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Goldman's Jan Hatzius Expects $400 Billion In QE2.5
Jan Hatzius, whose recent conversion to an economic bull forced all the Wall Street sell side lemmings to follow suit (just like they did in August when he downgraded the GDP only to start pushing Bill Dudley's buttons for QE2 and ultimately getting it), disclosed earlier that QE 2.1, or an extension to QE2's $600 billion (excluding the $300 billion from QE Lite), is all but certain. After all Jan's calls for QE Lite in January 2010 are precisely what happened. It was also Jan who first demanded QE2 in September, and got that too. Which means that as we expected, the total amount of debt to be monetized this year (between QE lite, QE2 and QE2.1) will be about $1.6 trillion, or more than the entire budget deficit. Now what bond investors are wondering is what happens when the Fed starts unwinding: by now everyone knows how POMO works - buying USTs in the open market. Well, at some point in the next 2 years the Fed, which by then will have about $4 trillion in Treasury securities (assuming all MBS have been prepaid) will have to start selling this paper. Couple that with the $1.5 trillion in debt issuance by the Treasury, and soon America will be faced with the brick wall of such a supply deluge in paper that there will be no way to sell it without hiking rates into double digit figures. This, much more than any unfounded speculation of capital flows from equities to bonds, is what is starting to awake the US bond vigilantes.
Some more from Jan Haztius on how he see the future of QE playing out:
The first two meetings in early 2011 are likely to be similarly uneventful, although we do expect the FOMC to upgrade its language gradually as economic growth accelerates and assuming the fiscal stimulus legislation passes Congress. The main item of interest is likely to be the number of dissents against maintenance of the LSAPs. It is highly likely that Philadelphia Fed President Plosser will replace Hoenig as the “permanent” dissenter in the voting rotation. In addition, it is quite possible that Dallas Fed President Fisher will dissent as well once he starts to vote at the January meeting, although this seems less clear. Finally, there is an outside chance that either Minneapolis Fed President Kocherlakota or Governor Warsh might dissent. Overall, we believe there will be either one or two dissents at the FOMC meetings in early 2011.
What about the remainder of 2011? Starting with the April 26-27 meeting, the FOMC will need to provide some guidance about the future of QE2. At this point, our standing forecast is a modest amount of additional purchases cumulating to $1 trillion (that is, $400bn beyond the original $600bn). However, this forecast could change if the bipartisan fiscal package announced by President Obama passes Congress this week. From the Fed’s perspective, a looser stance of fiscal policy implies slightly less need for monetary stimulus. Moreover, we believe that the political backlash against QE2 has probably slightly raised the hurdle for additional purchases.
In other words, the lunacy will continue until it can't. We can only hope that Ron Paul is reading this and steps in to put an end to the Chairman's plan of global monetary anihilation before it is too late.
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gas is close to $3 in jersey. its 20 degrees with 20 mph. sure will be expensive to heat those homes this winter
Yes but tomorrow, Lloyd Blankfein's breakfast will taste better than anything you or I have ever eaten.
gas cleared the $3 mark here in southeast pa over the past 2 weeks now onto $3.10 and well above. Heard about someone who paid $3.40 a gallon for heating oil.
Not something that will reverse easily. Not with the printers running. At some point we'll revisit summer 2008, when gas hit close to $4.00 around here, and wel, you remember what happened in September 2008. $20 more a tank means $20 less on doo dads and Best Buy for Christmas, plus a tight wad feeling sets in that maybe you better conserve that cash cause the heating ouil bill will be a whopper this month.
BS, Jan...Ben is already peeing in his
pants and losing his nerve.
Ben just had his ass kicked to next
Tuesday in the bond market. The Bernank put is myth.
+1
If this bond rout continues, it's over. We will walk in one day with the S&P down 15%.
How are the states and locals going to roll over their munis? Ugly!
Ben will not let this market fall if he has to be long every ES contract. Look how it ended today after the 10 point drop. He can ramp this market on the futures alone.
Ben 'Long' with what, more fake POMO dollars? No ones believing it anymore. There is no spoon.
Fake or real this market is going up. Believe it or not this market is going up. Spoon or fork this market is going up. That money has to go somewhere. A market drop now would collaspe a number of economies and some countries. The resulting civil unrest could easily escalate to war. The market must go up because that is what is needed to save lives and world wide misery. Stay long. Ben will reward you. Only short new highs and take 10 point profits. Futures leverage will keep you above inflation and you can use profits to buy PMs if you want.
While I am looking for the bond rout too, how is this different than 1H09 after the bounce off of the Lehman-induced low in interest rates?
It gets interesting when we break 4% on the 10-year.
That's the Grecian formula should that occur any time soon. TPTB won't let it happen.
We can kiss 4% again just like we have a few times in the last couple of years -- if we do it's same ol' same ol'.
