself, i.e. he can theoretically extend it and decide to buy alternate asset classes as well under the guise of "required adjustments".

QE2 was a blanco-cheque.


Thu, 11/04/2010 - 16:28 | 700859 Buddha_Gorilla
Buddha_Gorilla's picture


Thu, 11/04/2010 - 17:29 | 701102 saulysw
saulysw's picture

+1 ounce.

Thu, 11/04/2010 - 14:49 | 700371 john_connor
john_connor's picture

The fall of the Republic accelerates

Thu, 11/04/2010 - 15:02 | 700437 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I'm kinda thinking the whole idea of a Cascadia Nation may gain a new head of steam.  Alaska, British Columbia, Washington, Oregon and Idaho would do much better by themselves.  Tap into all those natural resources that Uncle Sam and the enviromentalnuts have locked up.  Bye bye banksters... it was fun while it lasted!  Fiat currencies need not apply.  We've got plenty of gold and silver!


Thu, 11/04/2010 - 15:03 | 700446 cossack55
cossack55's picture

May I join. I have always loved Couer D'Alene, especially this time of year.

Thu, 11/04/2010 - 15:05 | 700462 Xedus129
Xedus129's picture

Can we pick someplace warmer? I hate the winter.

Thu, 11/04/2010 - 15:15 | 700504 Ragnarok
Ragnarok's picture

Fuck Oregon and take Alberta and the Yukon.

Thu, 11/04/2010 - 15:19 | 700516 Lucius Corneliu...
Lucius Cornelius Sulla's picture

If that were the choice I would definitely go with Alberta and the Yukon over Oregon.  Oregon has some great farmland and the coast is nice too.  Too many liberal weirdos though.

Thu, 11/04/2010 - 15:22 | 700535 goldmiddelfinger
goldmiddelfinger's picture

a nation of asshats in a cold region. Enjoy!

Thu, 11/04/2010 - 17:00 | 701003 Canucklehead
Canucklehead's picture

Actually, what you "really" want is Alberta, Saskatchewan, North Dakota, South Dakota, Montana, Wyoming.

Look to the future.

Thu, 11/04/2010 - 19:04 | 701347 masterinchancery
masterinchancery's picture

I would add Wyoming and Montana to the mix. Subtract Oregon, which is bankrupt and full of worthless liberals and high taxes.

Thu, 11/04/2010 - 17:51 | 701188 Gordon Freeman
Gordon Freeman's picture

The only problem is that all those erstwhile Cascadians are heavy on the fruitcake factor, and would have trouble agreeing on how to organize a barbecue...

Fri, 11/05/2010 - 10:49 | 702564 Canucklehead
Canucklehead's picture  That comes from worshipping the "Queen"...

Fri, 11/05/2010 - 01:40 | 701283 Lucius Corneliu...
Lucius Cornelius Sulla's picture


Thu, 11/04/2010 - 14:51 | 700377 Ragnarok
Ragnarok's picture


Thu, 11/04/2010 - 15:18 | 700518 Oracle of Kypseli
Oracle of Kypseli's picture

Too much curry there. They even use it as an antibiotic.

Best places... Santiago Chile, Quito Equador, perpetual spring weather.


Thu, 11/04/2010 - 15:23 | 700542 goldmiddelfinger
goldmiddelfinger's picture

Obama, 34 warships and the entire executive branch of US govt in town at $200 Million per DAY.

Thu, 11/04/2010 - 16:12 | 700782 Oh regional Indian
Oh regional Indian's picture

It's pretty crazy, with so much need to be at the helm, here he is in India.

Tells me two things:

1) Something is going down in DC

2) India is somehow important. How? Fake china foil? Defense billions? Proxy?

And as usual, massive lockdown and staged appearences wherever they are going.

Crazy world.


Fri, 11/05/2010 - 03:24 | 702051 mamba-mamba
mamba-mamba's picture

Maybe he is meeting with Pakistani or Afghan officials to negotiate the end of the war in Afghanistan.


Just a thought that popped into my head.


Fri, 11/05/2010 - 09:12 | 702298 chindit13
chindit13's picture

Looking forward to your on the ground reports on Maharajabama's visit.

Sat, 11/06/2010 - 10:17 | 705000 tip e. canoe
tip e. canoe's picture

2) India is somehow important. How? Fake china foil? Defense billions? Proxy?

remember the East India Trading Company?   meet the 21st century version.

or maybe they're bringing back some elephants for the circus?

second chindit's request for ground reports ORI.


Thu, 11/04/2010 - 19:06 | 701352 masterinchancery
masterinchancery's picture

The teleprompter had to give a speech.

Thu, 11/04/2010 - 14:52 | 700386 Common_Cents22
Common_Cents22's picture

Wall St has been watching the JG Wentworth commercials on CNBS.


"It's my money and I need it now!"

