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How will they will prop up stocks after QE? An answer?
Bernanke has told us at least a half-dozen times that the primary
objective of QE is to jack up stock prices. Let’s give the man his due.
It has worked. Rising equities and an improving economy are now
synonymous. Daily doses of QE through POMO purchases are creating
liquidity. Some of that loose money finds its way to equities.
The problem with QE is that some of that money is also going to unwanted
places. And it is a factor in rising inflation around the world. While
it is correct to say that the Fed can’t be blamed for everything, it is
also correct to say that ZIRP and QE are adding to the problem.
For that reason alone (there are many other good reasons) QE will end
this summer. When the connection between the Fed’s easy money and rising
global food prices is made in the NY Times (it will be) QE will die.
If that should be the case one would have to expect that a drop in
demand for equities (and other things) is going to have to occur at some
point this year. It could be as early away as four months (the last
month of QE will be of no significance). This creates a problem for
policy makers. They can’t let stocks find their own level. After all, it
is now proven that we need stocks going up for the economy to expand,
it must work the other way round. Right?
I think that there is a solution to this problem. Give the S&P 100 a bunch of money and an excuse to do share buybacks.
Something like that just might happen. It is a development that is most
certainly worth watching for if you have an eye on the tape.
This headline tells the story:
The NY Times had a story on this last year:
If you have a day with nothing to do read this (61 page) report titled:
The conclusion of the report regarding the 2004 tax holiday for US corporations:
Estimates indicate that a $1 increase in repatriations was associated with a $0.60-$0.92 increase in payouts to shareholders.
The pieces are on the table. The US desperately needs its
corporations to make major investments domestically if there is to be
any hope on the jobs front. So a deal will be made to bring home the
$1trillion that is currently being parked offshore avoiding taxes in the
US. The deal will be that this money gets hit with little or no tax.
The condition will be (exactly as in 2004) that the money will be
invested in domestic R&D. Everyone will hail this as a step in the
right direction.
But the reality will be that 60-90% of the money gets leaked back to
shareholders in the form of special dividends or share buy backs. The principal motivation for the tax holiday will be to give stocks another lift.
Who knows, this might work. An extra $500b or so coming into the market
should keep the froth going for a bit longer. Right? But after the
buybacks we still will not have much in the form of new investment.
When might this happen? How long might it benefit the markets?
Tough questions. Should our policy makers go this route they are smart
enough to time the results. The tax holiday would kick in during the 3rd
Q (timed to offset the end of QE2). The benefits (if any) would peak in
the summer/fall of 2012. Just in time to influence a big election. Of
course under this plan there would be nothing to prop up the market (aka
“the economy) on the day after the election.
A friend attended an ISI/Ed Hyman meeting. He shared his notes with me. The following caught my eye. Obama is only concerned with the economy in the summer of 2012. Bernanke is concerned with July of 2011 (end of QE). If there were a tax holiday that was “market friendly” timed for the third quarter it would address both of their concerns. A tax deal would let Ben off the hook.
There is one additional piece to this puzzle. Who is advising the President on these matters? Our boy Jeff Immelt, CEO of GE. The fox is truly in the hen house this time.
More on this topic at Zero Hedge.
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Flash crash in silver?
Wowsa, some fat finger must have dumped a whole lot of paper silver into open paper market.
Desperate attempts by a desperate cabal!
I recommend watching this piece by James G Rickard.
http://outerdnn.outer.jhuapl.edu/rethinking/VideoArchives/MrJamesGRickardsPresentationVideo.aspx
Financial vodoo in the age of the faithless will result in a loss of credibility.
In other words, the Benny and the inkjets might as well start writing fairy tales. The brothers Grimm were largely successful and history looks up on them favorably.
Benny and the inkjets will be hated for the chaos they've created and for the utter incompetence they'v displayed while trying to cheat themselves out of the bubble they created.
To BRUCE: This is an excellent prognosis and theoretical possibility. Good work.
To ZH readers: Pay attention to this potential governmental strategy (i.e. Corporate Tax Holiday). From a MACRO theme, and if passed and implemented, this could have a significant impact upon markets in the time periods Bruce mentions.
Inventories to Pluto!
The money could be held in overseas ETFs invested in the U.S. stock market. What then?
puts.
