The Complete Cost-Benefit Analysis Of QE2, And How To Best Hedge For Federal Reserve "Fat Tail" Risks

Tyler Durden's picture

At least Bank of America is honest as to why it continues to recommend investors pursue risk assets: "Liquidity-friendly global central bank policies remain the lynchpin of our constructive view on risk assets...Our economics team believes that QE2 will come in the form of purchases of Treasury securities of $500bn - $750bn every six months until the economy reaccelerates." In other words, this is precisely what Morgan Stanley's Jim Caron said on Friday when he confirmed that in this market nothing else matters, except what side of the bed Ben Bernanke wakes up on: "Investment decisions across many asset classes today are tantamount to an educated guess on what the Fed decides to do regarding QE. In the near-term this trumps fundamentals, valuations and almost everything else. Thus the risk in the market is man-made, not freely determined by the market. In general, this is not a good thing because it may invite greater risks in the future." To be sure, the market is now trading nothing less than QE news, but with that comes the added uncertainty of how the world's central banks will react to this latest dollar debasement episode: while QE1 was crucial and needed by the entire world to prevent the collapse of the system, things this time around are far less clear cut. Yet it is so difficult to fight the tape: as the attached chart demonstrates, for the duration of QE1 (3/5/2009 through 3/31/2010), global equities surged 80.5% while since April 2010, and without the benefit of the Fed's generosity, global equities have only generated 0.8% in returns. Furthermore, Jim Caron points out that unlike QE1, there is a very distinct possibility QE2 will fail miserably (all fans of buying what David Tepper is selling would be wise to be very weary). Luckily, just like in the Morgan Stanley case, BofA now highlights that there is a distinct possibility of "fat tail" risks and advises clients how best to position against these.

But first: here is why the "market" is nothing less than a euphemism for liquidity overflow actuions by the Federal Reserve now.

It is thus painfully obvious that there is nothing in the economy that drives stocks: all risk assets do is correlate with near unity to what the Fed is doing or will do in the immediate future. In other words, stocks no longer discount the natural growth of the economy, but are merely an excess-liquidity discounting mechanism.

BofA's Jeffrey Rosenberg agrees that only those who believe in a November QE2 event should be involved in stocks:

Fourth Quarter Investment Drivers

The key drivers of our constructive fourth quarter tactical asset allocation are:

  • Our expectation that both liquidity-friendly global central bank policies and the absence of deflation or a double-dip in the economy will encourage a cautious consensus to reduce cash
  • Low growth and low rates will cause liquidity to narrowly flow to assets that offer growth, yield, and quality, such as emerging markets. Stronger-than expected growth is required to broaden the rally in risk into areas such as the global financial stocks and the energy complex in commodities
  • Our continuing belief that while we favor risk assets, the probability of “tail risks” is higher-than-normal and recommend multiple hedging solutions

In the beginning there was QE…

Liquidity-friendly global central bank policies remain the lynchpin of our constructive view on risk assets. The impact of Quantitative Easing (QE), the central bank policy of purchasing financial assets, has been profound on asset price performance. Buying risk assets when the first QE program was announced on March 5, 2009 and selling risk assets when QE programs were ended on March 31, 2010, yielded handsome returns (Table 3). Industrial metals (+98%), equities (+81%) and high yield bonds (+73%) were big winners during this period.

…then the “Japanification” of rates…

In contrast, since the end of QE, asset price returns have been more modest (see Table 3) with the exception of the “fear” trade of precious metals (+18%) and the “safety” trade of government bonds (+9%). Between the end of QE in March 2010 and the eve of Bernanke's "proactive" speech (26 August 2010) 10-year yields declined 100bps in the US, UK, Australia & Germany (see Table 4). The collapse in interest rates towards Japanese levels was encouraged by stagnant summer markets in both US labor and housing as well as a deceleration in global lead indicators. The “Japanification” of interest rates in developed markets further reduced the incentive for investors to hold cash.

…and now “Growth at Any Price”

But since late August, the absence of deflation and data to support a double-dip, coupled with the new promises of fresh liquidity injections from the Fed and the Bank of Japan, has caused a melt-up in certain asset prices. Within equities, investors seem prepared to invest in “Growth at Any Price” as a wave of liquidity hits emerging markets (with the notable exception of China), creating a classic situation of "too much money is chasing too few goods". Stocks in India, Indonesia, Korea and Turkey have soared. Similarly, commodities such as sugar, corn, silver have also seen recent dramatic gains in price.