Thu, 11/04/2010 - 14:53 | 700391 jesse livermoore
jesse livermoore's picture

forget about QE#3  I am  positioning for QE#4     gold and silver must be bought!!!!!!!!!!!!!

Thu, 11/04/2010 - 14:53 | 700392 99er
Thu, 11/04/2010 - 15:10 | 700481 bania
bania's picture

First line: "We're starting a Tim Geithner death watch."

Yeah, no kidding.

Thu, 11/04/2010 - 17:35 | 701126 Dadoomsayer
Dadoomsayer's picture

Wish it were Bernanke. 

Thu, 11/04/2010 - 14:56 | 700407 chistletoe
chistletoe's picture

a bit out of date, aren't we,

with the royal bank of australia?

From the first minute that home prices started to collapse,

it being evident that an unprecedented calamity was upon us,

I was in favor of the dramatic and unfair act of forgiving ALL debts,

or at least all home mortgages.

Had they done that at the time it would have cost them less than TARP, plus QE 1-to-infinity ....


its probably too late now ... even a child can figure out, sooner or later,

how to get out of a chinese finger trap ...

bankers lack something in their heads, I'm not sure what it is, but they sure lack something ....

Thu, 11/04/2010 - 15:10 | 700480 Common_Cents22
Common_Cents22's picture

How has anything COST the bankers?   They have their jobs and bonuses paid for by the taxpayer through the FED.  


You mean it cost the TAXPAYER?!     yeah.....

Thu, 11/04/2010 - 14:59 | 700424 Oh regional Indian
Oh regional Indian's picture

The constant comparison between Japan and the US (Lite/heavy, whatever) is silly.

The US is it's very own basket case, with intractable problems all coming to head together, driven by a mad machine of bought up politicians, phony elections, a controlled and sedated polulation, no manufacturing....

Plus, the author has a rather sanguine look going forward. Where is the current 6 sigma level risk of geo-political and/or geo-logical triggers factored in?

Or is that kind of thinking only for nutters? Like me!


Thu, 11/04/2010 - 15:03 | 700451 Xedus129
Xedus129's picture

Fox keeps showing riots, (Or at least while I run at the gym), usually of Greece or what not.  I have a feeling it will be 100x worse here, mostly because we have (pick a number) 10^nth time more guns.  When SHTF any idea where the best geographical location will be?

Thu, 11/04/2010 - 15:08 | 700468 RockyRacoon
RockyRacoon's picture

Fox will show no riots in the U. S. unless there are signs with Obama and a swastika motif.  Every junk I get will be an affirmation that you agree!

Thu, 11/04/2010 - 15:15 | 700506 cougar_w
cougar_w's picture

junk FTW

Thu, 11/04/2010 - 15:08 | 700474 the not so migh...
the not so mighty maximiza's picture

The Mountains.  Smaller population easier to self sustain.

Thu, 11/04/2010 - 15:47 | 700661 Maos Dog
Maos Dog's picture

da swamp - 

We have - 


growing seasons all year

food everywhere (wild pigs are now a pest animal here we have so many)

easy to control roads

tough terrain and heat ensure softies will not come here

Thu, 11/04/2010 - 15:14 | 700500 cougar_w
cougar_w's picture

Best for what purpose? For how long?

The idea that any of us will ride this out comfortably is probably a reach. Apart from the Amish, who never gave up on simplicity, I don't think a single one of us will find ourselves prepared for vast, crushing austerity.

Thu, 11/04/2010 - 15:19 | 700524 gwar5
gwar5's picture

Dewd, the world is coming to an end and you haven't got a gun yet? 

If you get in a tight spot, call 9-1-1 or the suicide hotline -- the government is always there to help you.




Thu, 11/04/2010 - 18:58 | 701336 honestann
honestann's picture

Correct.  If the phone line (or cell connection) still works, they will sympathize with you while you are being raped, sliced into pieces, grilled to a golden brown, and eaten.  If you want to know what's coming, learn about the "Reevers" (?spelling?) from Firefly.

If that doesn't convince you to buy guns, ammo, grenades, cross-bows, sling-shots and more, nothing will.

Thu, 11/04/2010 - 15:31 | 700578 gwar5
gwar5's picture

Seriously -- away from cities. Like Mtns of TN, or some such, East coast.

Montana or Idaho, West coast.

You'll find: Small local economies, self sufficiency, friends are tight, can take help care of each other and handle guns. The bonus is the scenary and climate is good with minimal energy requirements. You'd never know anything was going on in those places, especially if you have kids.

Thu, 11/04/2010 - 15:04 | 700454 RecoveringDebtJunkie
RecoveringDebtJunkie's picture

BB may have a harder time killing the dollar than most think. There are many factors involved, but it's not even clear that the elites (and by proxy, the Fed) want to generate inflation, or if they do, that the Fed can accomplish this goal politically or economically.

Thu, 11/04/2010 - 18:54 | 701322 honestann
honestann's picture

In theory, the central bank cannot always generate overall inflation, due to "transmission inefficiencies" (but they always create bubbles).

