It's the end of QE (as we know it)

EB's picture

With the Fed’s $300 billion gift card to PD’s Treasure Island maxed out, one wonders who will support the vendors chomping at the bit to offload Uncle Timmy’s 3 to 7 year wares (much less the 30 year, being so two-thousand-and-late).  But with the sun setting, the Japanese tourists trickling out, and the kids tired from a hard day of play on the S&P 500 Coaster and the SPY IOI Whack-a-Mole, it would be easy to settle into a semi-euphoric complacency, thinking ahead to a frolic-filled night on Pleasure Island. 

This is the season when retailers typically look ahead with glee and patriotic investors hit the buy button on their stock accounts, not to return to their screens until January.  With equities awash in the greatest liquidity bath since Emperor Claudius built up Aquae Sulis from a Celtic mud pit, one hopes the proverbial plug has not been pulled here because, without the foundation of a stable and growing money supply, equities need the spigots set to max.

True, we still have QE in the form of Agency and Agency MBS, the latter of which could be considered a $1.25 trillion fire hose astride the puny Treasury QE faucet.  Then, there’s always the odd SFP wind-down.  But the sun rises and falls with the 2s10s and, should they get out of hand, already-difficult-to-secure business funding costs will rise along with mortgage rates.  This, ahead of record CRE resets, cannot be had.  Worry not–Uncle Ben has a plan (aside from backstopping E-Trade in exchange for removing the sell button from their platforms).  All will be revealed soon–not at the next FOMC meeting, mind you, but surreptitiously, through the back channels of the Fed’s PR page. 

Will it be QE 2.0, usurpation of the money markets, or will the lamb of choice be the Primary Dealer Credit Facility?  We’re on pins and needles here, so please don’t disappoint us. 


Update 12:53 pm EDT:  Ironically, a crashing stock market relieves the yield bloat.  Perhaps the Fed is content to watch the carnage for a while.

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colonial's picture

This seems to be the site to ponder the following...assuming the stock rally off a 6-handle spx was liquidity driven, is it not accurate to say that today's markets have many new ways to play this on the short side?  If equities are being rented, not owned, are those renters content to just sell and buy bonds?  Even a quick move could mean a 150 pt drop in the spx. 

Prophet of Wise's picture

Leg bone connected to the shin bone. US Fed bone connected to the BIS bone connected to the IMF bone connected to the City of London Corp bone connected to the Reichsbannk bone connected to the BOE bone connected to the Barrick Gold bone connected to the Seven Sisters bone connected to the US Treasury bone connectd to the plunger on the back of the toilet because it is all willfully sending your wealth down the same hole!  

aldousd's picture

EB, I love your writing style. It's like MOMO for my mind.

uptick1028's picture

That's Great EB...well said !!!!

Noah Vail's picture

Could someone translate that gobblygook for me?

Gunther's picture

Noah, are you new here?

Let' see: PD: Primary Dealer, Goldman JPM…
Treasure Island maxed out: Bond buying by the Fed is done
Uncle Timmy's…wares: US govt bonds
QE: fancy term for electronic money printing; buying us govt bonds ended, buying Mortgage Backed Securities from Fannie Mae and Freddie Mac still continues
CRE reset: Reset of Commercial Real Estate loan

That should translate the slang into regular words.

EB's picture

Markets = fine china on table.  Fed QE funny money = table cloth on the table.  Fed = unskilled magician.  Floor = S&P 500 fair value. 

Hope this clears it all up.

Anonymous's picture

Love that QE is the same as QE _ Queen's English, cuz that is what we is gettinin