High liquidity, low growth

We believe policy will ensure that ample liquidity remains in the financial system and this will be supportive of asset prices. The sources of fresh liquidity are the Fed and the Bank of Japan. In the immediate future we believe liquidity is likely to be particularly supportive of assets that offer growth, yield, and quality, and our allocation is skewed towards emerging markets and spread products in fixed income. The 4Q risk trade should be aided and abetted by upgrades to Chinese growth, one reason to raise commodity weightings. Stronger-than-expected data on US labor and housing markets is required to broaden the rally in risk into areas such as the global financial stocks and the energy complex in commodities.

The Fed promises more liquidity

Central banks want inflation and we believe the Fed has both the will and the ammunition to step up to the plate if the data begins to threaten deflation. We expect that the Fed will announce a new program of Quantitative Easing if the economic fundamentals deteriorate further over the next three months. Our economics team believes that QE2 will come in the form of purchases of Treasury securities of $500bn - $750bn every six months until the economy reaccelerates.

These purchases would not only keep the Fed balance sheet steadily growing, but would likely provide a “shock and awe” catalyst for financial markets. The implicit promise of QE2 has clearly caused investors to close short positions in September and may eventually mean that QE2 is not necessary after all.

The Bank of Japan has added liquidity

Meanwhile the August “crash” in the JGB market caused a surge in the Japanese yen, ultimately forcing the Bank of Japan to intervene in currency markets for the first time since 2004. The intervention was unsterilized and if sustained will cause Japan to finally expand their balance sheet in line with recent Fed and ECB actions (Chart 5). Note Japan has intervened to buy US dollars on three occasions over the past 20 years (‘94-‘95 ¥9trillion; ‘99-‘00 ¥10trillion; ‘03-‘04 ¥35 trillion) and on all three occasions, the Japanese successfully widened rate differentials and weakened the yen (though in 2002-2004 it took time to work).

Yet even wild-eyed optimists such as David Tepper who are betting the ranch (or at least giving those that will buy Tepper's stocks and bonds that impression) that QE will be a resounding QE1-like success will have the be careful: as Jim Caron follows up his Friday observations, there is no guarantee at all that doing "more of the same" will either help the economy (for a change), or have the same impact on risk assets.

QE2 May Not Be a Panacea

However, it is not a foregone conclusion that QE2 is either necessary or effective for the following reasons:

QE2 will not necessarily lead to higher growth: Purchases of private sector assets or government bonds (Greece) can be useful when markets malfunction. However, when they result in sub-equilibrium levels of risk-free yields and/or artificially depressed risk premia on other assets, QE can result in further asset mispricing and misallocation of capital. The result could be another decade of poor quality economic growth, both in the US (zombie companies are allowed to survive) and globally (EM boom-bust bubbles);


Corporate and household borrowing costs are already appropriately low: Partly due to past QE measures, Treasury yields and 30y mortgage rates are already near historical lows in both nominal and real terms – see Exhibit 1, which shows 30y mortgage rates deflated by year-on-year changes in personal incomes and the core PCE deflator. QE(2) cannot by itself resolve the various factors – e.g., capacity, legal constraints or poor credit profiles − which have hampered a reduction in effective levels of mortgage rates paid due to a lack of mortgage refinancing options. Likewise, real corporate borrowing costs are not onerously high in either nominal or real terms (see Exhibit 2);

Deflation risks are modest: Although low levels of core CPI have raised Japanese-style debt deflation concerns, recent IMF research1 suggests that while economies with significant negative output gaps tend to post similar percentage declines in inflation (disinflation), outright declines in prices (deflation) – such as experienced in Japan − are very rare due to stickiness of prices and wages (see Exhibit 3).


Recent year-on-year increases in producer prices of finished goods, of core PCE and GDP deflators and signs of increases in rents and owner-equivalent rents also suggest a pick-up in core CPI in coming months, as also expected by Morgan Stanley economics (see Exhibits 4 and 5); and

QE imposes a carry tax on the banking system: As a result of Fed purchases, higher-yielding, low-risk Treasuries and mortgages on deposit bank balance sheets have been replaced by US$1,991 billion of current account balances of banks with the Fed remunerated at only 0.15%. Besides depriving deposit banks of higher yielding risk-free assets, this has imposed a tax on the banking system, making it more difficult for the banks to boost their capital ratios. In turn, we believe that QE could actually impede, rather than stimulate bank lending, which – besides credit issues – is hampered by a shortage of bank capital instead of bank liquidity.

