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Did The Fed Just Give The Green Light To Sell The Stock Market?
Remember when the president uttered the magic words back in March 2009, when he said that "profit and earning ratios [whatever the hell those are] are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it" giving the green light for the 2 year bear market rally? Well, if that was global market Risk On, Janet Yellen just gave the Risk Off command. To wit: "forward price-to-earnings ratios in the stock market fall within the ranges prevailing in recent decades, and are well below the early-2000 peak, although corresponding measures for small-cap equities (not shown) appear somewhat elevated....special questions included in the March 2011 SCOOS suggest an increase
in the use of leverage by some traditionally unlevered investors (such
as pension funds and insurance companies) as well as hedge funds during
the previous six months.
" Yup: small caps, aka the Russell 2000, aka the Economy according to the Fed's third mandate. Ironically, the Fed realizes the Catch 22 it is caught in, which we noted earlier, namely that stocks are pricing in QE 3, but for QE 3 to happen stocks have to drop 20% from here. Well, this may be the last warning from the Fed.
h/t London Dude Trader
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Your right. No QE3 without an engineered fall of at least 10%. We are in Humpty Dumpty territory.
Thanks to QE, the relaxation of bank accounting rules, and endless stimulus/bailouts we can thank Planet Washington for the shortest bear market in modern history.
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s162499420]&disp=P
Did any of us believe this credit bubble would produce a bear market of only 5 quarters? What are we going to call the new bear market? WWIII?
Even with the massive QE2 the major US equities markets have been basically flat for the most recent 4 months. The markets have lost momentum even with QE! It is now the debt bubble itself which is the drag on the economy. Of, course this will never be documented in the popular press.
Fed's Chief Counsel Says Faster Emergency-Loan Disclosure May Hurt Economy (Allow me to translate, because this is the same answer they gave in response to the Mark Pittman/Bloomberg FOIA Lawsuit, and is as insulting to the intelligence of any warm blooded mammal now as it was then: "We do what we want, when we want, so go fuck yourselves, American Taxpayers.")let's just say, free-market, liberty, and consititutional rights are all hurting the economy unpatriatic, and un-American, and be done with it. On your way out, please switch off the internet as well.
It is saddening what our leaders has made this country something that I no longer recognize.
Our 'leaders' have made it that way because people like you, and I, don't stand up to them. We also keep perpetually voting the same idiots back into office: e.g. Harry Reid and Nancy Pelosi. Americans truly do deserve exactly what they are getting and I feel no empathy for anyone with regard to how this plays out. In other words if you are looking for someone to blame then look in the mirror.
Party A licks bankster toe and Party B licks bankster toe. And the choice is?
I agree that Pelosi and Reid are exceptionally horid, but there's no salvation from other team either.
Split the system and let it die. Rebuild better.
Only Democrats? No Republicans?
You are a sheep.
Reid and Pelosi are the worst offenders. You are an ass for even bringing up this partisan bullshit. Looking for the sheep? Look in the mirror.
Sometimes the mind reels. I believe it was you who named Democrats only.
You should have thrown in a couple of Republicans to save yourself the ass-reaming.
That mirror works the same for everyone; it's a non-discriminatory revealer.
jO,
Please do not throw a wet blanket on everyone.NOT all Americans got to vote against these pus pockets.
Many here sent a lot of money trying to get new blood in, and old blood GONE.
So to make a statement as you did is not correct nor fair.
But they've got us by the balls. The rules are stacked in their favor. Just TRY to run as an independent. Good luck with that. Unless you're already wealthy and have a lot of friends...forget it!
If people KNEW what an independent has to go through to get on the ballot...you'd vote for them just because of the tenacity and courage it took! The Dems/Reps just choose who the best actor, the best convincer, is out of their "pre-paid" buddies and start collecting money.
Campain reform is what we need FIRST. NO campain contributions at all. Every bona fide candidate get's equal media time, but NO SIGNS, all paid for by the public. Each candidate get's an infomercial, stories about their past, their views, etc. We need to eliminate the parties. I'd rather have 535 independents locked in a stalemate then what we have now. The less we get out of DC, the better.
I think the best future for all three branches of government would be to appoint them as with jury duty. And institute mandatory death sentences for anyone bribing them. Of course it would never happen and the situation is hopeless. Anyone who thinks that at this stage of the game, meaningful reform could be achieved through the ballot box is smoking hopium. That is not the game plan of the NWO my fellow serfers.
I was always taught the word "leader" meant a person that did the right thing, even when it wasn't popular. "Leader" meant men/women of integrity, that you could look to for guidance. "Leaders" were men/women of the kind of character you would want to emulate....
I see NO "leaders" in DC. I see NO men/women I would ever want to emulate coming from our illustrious political class, except perhaps Ron and Rand Paul.
If you take the ratio of total market cap to GDP you get 95% as of today versus last year total GDP. Already in overvalued historical territory.
More alarmingly, this puts the ratio in the same ballpark as 1997-1998.
Even more alarming, the 1987 pre-crash peak had a ratio of only 66%.
The 2009-present market interventions have had the net effect of preventing the market from working off the post 1995 bubble. And that will weigh heavy for years and years. It also means we're still living in an a world where biflation rules and crushes the real economy for years to come.