I'm sure some sovereign will blow-up along the way and push us right back down again.
So, we upgrade because the Fed supplies more drugs. Again.
QE 2.1 was what again? Guess I haven't been keeping up.
Ben's about to go the Full Monty ...
http://www.youtube.com/watch?v=vFzAK9dbbtc
He's a bedwetter after today.
Agreed. His appearance on 60 minutes was the initial tell.
His next interview will be in a standoff where he screams to the police "Stay back or the bitch gets it" while holding a .45 to his temple.
.
.
Excuse me while I whip this out!
Next man that makes a move the n!gger gets it!
Oh lordy, lordy... He desperate!
http://www.youtube.com/watch?v=upvZdVK913I
Ben Bernanke will not be apprehended that way.
He will be taken into custody by orderlies while wearing a speedo, flip flops and earmuffs, digging a ginormous hole in his backyard.
No will know why he was doing it, but rumors will persist for years that he was either digging for gold, or trying to dig to China.
I wonder why the banks are taking another hit today. Does it have anything to do with it?
Monolithic leader of the finanacials (Ben) just had his face ripped
off. Zat tell you anything?
<regarding the demasking as it were>
"... and if if wasnt for you meddling kids, I would have gotten away with it too!"
Cooter
....And Rosie says? Buy long term T's? I'll let you decide whether that's a good call or if anything he has to say--ahem, deflation--is worth merit.
I've said it before, I will say it again...
Rosie is right about deflation, but wrong about Treasuries. Thanks to the complete ruination of normal market signals by the Fed, we are going to face a deflationary depression within a rising yield environment. Max pain for everybody. Except cash, which nobody has.
Ding. Ding. Ding.
Need something hot to "break" out ... say Southeast Asia ... the calls to crazy Uncle Kim are probably going out for a 1st quarter diversion ...
He's just talking smack to boost Blankey's convict list. He has no certainty of any of this. Only Hilsenrath and bronco Billy G are allowed to see the cards, but you may be right in that he's feeding Unca Ben a wish list
Help me out here. TD states that the Fed will have to start selling the Treasuries they currently own. Is he saying that they have to sell them before they come to maturity?
What happens if the Fed does hold them maturity? Do they turn around and buy more Treasuries or does this create a tear in the space/time continuum?
Fed will never sell...just roll over. The idea that Fed will sell the MBS or the T portfolio seems just wrong. The idea was to create new money and velocity. The market will never be strong enough to take it back. Write it off on the taxpayers to be rolled in perpetuity.
The Fed can never sell. There is no economic recovery. There will be no economic recovery. "They" will print, spend, borrow until it doesn't work anymore. Then they will start a regional war or some other distraction. Anything to stay in power a little bit longer. There is no jobs recovery, no industrial policy, etc.
We are in the endgame. They are preparing for the Fourth Turning. Now is the time for us to prepare as well.
+1. No exits left.
"They are preparing for the Fourth Turning"
You mean the 4th edition of the Central Bank, or the end of the 4th age of the sun as they Mayans said?
http://www.fourthturning.com/
I am by no means an expert (I actually know very little), but when the note is due it has to be rolled. So technically speaking the debt would have to be re-issued.
Cooter
I'm assuming that the "have to sell" idea is merely the conventional wisdom about the Fed having to unwind someday and drain liquidity. (if not, someone please explain)
Not only do I never see them selling, I expect them to increase buying (once they finish the current shakeout of the weak, "investor" class) as the whole thing falls apart in an effort to maintain the facade of a bond market (like they do now with ES in the defunct equity "market").
But that's just my view from the cheap seats. When everyone and their brother proclaims the death of the bond market, the contrarian in me starts to wonder just what kind of zombie can be made to occupy the space between the truly dead, and the barely living. The only situation I can see that fits in with their monetary destruction playbook is to flatten the curve all the way out, so that they can kick the debt can as far as possible.
Unless they are going to crash the whole world in 2012, why wouldn't they?
treasury pays the fed interest at whatever intervals defined, and finally principal at maturity. any proceeds not required by the fed for other operations are returned to the treasury.
other fed operations cloud the reality of what's happening, but imagine that the fed performs no other operations other than managing the current portfolio of treasury securities. then, the proceeds that treasury pays to the fed and then are returned back to the treasury is the actual amount of newly printed money.
theoretically, if the fed is able to sell back into the market before maturity, then only the pnl-loss is the amount printed. if the fed actually made a gain, then the pnl-gain will represent an amount of money "burned" (paper profits which it tears up, decreasing base money supply).
That's a man baybee!
http://www.youtube.com/watch?v=WgOIEGz7o_s
I wish I knew what "soon" means in days or weeks - whats the "arousal" phase to "action" phase for bond vigilantes?
Oil at the LOD.