Caron's daming conclusion is that the best the Fed may hope for is to retain the status quo rather than to generate any incremental improvement in assorted financial indicators, let along the economy. If correct, this is a sad summation, as it means that soon the Fed will be forced to intervene more and more often merely to preserve existing gains in risk assets, instead of achieving any new headway in the road to Dow 36,000.

Perhaps the best the Fed could hope to achieve is to cap any potential rise in US Treasury yields and/or realised Treasury volatility through additional purchases of US Treasuries in the event of significant further USD weakness. Certainly, the Fed’s QE measures already appear to have their desired effects in healing US/global credit markets. By contrast, a resumption of bank lending and/or a reduction in effective mortgage rates paid by households are more likely to be driven by a resolution of various structural factors (household/corporate deleveraging, easing of mortgage origination/refinancing constraints, etc.) than by additional QE measures.

And if there is one chart Mr. Tepper should look at, it is the following:

So should investors sit paralyzed at this point, now that QE2 is not the definitive catalyst for a surge in stocks that Tepper expects? Not at all - in fact it may be time to go all Taleb on Bernanke's ass. Here are the best ways to hedge risk according to Bank of America, along the 6 key verticals of the unknown which are summarized as: 1) negative growth shock, 2) positive G7 growth shock, 3) risk shock, 4) G7 deflation, 5) inflation, and surprised #6 being no surprise.

1) Cross-asset correlations remain high: use it to your advantage. Substituting another asset class as a hedge may be helpful, as we remain in a riskon/ risk-off world (Chart 13). For example, between April and June the Australian dollar fell almost as much as the S&P 500 despite put options being much cheaper.


2) Finding good hedges is easier than figuring out what will go wrong. Successful hedging involves identifying assets that predictably react to the most number of risk-off events. Equities, industrial commodities, credit and certain FX crosses have been consistently reacting to risk-off events. Hedging with rates may be more appropriate for specific tail risks.

3) The cheapest crash hedges remain in Asian equities and FX such as AUD. Chart 14 illustrates the relative cost of hedging with  out-of-the money puts on various assets vs. hedging with a S&P 500 put. Assuming a market decline back to 2008 lows, NIFTY, TWSE, HSI and HSCEI provide similar protection to S&P but at much lower costs (NIFTY is 56% of the cost for the same level of protection). Australian dollar puts offer crash protection at 80% of the cost. Most of these hedges also performed well during the sell-off in April/May this year when the S&P 500 fell 14% as they delivered greater protection at lower cost (For further details on how our favorite tail hedges performed during the risk-off events of 2010, see “Global Equity Derivatives Insights”, 21 September 2010.).

4) Sell expensive tail protection, and exchange for cheap. With tail hedging growing in popularity some obvious tail hedges such out of the money Eurostoxx 50 and S&P 500 options are still historically very expensive. Selling this protection through put spreads captures this premium to reduce the cost of hedging against modest declines. Cheaper tail protection can then be purchased elsewhere such as in AUD or Asian equity markets.

5) Hedging with credit remains expensive vs. hedging with equity options. With equity volatility normalizing faster than credit spreads, hedging with equity options is cheaper than buying protection on major credit indices. Option hedging also benefits from total hedge costs being known up front, versus credit hedging where hedge costs increase as spreads tighten (We are not considering credit options, as we believe they are even more expensive than hedging with credit).

Table 5 compares the cost of buying a one-year put option on the S&P 500 and Eurostoxx 50 to buying protection on major US and European credit indices. The hedge ratios are determined to provide the same protection if both credit and equities re-traced to their stress levels of 2008/09. Buying protection on U.S. HY credit appears the most attractive credit hedge, as it costs 67% of a 1 year at-themoney S&P put. However, we believe HY would only widen to ‘09 crisis lows in a major Sovereign scare, and would be less stressed in most other risk-off events, reducing the value of credit as a hedge. Also, our 1 year forecast for HY spreads of 440bps would increase the cost of a HY hedge beyond that of an S&P put.