Great catch Tyler and wonderful post Caviar Emptor. You are a golden oldie gem buried in a box of shit tossing kittie litter. I started trading futures this year and have focused mostly on silver (not a great way for most people to start) but also trade corn, wheat and gold occasionally. I'm looking to expand markets and the TF (mini-Russell 2000) is in many ways easier and more profitable for a 25-500K day trading account than the ES (S&P 500). Though the NQ nasdaq is often used by people starting out.
Trading futures = moving paper around trying to out guess how somebody else is going to move their paper around. Jeebus, is that a career for grown-up people? Whatever happened to making stuff that people actually need/use, and selling it for a better price than other people making stuff?
i'm currently betting no QE3 AT ALL. no point. they've already stolen over $5 trillion. there's nothing left to pillage. they'll short the markets down to 450 from here.
Agreed. If QE3 was to happen, more people will wake up to this scam. They don't want that. Game Ova
It's my understanding that hyperinflation is more favorable than deflation from a bank financial statements' perspective because in hyperinflation, all loans have the chance to be paid in full, thereby preserving the balance sheet; whereas, in deflation, loans default, and cripple the balance sheet. The assets received through default are of lesser value and are costly to unload.
Tyler may have perspective on this.
That's right. And that's why they'll never allow deflation to happen. Defaults due to deflation would not only hurt banks, they hurt wealthy overlords to whom debtors owe money.
Deflation cannot be stopped IMO. The debt overhang is simply too large.
True. That's why we're stuck with biflation, I keep saying. We've go deflation along side Fed stoked inflation in the cost structure
We have inflation with a bear market in housing just like we had inflation in 2000 with a bear market in Nasdaq stocks.
This is so much more profound than the tech bubble though. Its not just housing now either. The real economy has been DISINTEGRATING around us for the past 2 years and yet NOMINAL gains in a simple index has prevented the sheep from scattering.
Since when is reason and common sense an integral part of economist strategy?
This isn't about longterm strategy - it isn't even about midterm stragegy. It is all about "make it good NOW".... the only thing that could prevent QE3 NOW, is if there was popular sentiment against it NOW.... and as long as that sentiment can be overridden via market manipulation NOW, the sentiment doesn't matter.
Bottom line: QE only stops, when people stop allowing it, and cannot be made to stop allowing it.
That would be true except the question is this: who owns the loans? The banks are flush with cash, the Fed, Fannie and Freddie (the US Tax Payer) bought most everything else except some short term commercial paper which is collapsing daily. So maybe the time is ripe for deflation so the banks buy up everything not nailed down, especially PM's at 1960 prices. Good-bye family farm, family business, real estate, etc. The Banksters get the real assets and the tax payers get the oblgation. The Bankster liability is cloaked in a golden parachute, zero risk money fabricated from nothing, US government guaranteed income on money borowed ZIRP from the Fed etc, etc.
Just a hunch, you know cause this is certainly an unusual situation. Or did I miss something?
Banks don't want real assets. They want to finagle the paper, it's easier and more profitable.
If they wanted assets, they already have 1/2 the houses in America and look what they are doing with them. Nothing. Trying not to get stuck with them, palming off the bum mortgages on Fanny and Freddie, putting off dealing with the housing crisis as long as possible.
Inflation might be good for the repayment of loans, but hyperinflation isn't good for anyone. I've seen people act like panicked monkeys at the grocery store when the forcast calls for a 2-day snowstorm.
You are assuming that they care about the majority. If hypothetically the currency were destroyed now, would it change anything about what real goods people own now?
Nope, it would't.
Exchange rate, aka currency is just a means to rule how goods are exchanged - it isn't the goods themselves.
Right but ZHers are in the minority, in that we own goods that will retain value regardless of the exchange rate used to trade them. A shit-ton of people have no real assets, no savings, and no PM's, nothing of value to trade in any currency, let alone an environment where the old currency has toilet paper status. Those are the people I was referring to. If they overreact to storms, imagine what they will do when they find out they can't withdraw their money from the bank.
It's going to smack a lot of unprepared people right in the face. They don't care about the majority of people in this situation, and that's what makes me a little uneasy - but I guess that's what martial law and the FEMA camps are for (yikes).
When it comes it will be sold in such a way that the sheeple will be begging for it.
What money? I think you meant when swiping a credit card yields nothing.
HBS is spot on. deflation sends the banks broke, hyper inflation sends the people broke. QE3 it is
No offense, but the opposite is true, actually. It's math. Math can't lie because math is essentially circular reasoning proving itself correct based on a set of rules.
Inflation = debtors win.
Deflation = creditors win.
Now, depending on one's view of the big picture, as in the end game, accumulation of money may or may not be as important as accumulation of power (economic and political and military). And that's fine. I have no inside information on the why, what, who, how, when, where, etc. things fall apart and what the ultimate consequence or the ultimate objective, if there is a planned one (and there very well may be judging by many public statements made by some influential people, especially when things have slipped out), truly is.
But from a strictly mathematical perspective, inflation wrecks the value of the loans doled out from the perspective of the lendor who must accept fiat that has since lost value, while deflation wrecks the life of the debtor who took out a loan that has to be paid back with fiat that has increased since in value.
"Inflation = debtors win.
Deflation = creditors win."
And big thanks to XPolemic with a logical possibility to deflation incentives for the banks.
I absolutely agree. But something doesn't seem right.
Then, why, was Wall Street, an assumed creditor of capital, pounding the table for QE2?
Is EVERYONE in debt over their eyeballs that EVERYONE needs it inflated away?
...
I think I just answered my own question, but still interested in the board's wisdom.