The Air Jordan 2011 are the option of basketball players circle the world and for this purpose, your corporation, Nike is now set one of the maximum presidents in the field of shoe from the ball better.Here comes a fresh color of the Air Jordan 1 Phat Low on which I privately was very joyous for moderately several time. The Olympic colorway of the deep-cut and well-padded Air Jordan 1 has a black nubuck surface, which is blended with a slightly shiny swoosh in crocodile leather effect. They are eye-catching and of course the purpose that the fresh Air Jordan New Arrivals Phat Low even paged Olympia but undoubtedly the colored seams. http://airjordanshoesol.com/
Obama might be worried about summer 2012, but it's not going to do him any damn good. Too many of his voters from the last time around are going to quietly pull the lever for someone else and then let out a sigh of relief when he loses.
Of course, we might then end up with someone even worse, but by that point it probably won't matter anyways.
from the Solvency Project (SP) 2011 Washington Bureau
US Constitution changes proposed by SP:
10% corporate profits tax
95% tax rates on BP
no taxes on labor income period
state rates on households capped at 2%; no tax on labor
Pentagon seized and War Crimes Tribunal at the Hague expedited
Federal government put out of business- capped at 5% of Us Exports
major tarrifs on imported goods and existing inventory at Walmarkk
democrat-rethuglican parties banned and their minions carted off to empty FEMA camps
foreign bank accounts of foreign banks seized; thats right Barcalys, DouchE Bank et al
thank you for yor support, am heading to my next safehouse promptly
Risk assets are rocketing in Asia.
Spooks futures, crude, copper, gold, you name it...
How many chickens do you have now, Robo?
Remember when the markets determined asset values?
Sadly, that hasn't happened in my lifetime (born near the closing of the gold window).
is this an appropriate time to bring up your weather prediction from back in early January?
http://bit.ly/gj2T9e
Jeeze Salinger. A snow storm in January is not an unusual event. So if you're suggesting that this weeks dump is evidence that I am wrong about La Nina and what it might mean to short term weather I would recommend a wager. I say we are reversing La Nina as we speak, as this develops (over a few months) the global weather will move off of the extremes.
Ten bucks says we have moved from an extreme La Nina to neutral or even El Nino conditions by June. We on?
b
Bruce are you certain you want this bet? If so lets go for it but perhaps with a twist in honor of our host - a Zero Hedge if you will.
for fun let's use the NINO3.4 monthly index and the MEI bi/monthly index and set under / over Zero as the basis.
The MEI, which is currently at -1.519 for Nov/Dec is down slightly (00.087) from the Sept Oct period (if anything one could argue that it actually broke in that earlier period.)
The NINO3.4 which in Dec was at negative 1.4, was actually cooler by 0.1, which would suggest there was not a break.
for 5 bucks the NINO3.4 must be zero or greater for the month of June. (I was going to put in May but then I would feel guilty)
for 5 bucks the MEI must be zero or greater for May/June
(zero or over being in your favor)
Now if you go back and re-read your Jan 5 post (and my response) I was not challenging the cyclical nature of ENSO (though I believe that La Nina will still be around, albeit barely, even whilst you are lazing away the summer months in your Hampton's retreat) but with your interpretation of its impact on short term weather conditions e.g. "cycle broke and with that weather extremes". I think you will find that my suggestion that January would be a record breaker for cold to be pretty close to the mark.
you make a pretty good weatherman too. So far the La Nina break is in place, as predicted, the first of the year the weather here in SoCA went to warm and dry. The last few storms have a pattern of drawing moisture from a southerly flow is clearly atypical, as most of our rain comes down from AK in long cold fronts. Some experts have already said this, La Nina early, El Nino late. One of the east coast patterns which support El Nino is lake effect snow?
Also to think about global warming, think about defrosting the freezer on top of your refrigerator, the cold has to go somewhere, so it drops south. I think spring in the east could be snowy and wet, with flooding later.
When the "Calorically Challenged Lady Sings", after they do this deal,and its used up.
My money is on an Obama Emergency Address to the Nation.
National Emergency, country will dissolve, and be in shambles blah,blah,blah.
And, I am calling a Special Directive, a PDD for the IMMEDIATE seizures of all 401k funds,Roth IRA's, and Trad IRA's,to bring us back from the brink of total collapse.