Natural gas crushed once again. Even during the biggest blizzards in 10 years.
Peak Oil doomsday crowd must be scratching their heads.
Each and every time there is a financial accident, such as a mini-crash in bonds, essential commodities are the first items thrown overboard by the hedge funds.
I want those guys to crash and
burn with the bernank loser who's wetting his pants
and ready to go home to Princeton
after his cockeyed theories turned out
to be horseshit.
On the contrary, those in the 'peak oil doomsday crowd' that actually has more than a superficial grasp of our predicament will not be 'scratching its head' at FF price volatility and even outright price collapse in the teeth of depletion - it's about ability to pay not the need or want. In the current market paradigm there'll be plenty of (low EROEI) FF left untapped - our fragile/collapsing economy won't support its extraction.
Soon theyll be out of things to throw overboard to stay afloat.
Tyler forgot to add in the normal UST rollover. So it's $4T plus rollover. sunami perhaps?
Fed rolls / issues bout $8 to $9T a year since '09. Before that, was like $4T a year. Good info.
http://www.treasurydirect.gov/govt/reports/pd/pd_debtposactrpt_1011.pdf
Higher rates are simply the next step in Mellonesque liquidation. Remember what I said earlier?
YIELDS DON'T MATTER.
High yields are wonderful for promoting two tactics of Mellonesque liquidation:
1. cartelization
2. induced supply chain deterioration.
What is your problem?
These Wall Street Dons keep telling the Bernank what he'll do and the fucking guy keeps doing it. They make out like bandits and are laughing their fucking assess off. The Bernank is an intelligent fool if that makes any sense. When the inflation kicks off and the Bernank is left holding the bag, the bank bosses and economists will stand aside and earnestly blame Fed policy! I'm beginning to think the Bernank is the mark/fall guy, not the real bad guy. He's complicit for sure but essentially he's an academic tool and he must be shitting in his pants by now.
Rosie is right about deflation, but wrong about Treasuries. Thanks to the complete ruination of normal market signals by the Fed, we are going to face a deflationary depression within a rising yield environment.
The "official" 14 trillion and growing deficit can't afford a depressionary deflation--nor can the 60 trillion in NPV deficit inpromised commitments to the American people. It's just that simple.
Print Once. Twice. Not less than a Fifth (of Whiskey), but more. Rosie should understand by now: The more we print, the more money that comes out of Treasuries from here on out.
This is correct. BLS BA+ 5.1% unemployment would never tolerate such a thing.
The Fed's statement, if read carefully, means:
$70 trillion in bailouts.
Agreed they "can't afford a deflantionary depression." The question becomes, "can they avoid it?" I think the deflation will come - but it will be after the system breaks. What is going to deflate is the population. That is one way to fix those unfunded liabilities. Sounds cruel - but is unfortunately a possible outcome.
"In other words, the lunacy will continue until it can't."
See? Here's ZH being hysterical again. "Can't" means: when Table A.4 shows BLS BA+ unemployment at 20%.
Not 19.9999999999999999999999999999....%
PRECISELY 20%.
Why don't you just start pricing that in? Why hesitate. It's exactly where we are going. And when we get to 20%, guess how much QE will have been done? $70 trillion. Which is exactly what I have been saying.
What is your problem?
Do you have to end your posts with "What is your problem?"?
The dumb money indicator mentioned before topped out about 25 points too early in the S&P in April 2010. That means that ~1270 is possible in the S&P before a correction. I'm not saying it will happen, just be aware of it.
Screw Goldman!
...
At the risk of riling up the Tylers and getting junked to Hell, I will make my last shameless plug (of the day anyway) of our Peruvian bearing company´s new website:
www.ameruperu.com
It is in Spanish and needs work, but we are polishing it up bit by bit, day by day.
Thx for reading. Back to Goldman then!
qe 2.53 beta
Treasuries and Munis are poison.
there will come a time when munis are a great deal. Unfortunately it will look crazy to invest at that time when it occurs.
See below from Bloomberg. One of the tasks of Mellonesque liquidation is to generate precisely the difference of opinion you see below. Note that it is not, in fact, a difference of opinion. However, one of the things Mellonesque liquidation has to do, is to induce ideological deterioration. Which is what you see here. This state of deterioration greatly facilitates the many fronts on which Mellonesque liquidation proceeds.
FROM BLOOMBERG:
“The statement outlined all the risks imaginable [with] no reference to the upside momentum evident in the data,” said Eric Green, chief U.S. rates strategist at TD Securities. “The Fed is trying to finesse the market, [and] the market is saying good luck.”
Ten-year yields fell as low as 2.33% in early October — their low point since early 2009 — in anticipation of the bigger bond-purchase program. When the Fed officially announced it Nov. 3, 10-year yields had already risen to 2.62%.