Bank are usually short term debtors and long term creditors. They basically make their money as middlemen. This makes them vurnurable to sudden shortages of cash, so the FED makes shure that that thay allways have some at hand.
Also, the banks get their hands on the freshly printed cash before it can have any inpact on prices... Thats why some call it "inlfation tax".
Roi (above) is correct. Imprudent banks have moved most of their funding to the short end of the curve. QE is about pushing down the short end so banks can avoid liquidity problems. Banking failures are almost never problems of solvency, only of liquidity.
Borrowing at the short end and lending long has been incredibly profitable for banks and Wall Street,and when the curve inverted, nobody wanted to give their bonus back, so the taxpayer had to provide the liquidity. Washington could have let the banks fail, but in all likelihood that would have caused short term money markets to dry up, and most commercial paper is short dated.
However, given the rise of capital managers like GE Capital, who unlike bankers, actually know something about business, I'm not sure if it would have been the complete disaster that the banks claim. There is an awful lot of free capital in the world chasing any kind of yield, and it is quite possible that risk appetites would have increased to provide funding for the commercial paper market. I'm not sure why anyone would care if a bank carrying 70% of it's book in mortgages failed. After all, it would be excellent for the mortgagees, and no great loss to general commercial activity. :)
One has to distinguish assets and consumables. Assets, heretofore purchased with debt in the credit bubble, will continue to deflate. Consumables will continue to inflate as the Fed trys to re-light the economy. It's not one or the other.
So the effect on debtors is still negative. Dollars are worth less gallons of gas, but the house bought with credit bubble dollars is gone and all the equity went with it. Wage increases lag or are skipped altogether because of the surplus labor in the market.
The Fed is smart enough to know that the housing-driven economy is over, and we must export. Unfortunately, Japan must export, Germany must export, China must export, Greece must export... The dollar's going to have to get wickedly lower and our standard of living has to be driven down to the level that can be supported with our economic output alone, not output plus borrowing.
I don't think 90% of America has any clue what's coming. It's going to be ugly.
The notion that math is circular in reasoning is silly. Mathematics is *not* circular reasoning at all. The cornerstone of mathematics is set on axioms, e.g. Dedekind–Peano axioms, and the rest logically flow (deductive reasoning.)
TPTB face a simple arithmetic problem. That is why I believe, there will be some form of QE3; they need fuel to keep the Ponzi scheme going.
Too much deflation => strategic defaults => creditors holds assets => creditors want asset price inflation => inflation => creditors win
-and the corollary-
Too much deflation => mega depression => political unrest => ... => creditors loose
thats ok TIS, but math has nothing to do with it which is why you dont understand. In deflation the value of money rises because there is less of it. So as deflation progresses people and business earn less because its costs them less to survive. But the debts that people owe remain the same as they were before the deflation sets in. Its this debt remaining the same but people and business earning less during deflation that forces them to default on their debt as they aren't earning enough in the new deflationary environment to meet their pre deflation debt obligations. these defaults cause banks to collapse a la the great depression. the opposite is true during inflation. In deflation banks go broke, in inflation they dont becuase the debts get inflated away. Have a look into it. Its in the economics section, not the maths section.
Deflation can happen either because the amount of currency contracts, or because the real or perceived value of goods and/or services fall, or both.
Inflation can happen either because the amount of currency expands, or because the real or perceived value of goods and/or services rise, or both.
You are thinking in linear terms rather than relative ones.
And your comment that "in deflation banks go broke" is hard to even formulate a response to, precisely because it's such a broad statement given that you provide no context as to the why the deflation is occurring or the landscape and backdrop of the economy during such a deflationary episode.
In a vacuum, all things being equal, banks are in the business of providing loans, and their portfolio, in the form of both securitized and non-securitized loans, grows in value when deflation sets in, as those owing the bank money provide increasingly valuable payments on those loan obligations, with each and every successive payment to the bank.
Yes, their cashflow increases in value, but the security/collateral for the loan decreases. This has a negative effect on the bank in the following ways
1) Credit migration. As the LTV increases, so does the risk. Traditional lending practices dictate that as the risk increases, so too does the spread. In theory, the bank can pass the risk on to the debtor by increasing the interest rate, but this has the unfortunate side effect of increasing the default rate. The alternative to increasing interest rates is to take a hit in spread compression.
2) Repossession of underlying collateral (i.e. property). If the bank is forced to foreclose on the loan, then it trades cashflow for a hard asset. In a deflationary environment, those assets are depreciating, and appear on the balance sheet as a loss.
3) Economic capital (Tier 1) requirements increase with risk. As the LTV increases due to falling prices of the underlying asset, the risk, and hence Tier 1 capital requirements as increase. In a deflationary environment, the cost of capital should, in theory, increase. This results in a "double whammy" for the bank's cost of capital, more so to those banks that borrow short and lend long.
The long end of the curve is less elastic than the short end, which has proven extremely profitable for banks in times gone by as they traded the vol in the short end while recieving cashflows on the long end. In fact, you could say that the most profitable banks before 2008 will be the worst affected by a deflationary environment, precisely because they were so imprudent.
Not quite.
In an inflationary environment, consumer loans can in theory be paid in full. Commercial paper will be screwed, as discretionary income falls, but that's OK if 70% of your lending book is mortgages.
In a Hyperinflationary environment, the currency's issuer (i.e. the government) loses the faith of it's creditors and eventually sends the value of the currency to zero. It is then usually reissued as something else (Weimar and Zimbabwe), wiping out currency savings.