Owners of said savings vehicles will get U S Treasuries, or Bonds, at X percent,depending on length of terms.
Zero coupon bonds would be the government's confiscation exchange vehicle of choice.
There will be no "Savers" in this environment.
"Gotta dollar, spend a dollar..."
CW
http://answers.yahoo.com/question/index?qid=20090126091554AAHTR4p
Thanks Bruce,
An "unexpected" stop to QE would be a great way to knock gold and other assets down, for some bargain buys by the big boys...
inflation will chew up operational costs, earnings, dividends etc etc.
stocks will correct. UST's will be bid
This is truely MAD SCIENCE. And they better pour more kool aid in the punch bowl cause it's running low.
This appears to be a deadly scarry experiment.
Please correct me if I'm wrong but I believe the Bernak never gave a time limit on QE2. I think he said $50B/month and everyone assumed one year or $600B. The way he said it, QE2 could last for ...................
6/30
Milton Friedman must be rolling over in his grave. His view on "Giant Corporations" was that they came about because of the tax break given to Corporations that divert money that would otherwise go to shareholders and instead investing it into expansion - expansion for expansions sake.
Presto! Giant Multinationals.
'N you fall right into the trap:
"The deal will be that this money gets hit with little or no tax. The condition will be (exactly as in 2004) that the money will be invested in domestic R&D. Everyone will hail this as a step in the right direction.
But the reality will be that 60-90% of the money gets leaked back to shareholders in the form of special dividends or share buy backs. "
Those dirty, filthy Shareholders! Imagine giving them money! Why, they might SAVE it or something..."
Bring on P-3 or whatever else they want to call it these days. It's over.
CW
Isn't the obvious trade to be long government motors, government electric, government sachs and short all their direct competition?
Have you fellas seen the new government biotech company?
http://www.denverpost.com/nationworld/ci_17171570?source=rss
We're living a nightmare melding of fascism and socialism (bridge to communism), as China and Russia and Brazil increase their sovereignty as all of our Natural Rights are eroded by the communist jews who have gained a paralyzing, parasitic foothold in the media, schools, courts, banks, and governments in the West.
I'm rooting for the MASSIVE failures of all european and amerikan economic and political systems and some real payback for these counterfeit sons of the covenant. I have been and will be on the front lines.
Its always good to have a positive outlook on life
http://www.pantheon.org/articles/c/cassandra.html
I wish I was wrong, but that doesn't happen very often.
Did you see that the Federal Reserve has also change its own accounting rules to hide its insolvency:
http://www.economicpolicyjournal.com/2011/01/hot-fed-hides-major-accounting-change.html
The FED should do absolutely NOTHING for 6 months after QE2 ends. Tax holidays will not create jobs in sufficient numbers.
I have heard this point brought up and its interesting one
The main problem is that I dont see how the US can finance its deficits without QE, I expect QE 3 do be announced a few months after the expiration of QE2
The US budget deficit is expected to be $1.9 trillion or so in FY 2011, higher than 2010 due to the tax "compromise" the reps and dems agreed to (I am sure that was a really tough negotiation)
Total debt that needs to be rolled in 2011 is closer to $3 trillion. Who in the world is going to buy that without substantially higher interest rates?
With medicare, medicaid and soc sec + defence accounting for 80% of fed spending i dont see how the deficit can be cut in any meaningful way without hitting the wall first.
You could close down the entire federal government and still have a substantial deficit. The Dems will not touch entitlements and the reps do not want to cut defence. Either we have a economic depression when the ultra interest rate sensistive US economy has to pay higher interest rates as a result of treasury funding problems or we get QE3. To me QE3 is simply a matter of time. They may call it something else, they may not even announce it but probability says its coming
I wouldn't bring my money back here as long as Obama is President. Once its here, you're screwed if he turns against you after he wins re-election. And what happens if the Democrats win back the House?
In 2004, we had a Republican President, Senate, and House.
I would keep the money offshore and borrow at low interest rates to raise cash until Obama is gone and the Presidency is in Republican hands.
I think Bernanke is going to crash the stock market causing money to flee back into the bond market, forcing interest rates down, and setting up an excuse for QE3 so he can keep bailing out the insolvent banks.