6) VIX puts still a good way to pay for hedges if nothing bad happens. With shorter-dated equity volatility falling faster than other asset classes, the term-structure of S&P volatility is again approaching its steepest levels in 20 years. This allows puts on the VIX to roll down the term structure and provide a positive pay-out is nothing bad happens. The profits from these trades can then be used to fund other hedges that expired worthless and can be an effective way to reduce the overall cost of a hedging plan. The most efficient implementation is through VIX put spreads currently, rather than outright puts.

It is without doubt that QE2 will shape the face of risk assets over the next two years. And all those who naively have bought stocks in anticipation of a Tepper-endorsed outcome of a stock surge, may be wise to recognize that not only is there a distinct possibility that the Appaloosa founder is not only wrong, but currently on the other side of the trade. To all these, we highly recommend applying a basket of fat tail protection trades as suggested above. After all, the prevailing groupthink is that the Fed will succeed now as it always has (compare last week's CFTC COT data to see just how little debate there is on the topic). Should the crowd be proven wrong once again, as always eventually happens, watch out below.



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Mercury's picture

Our economics team believes that QE2 will come in the form of purchases of Treasury securities of $500bn - $750bn every six months until the economy reaccelerates.

Don't hold your breath...

kaiserhoff's picture

And when the fed owns 500% of the outstanding treasuries (through repo agreements and other creative accounting), then what?

egdeh orez's picture

So how does a retail investor buy puts on HSI?

kaiserhoff's picture

Not something I have done, but any of the full service brokers could do the trade for you.  The trouble with trading options in a retail account is two fold.  You have to find a broker who understands options and a competent margin desk, especially if you are doing spreads.

                                                      Happy Trails

B9K9's picture

I'm going to take a page from Johnny Bravo and declare that I will eat one US dollar if QE is implemented to any meaningful degree before the 112th Congress is seated in Jan 2011.

We are nearing a critical inflection point; Bernanke knows the cause is lost, yet he is still hoping for some kind of miracle. What he will not do, nor would anyone conditioned by a corresponding level of power & authority, is to make a unilateral move of this magnitude without sufficient cover.

It really is all over - people need to finally accept this and begin to prepare for what happens next. The initial bail-outs were designed to facilitate the transition from MBS to Treasuries and (excess) reserves for certain favored parties. Subsequent dollar destruction (hyper-inflation) serves absolutely no purpose to further these objectives. IOW, the power-elite think they are safe as long as the dollar survives.

(I grant small-scale QE served to pump equity prices, but that was a last ditch attempt to trigger animal spirits and reinvigorate organic credit growth. Who amongst the elite actually have their primary wealth remaining in these instruments? Could anyone get out at any significant volume? Of course not.)

So, we have a very natural human instinct not to make any rash/risky moves, especially without adequate support in a period of imminent, and potentially massive, political change, combined with the fact that the most powerful groups in the world are safely ensconced in their investment vehicle of choice. (With gold as added insurance.)

Now tell me again what Bernanke is going to do? QE you say? LOL - we topped and it's all downhill from here on out as the ride accelerates down the deflationary slope. As the next Congress of idiots are going to find out, hyper-inflation will come not from printing, but from the realization that the US is completely insolvent & the debt(s) can never (and will never) be paid. So they will have to start bailing and quick - the list below provides a brief synopsis of the repudiation order that will be coming next:

  • Unfunded mandates
  • Unsustainable entitlements
  • Un-payable debt

Now, what it's gonna be like in this kind of environment? Sure you still want to be around?

Shameful's picture

I fail to see why the dollar being saved would benefit them at this juncture.  Seems to me that a wave of outright purchases with freshly printed dollars would help them just fine, a glorious round of looting before the bomb goes off.  The dollar is doomed anyway as is the US, the math does not lie.  Why would they not steal the march on that fact?  Now an argument can be made that they would lose their fiat money monopoly, but that is unlikely.  What is more likely is that another faith based currency would step up in it's place, either emanating from the smoking wreck of the US or the IMF, or using an existing one.

Though I can see not announcing it.  Printed money spends like real money the first time.  There is little to prevent them from loading up on real assets with printed money at this point.


kaiserhoff's picture

Printed money spends like real money the first time...little to prevent them from loading up on real assets...

Wonderfully said, except that all assets turn to steaming wookie doo in government hands.

PS  No offence meant to our esteemed colleague, of similar nomenclature.

Kayman's picture

Printed money spends like real money the first time.  There is little to prevent them from loading up on real assets with printed money at this point.