Once the currency collapsed in Zimbabwe (I treasure my 100T ZMB bank note), the people began trading in gold and USD. In the case of the USG losing the faith of it's creditors, I don't think the USD will be an option, hence the likelihood of trade in precious metals, energy (gas and petroleum) and food would be the more likely scenario.
There is a way that banks can do well in an deflationary environment, they can seize the land that the property sits on and wait for the reset of the financial system. Once the financial system has reset, they can sell the land to new buyers in New Dollars. Unfortunately, land just isn't as valuable as it once was.
During the Agricultural revolution, land owners (farmers) were the wealthy. In the Industrial Revolution, land decreased in value relative to productive capacity. In the Mercantile Revolution, land continued to decrease in value in the countryside, but increased in value in port cities due to access to trade. In the coming Technological Revolution, land value in port cities will decline again, but arable land will increase in value.
Moral of the story: If you want skin in the property game in the 21st century, look for farmland. Even parts of Detroit are being converted to urban farms (soil is quite fertile in Michigan).
I totally agree, the next crash isn't about money, it's about hanging the noose around someone else's neck, namely Obama!
Now that the market realises the difference between physical and paper it's agreat time for a Flash Fire.
Forget the puppets on the (R) or (D) side of the aisle.
They're truly merely puppets, after all.
A run & gun battle with those behind the Federal Reserve 'Bank' scam, for however long it takes and however many casualties result, is what's needed. This means destruction of all those behind any central bank having ties to the original London Central Bank (now known as the Bank of England).
Unlike the last several times where Patriots thought the Rothschildian Lizard was dead, the spinal cord must be severed with absolute certainty, this time, in order to guarantee our children freedom from a miserable life toiling as debt slaves.
So then the plan would be to let the market crash until banks need another bailout?
I don't think they'll let that happen. Also without enough buyers of treasuries, they may not have a choice but for more QE.
The "new" age of Disaster Capitalism mandates the routine and artificial creation of destruction to justify the next, new, bubble.
If the banks want QE3, then they need to sell everything off 20-30% over the Summer.
By August, Harriet Housewife will be begging the Fed to take a second on the banks' dog eared shadow real estate portfolio and MBS on their emergency-generosity "stay-in-your-home" vassal-land-lording rental income from foreclosed families in exchange for newly printed cash.
QE4 - cash for mortgaged children's DNA and timeshares on breaths of serfdom's air.
All of this to cover fake gambling debts.
Never forget what they did to the Republic.
Each time I think the rally is over, the market gets goosed back up. Not even the destruction of the 3rd largest economy in the world could end this. Is the phony rally finally over?
Damn it, Janet!
OT:
http://www.youtube.com/watch?v=cUqCv_1kGzM
I can't find a rationalisation for posting this.
QE3 would have to be so massive at this point to do anything that it's not possible. If they wait 6 months, until the S&P is kissing 800, they will easily sell the public on the $3T package needed to suck all the slosh in the housing market through a garden hose. Bernanke can suck anything through a garden hose; including Ipads.
If we see QE3, head for the hills. It will truly be the end game for the US financial system.
Well, we'll see it but it's just a matter of when. I don't imagine the Fed could possibly go right into QE3 like some bloggers would have you believe. They'll go into the mortgage buying business, or the muni-bond buying business, etc. It will all be really suave and under the table and won't be called QE-anything. I'd call it the CommUnity of National Taxpayers Savings purchase plan or something like that. I'd be proud to be part of that program and see my tax dollars going into it.
Best acronym of week award. "What is needed for the C.U.N.T.S is massive stimulus injection! Expansive growth!"
They will call it the:
slow_roast... I think you are exactly right.
Classic slow_roast. Classic.
Head for the hills? There is no place to hide.
That's why I just picked up a Mossberg 500. Let 'er rip.
The HFTs and prop desks have robbed all honest investors, so no money is left to drive the debt fuelled market any higher. Drop it by about 50 %, insiders short it, make wads of cash wiping everyone else. Uncle Sugar will come to the rescue. Poof! Rinse and repeat.
have we forgotten that money is "neutral" in the medium run :)
As of this minute, the lower Asia goes, the higher futures go. Booyah. This rally can't be stopped.
I'm just waiting for OWE-Bama to give me another 'thumbs up' as to how the PROFIT to EARNINGS ratios are doing...
Without sound technical advice like that, I'm afraid I don't know what to do...
Peggy Joseph is waiting as well... I hear she's used all that $$ saved from not having to pay her gas & mortgage to start a hedge fund...
Why must stocks drop "20 pcnt" for qe3 to happen? It only fell 12.5% between qe1 and qe2... Rosie reminds what happened last year between the end of QE1 and the surprise start of QE2 S&P 500 sagged from 1,217 to 1,064 S&P 600 small caps dell 394 to 330 The best performing equity sectors were telecom services, utilities, consumer staples and healthcar, in other words - the defensives The worst performers were financial, tech, energy, and consumer discretionary [sound familiar?] Baa corporate spreads widened +59 bps from 237 bps to 296 bps CRB futures index dropped from 279 to 267 Oil went from $84.30 a barrel to $75.20 The trade-weighted US dollar index (against major currencies) firmed to 76.5 from 75.5 The yield on the 10-year US Treasury note plunged to 2.66% from 3.84%
I agree that there's really gonna be no stock market decline requirement to trigger a QE 3.0 event.