It makes no difference who's president. They're both the same. KLEPTOCRATS. CONTROL-FRAUD. That's all that is left of this country. I'm really interested in how long they keep this up. I've got to figure the foreign gov'ts outside the West (US/EURO) are in on this if it keeps up for more years.
Maybe, if you vote for Ron Paul as he runs on the Libertarian Ticket, because god-forbid, the repubs could never have a Paul Presidential Ticket. That might creep out the bible-thumpers. If you're truly a "small-govt repub," and you really just want GOV INC to get off your cloud... Ron Paul is your #1 alternative.
If Captain Transparency wins re-election, I am going where the dollars came from.
Hard to predict 100 years in the future.
....stock buybacks are to be the goal...especially for mgmt. holding stock options.....
Has anyone estimated what that might do for the S&P 500????
Nicely done. Thank you.
My only question is why wouldn't companies issue "debt" at these rates and buy back their shares in an obvious arb if they payout a dividend, rather than risk confiscation at the hands of the communists in dc and pay any sort of vig for the privilege?
so this is hot money, which has ginned up inflation in places like China? and is now feeling the chill, and wants to come home, and Obama wants to embrace that money, like the prodigal son? Hot money for cool? Are they going to park it all in treasuries, let the cycle die down, and then after the election go at it again, hot money on?
Profit taking is profit taking. Got to think Mr Market will not do well, and if that money goes into UST, well that helps Ben keep rates down, and helps Obama pay for his borrow and spend policies.
The final point is where the media takes the spin, will the GOP make partisan against GOP Lite, which runs the show barely. Remember when Bush pulled a gasoline gambit to bring down prices at the pump in the 2006? GS rejiggered their commodity index, drove gas prices down, and they played some SPR games too. Well the voting public bought none of that, public opinion recognized it as an election year charade. How would they look at this? Well the GOP should smell blood in the water if Obama can't manage this.
I say he wants that money into UST, to reduce the deficit. Open markets lead to jobs? The man is such a liar. The best thing he can do is to buy our votes, give each person a couple hundred dollars, which was the first stimulus.
Whoo Hoo! "Go Pack" bitzhes!
Oh yea, and this financial thingy is real bad too. Hhhmm.
Absolutely.
Homeland Re-Investment Act.
5% tax on all cash repatriated to US
5% Tax Credit on all cash repatriated to US and used for share repurchases.
Stocks go up on repurchases, Bennie's off the hook for more QE666, bonds approve as overly expansive money creation slows, so rates fall, commodity prices pause in response to same.....
Magic!
Alchemy!
The Philosopher's Stone!
aka financial engineering
Anybody listening?
The Knukles Economic Rejuvenation Act of Whenever.
Bruce K,
The NYT will kill QE with an article about rising global food prices?
What? Who really runs this country, I ask you, The NYT or the Fed?
That quibble aside, it's a thoughtful post from you- as usual.
On virtually every level you are correct, it is the Fed. Save one. Food inflation is the exception.
Ben can rob savers to enrich banks. He can print money to rig the stock market. But when it gets down to food, he will lose every time.
Ben can rob savers to enrich banks. He can print money to rig the stock market. But when it gets down to food, he will lose every time.
Makes me wonder if Ben's helicopter can take off with 1 1/2 ton(ne)s of gold?
They are already blaming rising food prices on weather and harvest related problems, next will be crude oil because of demand.
The new margin requirements are nothing but cloaked price controls which will have very little effect in the longer term. Love your articles Bruce.
Salinger is on the righr track,massive sums of money offshore not currently being repatriated due to "punitive" tax rates on foreign revenues and profits.MSFT and others have vast sums that could be repatriated if the tax regime were altered,of course it won't be reported as that to the sheeple.It will be the company XYZ making an "investment" in the US to create jobs,the US govt has helped make it possible by changing the tax laws,win win all round,XYZ reports higher US profits and pays less tax in the process,and politicians claim the credit,pass me the sick bag.
Test post - GO Packers!
Loved this piece. I had wondered what kind of encore they would use once pomo dries up in Jun. This makes perfect sense and it will be timed accordingly. Manufacturing a new reality is a tough job, but Jeff and Ben are up to the challenge.
Net result will be very littl job creation and increased power to the corporation and government.