Shameful - am I in a time warp?  Isn't that what the crooks have been doing for 2 years ??


Shameful's picture

2 years?  My number was about 97.  They have been using the monetary system to get real things without working for them for almost a century, why stop now?  I only point out that now that the big collapse is on us they will redouble their efforts to rob us.

Seer's picture

"Seems to me that a wave of outright purchases with freshly printed dollars would help them just fine, a glorious round of looting before the bomb goes off."

I'm not sure if you think that or whether you think that They think that...

As I've stated in the past, what the hell are they going to do with all the game pieces when no one else is going to play the game?  You want fucking maintenance headache McMansions, gas guzzling SUVs, big screen TVs that air nothing but shit, worthless dollars?  There's no future in any of this crap!  And this, friends, is exactly what's playing out, all the shit is being dumped.  But... NO ONE knows how to proceed in the future, because, well, because everyone played as though the game would go on forever- TPTB, those that tell us that they are "guiding" us, have been, like the folks at the SEC, asleep at the wheel (watching porn).

Slowly, everyone will turn away from this collapsing hulk we call an "economy."

Shameful's picture

Bull, assets are assets.  And when they are effectively free who cares about upkeep if that is free to, and if it's not let them rot, or sell them back as scrap.  But you also miss what I mean by assets.  Land is always nice, or buying up companies.  Sure you might not put your hard earned money into them but when they are free would you turn down 50k shares of say Microsoft or Apple?  I doubt they are buying up lots of SUVs, but they could.  Why not it's FREE.

The game is radically different when one party basically gets free money.  Unless everyone decides to do without material things and we all ascend to become being of pure spirit and energy then I'm pretty sure free assets are a good deal for the person getting them.

minus dog's picture

"imminent, and potentially massive, political change"

Is this sort of like a sky-diver talking about "imminent ground-human juxtaposition attempts" or what?  

Governments, particularly local and city, are hooked on spending just like everyone else.  They can't screw everyone, but that doesn't help the first victims when they decide to try.

DoctoRx's picture

Perhaps BB not hoping for a miracle, just doing what the Street wants; which is more business, meaning more debt to buy/sell/bundle etc.; and even more to the core point, doing what Timmay demands, which is buyers for the unending debt he has to sell.  What the abstraction called "the economy" does from quarter to quarter may be of little fundamental importance to what his role really is. 

masterinchancery's picture

In other words, until the year 2050 or the year in which starving hordes sack DC, whichever comes first.

Hansel's picture

I read that to mean we are going to monetize the deficit in perpetuity.

carbonmutant's picture

Time to start sacrificing small animals...

Rusty Shorts's picture

Tragedy of the Commons

Sqworl's picture

Even the Devil hates fixed games!

Shameful's picture

So I'm reading "Our team believes the Fed will buy 500bn - 750bn in Treasuries every six months until the full recognition of a currency crisis".

On the plus side to our elected criminals it means that they don't need to worry about funding.  Zimbabwe Ben stands ready, willing, and able to make all the funny money they can spend.

Hansel's picture

Exactly.  How would this plan be any different from what Reichsbank did?

Mercury's picture

The cheapest crash hedges remain in Asian equities and FX such as AUD.

Be interesting to see the positions in chart 14 expressed in terms of their recent corelation to the S&P 500 too.

MsCreant's picture

The link to the video is sick assed stuff listened to in this context. 

Ben- A bankster's tribute.

Ben, the two of us need look no more 
We both found what we were looking for 
With a friend to call my own 
I'll never be alone 
And you, my friend, will see 
You've got a friend in me 
(you've got a friend in me) 

Ben, you're always running here and there 
You feel you're not wanted anywhere 
If you ever look behind 
And don't like what you find 
There's one thing you should know 
You've got a place to go 
(you've got a place to go) 

I used to say "I" and "me" 
Now it's "us", now it's "we" 
I used to say "I" and "me" 
Now it's "us", now it's "we" 
Ben, most people would turn you away 
I don't listen to a word they say 
They don't see you as I do 
I wish they would try to 
I'm sure they'd think again 
If they had a friend like Ben 
(a friend) Like Ben 
(like Ben) Like Ben 

For the record, Ben is a RAT. No doubt with a FAT TAIL.

Miss Expectations's picture

That was the karaoke version...who's drunk enough to step up to the mike?