That being said, I think there's going to be period where a threshold of deflationary pain is felt before QE 3.0 is launched... if only to "prove" the necessity of it.
The problem with the whole exercise is that neither QE 1.0 or QE 2.0 achieved their original stated purposes, which was (a) to encourage bank lending and (b) lower interest rates.
It helped out the TBTF banks a whole lot, though, which implies that the stated purpose and the actual intent was somewhat different. Well... duh.
Unfortunately, it will be no different with QE 3.0. But I think we common folk will be begging for it before all is said and done.
Going down in 5.......4......3......2......
@Cog Dis
And let us not forget this moment, when a FRB govenor admitted to being cognizant of pension and institutional managers using leverage. This moral hazard brought to you by your friendly FRB. How do you get to SPX 400? Double down on a losing hand. Then the leveraged unwind. Hope everyone is ready for the upcoming fireworks show.
So true. The funds - pension, hedge, mutual, are so f--ked as to be the true knell. No way can any promises forward deliver. The 7 1/2% expectation is going to implode. Pull outs, pensions unable to deliver, it is closer and closer. It is going to be so ugly. Despite not being surprised myself, I am going to hate how this unfolds for my friends and neighbors.
Time to buy physical Gold & Silver, before they outlaw ownership...
When markets crash, gold and silver crash too due to increased demand for fiat.
+++
BTFD
Gold and silver ownership will never be outlawed. It would cost far too much to inspect homes for ownership.
The method of eliminating their value will be simply to prohibit trafficking. Like drugs. You will have no published prices, because trafficking will be illegal, and you will never know if a trading partner is a police agent, so you would be insane to risk trafficking.
If you are not allowed to buy, sell or trade an item, it has no value..
No. If you are not "allowed" to buy, sell, or trade an item, it has only black market value.
And black markets are the only free markets.
The current market is a black market. Only thing is you and I aren't controlling it.
Drugs illegal = No drug trafficking??? Since when ? That would drive the price through the stratosphere.
Drug is a consumable and further more addictive; PM are not. Demand for drugs from pre-existing drug addicts is about as non-elastic as it gets. Demand for PM, as an investment or wealth storage vehicle, OTOH is about as elastic as it gets. QED: Comparing drug to PM makes no sense; making PM ownership illegal will not necessarily drive the price through the stratosphere.
Time to engage your brain MB.
No, there will just be a 60% tax on sales.
By that logic, drugs would have no value.
Typical bureaucrat thinking. As long as there is a law dealing with a problem, the problem is solved. Right? That's why no one buys and sells drugs, and a bag of coke has no value.
Coke is actually a very good barometer of inflation. Most of the garbage pushed today has been sliced and diced so many times its simialr to the Romans debasing their silver coins. Pure coke today would have handily kept up with inflation of the last 10-20 years.
Drugs and prostitution - recession proof. Inflation proof.
As for gold , if it gets the outlaw treatment that'll just drive its value higher when denominated in fiat. Unfortuantely if it comes to that , food and shelter will be more important.
that is really frightening. I still think this long leading indicator by ECRI is legit regarding global industrial slowdown but no one took it seriousl. Why? the market could easily come in 20% if our governance would allow it
http://shortetflist.com/
just for the record, http://currencyetflist.com/ nailed the selloff in emerging currencies
and nailed the selloff in silver too.
also nailed the unwind of short dollar long commodity trade too
http://etfusdollar.com/
There will be no "QE3"...
It will be the MOAQE.
So much like the old style elevators and when there were real elevator operators. In. Out. Up, Down. The metal gates opening and closing. Then the disappearing performance. No different than today, just a different kind of elevator. It dates me but it was also kind of a cool style and impressed me as a boy.
No, they didn't
can't kill commodities and evidence of inflation any other way. did you notice that the $us is also dead?
If Asia goes lower (i.e hard-landing) the FED will have to hold off QE3, also they will have to drop more than 600billion, since the last QE hasn't be able to stave of contraction. For any major relief rally to occur...say 1tril
China could be slowing down fast, so they will love a wave of FED induced inflation coming their way.
QE3 aint gonna happen till maybe Sept 2011. In the meantime, the volatility in the markets is going be brutal. Major stock selling and compression trades + (finally) some decent hedge/straddles.
looking forward to HFT going nuts too! gonna be a wild 2nd half 2011
...also Germany trying very hard to avoid committing to the insane Greek bailout
like the nice big head and shoulders formation in Figure 1
QE is about treasuries and keeping the curve in line so our gov't does not go bankrupt. The positive effect on equity markets is a desired side effect, but certainly not the main reason they buy the assets they do. The terrible consequences that would happen if the longer end of the curve gets away from them is why they will continue to buy bonds and write puts until it all comes crashing down.
the only time bond rates have gone up in the last 3 years is during QE. therefore, QE is done. lower rates since money will pour into bonds. 2% is better than losing 50% in equiites! night, night bulls.
Only 2%?
Not with futures. If you had bought a 10-year contract when the yield was 3.6% (a couple of months ago), you'd be up several HUNDRED percent, depending on your broker's margin requirements.
I find the Fed absolutely astonishing. It is very clear that their goal was to inflate asset prices, however the only thing they inflated were equities markets and commodities. One more thing is very clear, that the concept of "money neutrality" is starting to show its nature. Those imbeciles at the Fed either a)don't know how to admit when they are wrong, b) are clueless c) both.