The large moves are being exacerbated by thin trading volume, which is typical of the end of the year, and a majority of dealers have closed their trading books, said James Sarni, senior managing partner at Payden & Rygel, which oversees about $57 billion.
“This is more a continuation of what’s happened in the last several weeks,” he said. “The market ran up so much in anticipation of the quantitative-easing announcement that there wasn’t much left after the announcement.”
The more upbeat growth outlooks coming from various economists after the federal tax plan, which has been credited for rising yields, fail to look at the bigger picture, he said.
“We’re experiencing one of the weakest recoveries we’ve had in many years,” Sarni said.
That will bring yields back down early next year, with the 10-year note heading back toward 3.10%, he said.
Some analysts were also looking for any mention by the Fed of the recent rise in interest rates, despite their bond purchases. The Fed didn’t acknowledge the market moves.
my english is limited, but I'm learning all the time...according to urban dictionary Jan is A person with XXY chromasomes, resulting in a shallow vagina and small, inverted testacles...correct??
Woah, woah, woah, Jan Hatzius!
Only an additional 400 billion?
Someone just talked themselves right out of a potential slot on the Federal Reserve, Mr. Hatzius.
Hallelulia Tyler, you have finally see the light and given up your ridiculous long bond argument which you have pushed for the last 3 months claiming that the Fed will be forced to buy the Bond and collapse the long end. Alas Tyler, even if the moron Bernank buys the long end, it will still collapse because the systemmic risk is now out of control. Moreover, the Bernank is losing credibility on a daily basis. The collapse int eh long end will be sustained and disastrous for bond funds. So Tyler, just short the f$%^ out of the Bond and quicken the collapse of one of the most corrupt economies ever to exist.
1. I've never actually seen TD be bullish on anything offered for sale by the US government.
2. I was short UST's for a bit earlier this year, and made some OK short-term trades. Then covered when I realized that the trouble with the trade is that it will work, but you get paid back in the rapidly depreciating USD. If bonds really cut loose - all hell will follow. It will be too late to trade those increasing #'s of USD's into hard assets. The rush to the USD exit will be amazing to behold. IMHO.
3. That being said, I wish I has sold the Bonds when TLT double topped at 108 or so. Could have 2x'd a short t-bond trade.
QE was supposed to lower interest rates. Instead it seems to be raising expectations for future inflation and causing investors to demand higher interest rates. So why is it that we need even more QE?
Because Bernanke would rather deal with devil he knows than that which he doesn't.
A carpenter hammers, a surgeon cuts, and a Bernanke hits the 'easy' button.
Thank god Ron Paul is going to be in position to combat some of this insanity
Not enough, more please.
Year end squeeze on rates won't last. Nothing to support the higher rates if Benny is willing to monetize the debt. And as soon as Spain starts death-rattle breathing the flood to the USD will be a sight to behold.
Stay thirsty, my friends.
The unwind will never happen. There will some engineered (or not) crisis which will cause the Fed to be absorbed by the UST. The interagency balance will be wiped in a supreme feat of financial hocus-pocus, and the markets will be left to wonder if money "printed" in the past is inflationary to the future (that's a tough one). The Fed hasn't really printed anything until the other side of the ledger is proven to be pure myth.
the distinction between printing money and monetizing government debt is very small. It won't necessarily be inflationary. We just don't have good measures of the money supplies and the various velocities covaried by time. It is a leap of faith to assume monetization in this circumstance will be inflationary more than just a minor degree. It might still be deflationary if they allow a bunch of municipalities to go bankrupt.
>>
Year end squeeze on rates won't last. Nothing to support the higher rates if Benny is willing to monetize the debt. And as soon as Spain starts death-rattle breathing the flood to the USD will be a sight to behold.
Stay thirsty, my friends.
>>
There is a certain likelihood to this. Those who believe in a falling bond market must believe in a booming economy, and no one here does.
There is also rather too much conventional thinking here, i.e.,
How will Bernanke ever unwind? How will he ever sell these bonds he owns? Who will buy them?
These are silly and unsophisticated questions.
He need never unwind/sell. He can simply wait for the bonds to mature and get return of capital from the Treasury.
There does not ever need to be a buyer. It's just another fiscal hit. Not an economic one, and it might be cheap dollars. Or Bernanke could just tell Treasury they needn't bother.
The one area where Tyler and most of the ZHers miss is this -- the fed need never sell the paper they are buying. It doesn't need to make a profit. They can print until inflation forces them to stop, or until nobody will take USD's any more. But they are never going to crash bond markets by selling.
The fed will not sell, it will hold to maturity.
"We'll see," said the Zen Master.
The law of unintended and unanticipated consequences applies to The Bernank more so than most.
People are talking about a pull back in gold but this is bullish for gold.
Will this be the decade for silver?