DonutBoy's picture

It surprises me that BofA would publish this.  They are parties to the fraud, yet they have the honesty to call it what it is.  The implicit assumption in their projection is that so few people will read and understand it that the shell game can continue.  We are in the Wiley Coyote runs off the cliff scenario, we're OK until we look down.

sweet ebony diamond's picture

The Wile E. Coyote metaphor is priceless.

Ben is just not smart enough.

davidsmith's picture

"this is not a good thing because it may invite greater risks in the future"


I wish people would stop peddling this myth.  This is not monetization, it is liquidation.  This is not risk, it is the decline of economic activity.

masterinchancery's picture

Wrong; when one govt entity buys the bonds of another with money created out of thin air, it is by definition monetization.

Kayman's picture


Think you missed young David's point.

kaiserhoff's picture

Is this or is this not a sea change?  This stuff makes my head hurt, and I am agnostic at best about macro-econ, but I don't see any inflation coming out of this, in spite of Ben's wet dream.

He would love to give cash to anyone who will spend it, but Europe is on an austerity kick.  He won't get much help from Merkel, et al. 

He would love to give a new cadillac to anyone who votes for Obama, but a new congress will queer that deal.

If the money is borrowed, even at zero rates, that isn't the same as spent, at least it wasn't in the seventies.  Rates will stay lower than a snake's navel in a wagon rut, but if the fed owns the treasuries, they are not available for reserves elsewhere.  I'm betting there will be no massive bailout for the states, because there would be hell to pay, but that's a wild card.  So too are commodities.

Commodities look inflationary, probably a chimera.  Remember $145.00 oil?  Commodity games bring swift penalties.  Some damn fool ends up with $100 per bushel wheat.  Then the lesson is learned for six months.

I keep coming back to the same point.  Ben is in fail mode because he can stuff money into assets, but he can't effect spending.  That only looks worse going forward, meaning less stability, and probably, more deflation.  What am I missing? 


Dismal Scientist's picture

The biflation idea remains the most likely to continue for now. Inflation in things you need (food, energy etc), deflation in things you own (especially if bought with leverage). The US will have to go for the austerity route now to have any hope at all, and we know that it is a) too late for that anyway and b) impossible politically for a sitting Democrat president advised by rabid Keynesian money printers.


kaiserhoff's picture

Well said, and of course, dropping wages unless you work for the government, and bad joke interest on savings.  This site is often criticized for being too negative.  As compared to what?  A complete reset due to depression or hyper-inflation looks better than this slow bleed out of all things decent and productive.

gwar5's picture

Yep. Biflation -- I like that one. Is that different than stagflation? I look at other countries that have gone through such things. Essential imports like oil skyrocket while local and domestic items don't, but no one can pay for the local items after they fill up the car. The oil thing is going to kill us.

Seer's picture

"but no one can pay for the local items after they fill up the car."

Exactly!  This is the kind of thinking that's missing.  It's as I'd long ago said, the concern isn't peak oil, it's peak oil export: I only ever ran into ONE person out in publication land that understood this!

Further, add in a reversal of "economies of scale" and one can clearly see that this has nowhere to go but down.  Deflation tends to kill the rich (who are saddled with tons of expensive worthless crap), and there's no way that Ben can rescue them.  They all thought he would drop money, that this was guaranteed to correct things, but clearly not so...

No one bothered to ask the most important question: can this System operate with NO/Negative growth?  Because, clearly we could not (ever) have perpetual growth on a finite planet.

Conrad Murray's picture

Table 3 makes me want to dive further into my bottle of rum.  This is a sad, sick joke of a world we live in.

For anyone that didn't catch the big support Barry rally in D.C. this weekend, here is a video you must see:

Invisible Hand's picture

Those of us that risked our lives (small risk for me, not so small for others) to win the Cold War are proud and pleased to see how what the victory has led to. 

Anton LaVey's picture

True (and proud) socialists don't even support Obama anymore. That video was one the worst example of cherry-picking I have seen in a while...

gwar5's picture

70 democratic members of congress are members of the Socialist Party of America. This rally was also heartily attended by the Comunist Party of America, marxist pink ladies, amnesty for illegal communists, and every other crackpot group known to mankind. The Communist Party of America also advertised on Obama's "Organizing for America" website calling for people to show up as a sign of support and power.

Seer's picture

What?  No mention of the party of fascists?  The pro-slave group?