Maybe they are smarter than you or I but are playing a different game than we understand, so they seem stupid. People in these positions make mistakes, but when all the central banks do the same thing, we need to understand that their stupidity is a tell that something unexpected is about to happen
bingo
Could be.
The current Fed thinking is similar to a doctor prescribing an unlimited amount of crack to a guy with pneumonia.
Well, yeah. They gave the money to the wrong people!
ah,a ah,a,ah,ah, thissss, thhhhissss is noot, nottt ovvveeerrrr
Hank Paulson "The Worst is Just Beginning" in Housing
small cap equities somewhat elevated is the signal to dump the market?? isn't she a day late? silence on QE3 is a helluva lot bigger indicator to me
so what the hell solution do you think they'll come up with if no QE3? What, austerity? What, cutting social welfare programs? Give me a break. Spending money is all they know how to do, just throw (other peoples) money at the problem. QE3, here we come!
The fed will only acknowledge catch-22 when they get to QE-22. By then, it won't matter. The world will be in complete shambles.
Let's see, let the market selloff back to 10k. Then introdruce QE3. Then spend the next year or two lying about economic conditions all the way back to almost 13k. Then we can keep screwing everyone all the way there, since everything is back to normal and everyone has a job we can end unemployment and keep raising gas prices etc. etc. etc.
Good lord why can't these bastards just fucking die.
You guys are buying their BS. There's no will and no intention to stop the gravy train. There will be more stimulus, they may not call it QE3. It Don't matter. They gotta bonus themselves, they gotta keep those debtors obliged to their creditors, they gotta keep the banks from going under again and keep Wall Street wearing shiny shoes, they gotta keep a revolution from happening over jobs and retirements. All the garbage about suddenly 'being responsible' after 4 decades of non-stop binge partying is theater, just for show to win elections. And even so they're softening the tone because they didn't like the reaction to the Ryan Plan. If they meant it they'd already be filling your head and the airwaves with their slogans, sound bytes and sanctimonious preaching.
Thanks, I get it brah....why so many miss it I don't know...
Doesn't really matter much to me, but it will to others. I grew up with an outhouse, chickens in the yard, fruit trees and lots of family. I can do it again. Hard to do in a crowded city, however.
It's a head scratcher. If they don't do qe3 the markets tank, stocks will actually move on economic reports bad = bad, not bad = good because more free money coming.
If they do qe3, the little guys get hurt big time, soaring prices, and no chance of Obama winning in election season. Since democrats don't have the side show of candidates they won't get the media coverage the republicans will. With things so shitty it's just easy to say vote for me, I'm the other guy.
It's quite possible Obama was chosen as the 1-term patsy.
Obama was chosen to be sure, but not for the reason you think.
Most presidents are selected by others for us to elect, Obama is no different.
But this president is very special, think about all the intrigue over his birth certificate,
He is the first President to be over ruled about an invasion, (Libya) He said no, NATO said go.
How about his call for Israel to withdrawal to 1967 boarders, WTF? Completely out of the blue.
The first black president of the Harvard Law Review, and in 1990 no less, a little late in catching with the times (Harvard) don't you think?
His first appointment, Raham Emanuel " Irgun" This just doesn't make sense, see my fifth sentence. And I mean his very first of many appointments.
Something nefarious is going on and I am certainly worried, but I don't know what specifically to worry about.
Why not worry, our slow overloaded boat is about to get swamped by some of those sprinting brics. They're racing to achieve our standard of living.
There is some kind of death cross in the future and the people driving this want to be on the right side of it.
The ubiquitous PM pumping here cries urgency to be on the right side of it. Many here don't even believe in diversification.
Currency devaluation is something to worry about.
No limit on SNAP - JPM makes more managing it so they don't care if depression kicks in and everyone loses their crappy jobs..
the poor can just get welfare and unemployment forever since it just adds to the debt which is what they want anyway.. having the country indebted forever
The USA doesn't actually need money.. they just make bombs and issue debt to pay for it and force countries to sell whatever it wants for cheap regardless of how shitty the dollar is or blow them up
so the upper middle class wont be able to buy new BMW's.. so what.. the elite can buy 500 of them with loose change..
I can't believe all you people really think that qe3 is a certainty.
I think the fall season is the earliest, but a qe3 that is approximately equivalent to qe2 in scope is not likely this year at all.
I can't believe how quickly the consensus of the Zheeple changed from "hyperinflation is right around the corner" to "deflation is imminent."
Hyperdeflation follows by hyperinflation has been the consensus since mid 2010. About the same time we predicted QE Lite would be followed by 2 followed by 3 etc.
TD, people are reasonably confused by your position on hyperinflation/deflation/stagflation and QE3, when it starts, etc. Your above statement isn't even clear.
What I believe Tyler is saying is that you have to create an extreme deflationary crisis in order to:
1. Bail out banks, investment houses, and insurers on the backs of taxpayers.
2. Reflate equities and the perception amongst the pensioners, retirees, savers, and "investors" that "all is under control".
3. Signal moves to those closest to the house first, signal it again to make sure, crush PM's and threaten no more QE while forcing politicians and citizens to be the chickens in "chase the chickens about the hen house" game of fox.
4. For the really dense signal the deflation trade once again to make sure you a.) Chase the dumb money into equities, index funds, PIIG and municipal bonds and b.) Chase your "friends" into cash, real estate, and divorced widows of media moguls.