However, a central bank can always generate hyper-inflation, because hyper-inflation is qualitatively different than inflation (similarity of the terms notwithstanding).

Hyper-inflation is when folks increasing refuse to "play the game" with a currency, and demand payment in other forms (gold, silver, platinum, palladium, nickel, copper, lumber, wheat, sugar, corn, or other backed or unbacked currencies).

And "killing the dollar" is hyper-inflation, not inflation.

Thu, 11/04/2010 - 15:05 | 700459 cossack55
cossack55's picture

How, may I ask, can you kill something that shows no signs of life?

Thu, 11/04/2010 - 15:08 | 700472 RockyRacoon
RockyRacoon's picture


Thu, 11/04/2010 - 15:06 | 700466 gwar5
gwar5's picture

Monetary Euthanasia

No problem, I have chickens I can trade.


Thu, 11/04/2010 - 15:08 | 700470 TooBearish
TooBearish's picture

free money helicopter drop occuring in front of you right now and QE not working? - lawd - open ur eyes Ty

Thu, 11/04/2010 - 15:20 | 700526 goldmiddelfinger
goldmiddelfinger's picture

The emotional tension level plateau is has grown. It had been previously forecast to start on the 8th, but now shows as beginning on November 5, 2010, at approximately 2:30 PM Pacific Coast Time (UTC =+ 8). Further, the plateau of building emotional tension now extends out further to the 14th of November instead of the 11th. This is the last building tension to accrue. Expect the level to stay maddeningly the same until the breaking point.

Repeat. The 'break' in the tension values that indicates the tipping point after which we (the planet of humans) is into emotional release language starts on November 14th at 6:50AM Pacific Coast Time (UTC=+ 8). Repeat - Tipping point starts on 11-14-2010



Thu, 11/04/2010 - 16:30 | 700870 trav7777
trav7777's picture

what is this crap?  The election was a blowoff of sorts...people won't start to get more emotional until the GOP is shown to also be a complete failure

Thu, 11/04/2010 - 16:09 | 700770 Stuart
Stuart's picture

For all those calling Bernanke mad, his retort would be "look you bunch of retards, I didn't create the budget deficit last year, or the year before, or the years before that.  Unless you want to start bouncing pension checks, medicare payments and paychecks for our soldiers, get off my back.   You want to get pissed at someone, well get pissed at Congress for spending too much money.   Until they stop their spending I HAVE NO FUCKING OTHER CHOICE than print unless you want your parents moving in to your house because their pension checks are bouncing."   

Thu, 11/04/2010 - 16:15 | 700794 Jim in MN
Jim in MN's picture

I keep trying to talk my dad into moving in with us but he says we live too far from any good bars. 

Thu, 11/04/2010 - 18:31 | 701261 Lucius Corneliu...
Lucius Cornelius Sulla's picture


Good point.  The FED and Wall Street are mirror images of our own prolifigacy.  Having said that, you can kiss all pretenses of the FED being independent of politics goodbye.  They have thrown in the towel and become one with Washington.  Furthermore, they have proven beyond a doubt that they will do ANYTHING to save their founding syndicate members GS, JPM and Citi. 

Fri, 11/05/2010 - 22:19 | 701310 honestann
honestann's picture

Absolutely NOT.  You do not abuse people to enable evil predators to continue their ways.  You do the right thing, which then STOPs the predators in their tracks.

Bernanke is perfectly well aware that pulling a "Volker" (raising the prime rate to ~20%) would STOP the federal government of the USSA spending spree, and would FORCE them to cut back.

And this is, in fact, the primary reason Bernanke and FederalReserve repeat "we are independent" 20 times per minute... they are supposed to stop insanity of this sort because nobody else would support it.

Instead, he makes it trivial for the predators to lie, cheat, steal, defraud, buy votes, destroy the world economy, and cause no end of chaos - the extent of which will not be fully realized until the entire world system completely collapses.

Which is exactly what top-down / centralized / command-and-control economies like the USSR and USSA do.  They continue their corruption with nothing to stop them, until the entire system collapses.

One important purpose of money == gold is to make this impossible (due to finite gold supply).  The modern fiat, fake, fraud, fiction, fantasy alternative is the "central bank" which supposedly is "independent" precisely so they can refuse to increase the money supply (via QE) without consequences, and in effect, "limit the money supply just like gold would" (more or less).

Bernanke has zero excuse, even on his own terms.

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Thu, 02/24/2011 - 02:01 | 992000 shawnlee
shawnlee's picture

I doubt there will be a QE3 - mainly due to this paragraph:

"The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."

Essentially, Mad Ben can adjust the amount on a monthly basis, the total amount, and furthermore retains the right to adjust the program itself, i.e. he can theoretically extend it and decide to buy alternate asset classes as well under the guise of "required adjustments".

QE2 was a blanco-cheque.

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