You party/ideological morons get so fucking tiring...

RockyRacoon's picture

They have to hate something and are easily swayed by the political games.

Easy to play but impossible to win.

Kayman's picture

Uh... scuze me Senior Trotsky, but  a fellow socialist has come to visit.... 

DonS's picture

In other words, this is precisely what Morgan Stanley's Jim Caron said on Fridaywhen he confirmed that in this market nothing else matters, except what side of the bed Ben Bernanke wakes up on: "Investment decisions across many asset classes today are tantamount to an educated guess on what the Fed decides to do regarding QE. 

What a sad state of affairs. Really. Their was a time when sector and stock analysis used to mean something; when stock pickers and analysts used to try to put all of their best ideas forward and pick the next winners. I remember alayzing balance sheets and cash flows and industry trends and the old green chart books which came out once a week, looking for the breakout stocks. That shit was fun and rewarding. Now, i just trade on 2 minute time intervals, having to think like a robot does to scalp 20 cents when I can 2x a day.

There was a time when people and market makers and specialists and investors and entrepreneur ment something. Where they contributed. Where the industry produced new people to get into the game and wanted to excel at it. To do good and the right thing. 

NYC was so great!

There was an article written in 2003 or 2004 in either Fortune or Money Magazine. It was fictional and it talked about the transparency that was to come in the market and how ultimately we all would get the same returns, how nothing was real, how no individual stocks and no individual companies would prosper on their own, and how it all moved together as one, up and down. How the market was static and fixed and how the original purpose of capitalism, of the markets, would be compromised. How individual stock picking would be and has been morphed into something unintended.

I wish someone could find this article and post it. I tried Google it and cant find it. It would be so timely today. There are no more markets and It is not even a casino, I dont know what it is.


Look at the floor today at the NYSE, its vacant. Its boring looking.

Seer's picture

Computers run the game now.  These people have been out of jobs for a long time now.  They too ar ebeing propped up by the System/TPTB to cheerlead for the System run by computers.  Hm... seems that we were warned about this a long time ago...

jm's picture

@ DonS... amen.


“Our economics team believes that QE2 will come in the form of purchases of Treasury securities of $500bn - $750bn every six months until the economy reaccelerates.”


Does it come down to this?  Providing opinions on what some team thinks some other team will do at some unknown point in the future?


“…recent IMF research suggests that while economies with significant negative output gaps tend to post similar percentage declines in inflation (disinflation), outright declines in prices (deflation) – such as experienced in Japan − are very rare due to stickiness of prices and wages”


Stickiness of wages? U6 = 16%.  And accelerating numbers of people dropping off welfare…  


“the probability of 'tail risks' is higher-than-normal and recommend multiple hedging solutions.”


People spend more time worrying about tail risks than trying to get the center (FAR more likely to occur) right.  If you are really going into stocks because of what someone thinks that someone else will do, the best thing is a stop-loss or a conservative VaR.  Why not just spend time pick a few names that can generate superior returns and buy the bond (if they have debt) AND the stock?


“Sell expensive tail protection, and exchange for cheap.” 

This is how you blow up, not how you hedge.  You are supposed to build a hedge book that generates some basis points, and then sell VIX just in case your hedge isn’t needed? Am I missing something here?

frankTHE COIN's picture

Once you're born a dog you cant die a cat. This bitch is gonna crash.

mynhair's picture

QE2 = capital flight = guaranteed 'double dip'.

gwar5's picture

Yep. Firsters left in 2008 with the new regime. We all live in a Latin Banana Repuublic now. I think the Fed foresaw this 2-3 years ago and was closing off access to foreign bank accounts per expectations

merehuman's picture

Dollar terminator, future killer tonite channel 7! 6 oclock watch burnankey fly

free toasters!   The end is near, save your ends!  Nothing makes sense, flow with it..ride the tsunamy   29.95 w/ coupon

TheGreatPonzi's picture

The cause is lost and the FED knows it since the beginning. I don't know what they're wanting right now. I don't think they hope for a miracle. Bernie may be dishonest, but he's not stupid.

Anton LaVey's picture

As Albert Einstein used to say: "There are only two things that are really infinite: the Universe and human stupidity. And I am not so sure about the Universe".

Food for thought. Make of that what you will.

RockyRacoon's picture

They are not quite looting the Treasury yet.  There is still a little life left in the old girl.