5. The gyrations, the volatility, the reflation/deflation create ideal conditions for HFT algorithm's and create confusion amongst the masses and a "contrarian" versus "doom and gloom" dialog that distracts.
6. Meanwhile, as equity markets go up with occasional "corrections", the value of the currency and other assets held by the responsible middle class are gradually eroded: perception and reality seperate - those whose perceptions have been managed are more in danger yet unaware, and those who manage perceptions prepare for the danger. Perfect buy/sell conditions for market manipulators.
7. At some point, the value of the currency and equities are meaningless as inflation, stagflation, then hyperinflation ensue. The only things of value are those things which were devalued, scoffed at, or unattainable by the masses: real property, commodities, power.
Correct me if I'm wrong but that is my impression and two cents.
Thanks for the attempt to "explain" (even if it did also end up being rather circular), but I think the real issue responsible for people's confusion is the timeline, or lack thereof.
Good point, what is your personal time frame, and what is the timeline of TPTB?
We are not supposed to know the timeline, that is for the lever pullers and the insiders to know. I would say that the long reflation of equities into May was a tell, then signaling end of QE2, then crushing Silver, then DSK, then the whispers of PIIG problems (once again).
And it is circular, five stages of grief over and over again, keeps the flow going.
I see a major multiyear cycle low coming soon, and then back to new ALL TIME highs across the board into 2013 (in "risk" assets).
I do not see hyperinflation.
Spot on. Now I just need to find the divorced widows of media moguls as a way to easy street.
@ Highrev
You should probably try yahoo finance or CNBC for your low hanging fruit and easy answers. Here you have to work.
Precisely. Timelines ARE about work!
P.S., you start with cost/benefit, progress with opportunity cost analysis, then try to "guess" what price those who pull the strings are willing to pay, and how long they can stand the pain.
Talk is cheap and vagueness easy to hide behind.
be a mixture of stagflation and deflation, liquidity crunch and another credit crunch...a real mess. if china goes, it should 100% cause global deflation.
There may be more QEx, but it won't happen before the sort of nuclear meltdown we saw in the midst of the initial rejection of TARP (remember Jim Bunning saying so, and the subsequent 1,000 point single day drop on the Dow?).
The kicker is that the economy is so incredibly bad (because the structural weakness of (un)employment market, as in J-O-B-S, is so profoundly terrible, the number of people wanting loans is so relatively low (by historical norms), and the number of people who could actually qualify for a loan absent a re-emergence of NINJA standards like we saw with undocumented 'workers' from Mexico buying million dollar McMansions in Cali, Nevada & Arizona during the height of the real estate bubble, QEx through QExxx won't do jack shit.
Besides, the QE pump game is too transparent now. It'd be better for the inner sanctum to change things up dramatically lest their games get stale and they lose their edge.
i used the same exact argument to an associate of mine who is a bernanke bootlicker. people without jobs do not get credit extended, NINJA ain't coming back. low mtg rates haven't done sh*t to boost housing prices.
low rates can not cure decades of massive missalocation and RE overconstruction caused by low rates!!!
I can see it go either way. That way I won't be wrong. LOL.
How 'bout going both ways. That could be fun.
If you're into that sort of thing, that is.
Think about it all. There is an election coming next year. What is job one. What is more important than anything to these idiots. Getting re-elected. Do you think for one minute they will allow the system to reset, create a depression, clean out the trillions in crap on banks books and allow housing to return to 1975 levels before it all starts up again.
That is the right thing to do. Does not win votes. Will not happen. QE 3, 4, 5. whatever. What difference, if it is in July, Sept or Dec. Same crap, we are screwed. Do not sell your physical.
I will admit, miners just do not do it yet. Is frustrating. Now I am stuck with gobs of confetti.
Right now the issue is gas price. If you can bring it down the sheeple will think you are a genius.
re gas prices see this : http://www.reuters.com/article/2011/06/01/us-usa-budget-oil-idUSTRE75070...
"An oil sale to inspect the reserve could provide Obama with an opportunity during the 2012 presidential campaign to put oil into the market and offer some relief to consumers if gasoline prices are still high."
what a coinkidink
If that bill passes, wouldn't it be a gas if the price of a barrel of oil dropped to $35 :P
I'm sure they are worried about premature ejaculation. Put in terms more understandable here on ZH, they are running out of bullets, and have to be very careful with the count.
They've got to be sure to not fire prematurely.
Get my drift?
There's a major, multiyear cycle low that needs to print first, then they'll start pumpin' again. (It's a hell of a lot easier to get things moving off of SPX 900 than SPX 1320 . . . )
The bigger question: how do we get the peasantry fed up with this market manipulation and demand the end of the federal reserve?
The people who are now sheeple either wake up before it's too late or they don't.
If they do, and act in concert, they can save the future for them and their children.
If not, they will join the long list formerly free men who squandered their fleeting opportunity for true freedom from a life of imposed indentured servitude and slavery.
The peasantry never heard of the Federal Reserve. They don't have a fucking clue. That is why they are the peasantry. Its completely hopeless to think they will clue in. They hae deliberatly been dumbed down to the level of beasts, so they can be sheared or slaughtered according to the need of the elites at the time.
Here is the sad part. I know what the federal reserve is, know what its balance sheet has expanded to, I know that the federal deficit is over 1.5 trillion per year, I know that $1.7 trillion of the federal debt is denominated in bills (due within 12 months), I know that QE3 is coming. I know that the trade deficit is over 600 billion per year. I know that social security and medicare are insolvent. I know that the US unfunded liabilties are over 100 trillion. I know that oustanding notional derivaties are over 1.5 quadrillion. I know that peak oil is rapidly approaching.
Here is the kicker. I'm a fucking peasant I make $3650 net per month as an attorney and have approximately 20k in savings. I'm a fucking peasant and I know these things. Grrrr
The 'sheeple' have no investment in the market. There are negative savings. The machinations of the market, PM's, commodities, foreign exchange, etc are not even on the radar.
The 'sheeple' continue in blind faith in the US Government, though with some misgiving on foreign wars and birth certificates, and maintain their dedication to bringing home a paycheck, paying the bills, getting the kids to school and stretching the ever fewer dollars.
They have no time to consider macroeconomics, world affairs, or politics: they are simply trying to maintain.
The 'sheeple' believe that they have a republic and a representative government that has their interests at heart. They think they are engaged in the exquisite pursuit of the American Dream just the same as their parents and grandparents participated. They are so completely immersed in 'now' and 'what needs to be done' that they completely miss the fact that 'sheeple' is a term used in derogatory fashion.
I was, until 2008, a 'sheeple'. Bush's Bail Out early in 2008 was a mosquito in my ear at three in the morning. Bush's bail out in October 2008 was my old USMC Drill Instructor coming in, beating a metal trash can while kicking my ass out of bed with a simultaneous splash of ice water on my crotch. It has a way of both waking you up and getting your immediate attention. (And I haven't really slept soundly since then.)
'Sheeple' are focused on their families, jobs (if they have them), kids, activities and all the other formerly normal things that we used to take for granted. They are so immersed in normalcy that they don't question the lies they hear on the news, or from their leaders. They don't have the time to make any intelligent analysis.
In a way, I envy them because I really do miss those days and know that they will never return.
So rather than denigrate our unenlightened brothers, sisters, parents, sons and daughters as 'Sheeple' and create a preconceived paradigm of 'us' versus 'them', let's prepare to be the guides and counselors for the day our beloved families are harshly bitch-slapped by betrayal, brutality and butchery.
In other words, let's knock off the 'Sheeple' label.
great rant dude
Thanks. I'm a geezer and I get crotchety in my lucid moments. (come to think of it, I get crotchety pretty much every morning.)
I agree....great rant!
It's not right to call them "Sheeple"....the masses aren't sheep, they're just asleep.......they're Sleeple!
T.E.I.N. everyone!
+3 on the rant. love that word : sleeple. perfect.
It's "Federal" so it's the government and they care, right?
Didn't they get Bernie Madoff and that Raj guy and now all the crooks are behind bars?
I don't invest in the stock market, I have a pension (401K) that will take care of me, and Social Security.
There are so many sticks in the mud; have you seen the T.V. remote?
</sarcasm off>
Well, I for one blinked. As of May 31st I no longer hold any long position in any stock. A bunch of long-dated puts, long physical silver and cash. That's basically it.
Will BTFD in October, maybe.
Sabbatical calls, time for a breather.
assuming you didn't pile in when the djia was at 12,800 you should make out ok, don't blame you one bit
I was mostly cash during the 2008 crash, fortuitously picked up a load of silver at $12.80 in the aftermath but missed out on a lot of the rally, getting pinched repeatedly trying to short it. Finally gave into the Fed, flipped long and rode it until now at a pretty decent net profit. Got my ass handed to me badly trying to short the Euro, but recovered most of it in the Yen (that was a wild ride). All in all, nothing to be too proud about, but not a bad ride.
Good luck with it.
Come on people -
Its all about who's going to control the markets, stocks, PM's, commodities, whatever, the Chinamen or delusional BB's buddies, the TBTF. The guys with the most fiat are in control. That's why dumb asshole Bernanke is printing out his ass. Come on.
It looks to me like there are two options here:
A) More QE after a big market downturn, probably in August or so
B) Watch the markets continue to crash until GM and the 2big2fail need another bailout
I would guess A, but either way the dollar gets killed in the end
I think your call onthe USD is wrong. If there is a big market downturn then people will scurry for usd's. Remember, currencies are a relative game. So you sell the usd... what you going to buy if the market is falling? AUD? No way, not at these levels. EURO? yeah just like the summer of 2008? GBP? definately not!
People will come back to USD's. And there won't be a QE3. The only people talking about qe3 are the nut jobs on this website.
Did anyone else watch Ron Paul's Monetary Hearing today?
I caught this,
Scott Alvarez General Counsel admitted, "The FED holds No Gold and hasn't since the 1930s"
At the very least I thought the New York FED had a gold vault underneath the building.
Anyways, here is the link:
http://www.youtube.com/watch?v=_eExucI3IWs
The U.S. Government allegedly holds the largest block of gold in the world, from a single sovereign standpoint, although the Eurozone, as a whole block, owns about what the U.S. does, plus approximately 20%.
The Federal Reserve is not a part of the U.S. Government. They are an independent, non-governmental organization, which just so happens to control the U.S. money supply and has been given authority to produce Federal Reserve Notes in lieu of United States Dollars which should have been printed by the United States Government all along...
...which should strike absolute fear in any warm blooded American with an I.Q. above 100.
the fed is the custodian of al that foreign gold, not the owner. the gold in ft know (if you believe it is there) is owned by the US gov., not the fed.