Jim Grant Explains Why QE3 Is Coming

Tyler Durden's picture

Once again we are reminded why we like Jim Grant so much. From his latest Grant's Interest Rate Observer (which, trust us, is worth the subscription): "Almost 30% of the respondents to a poll conducted by UBS a few weeks back said they anticipate a third round of so-called quantitative easing... We count ourselves among the expectant 30%. To its congressional directed dual mandate the Bernanke Fed has unilaterally added a third. It has undertaken to make the markets rise. The chairman himself has more than once taken credit for the post-2008 bull market (on one such occasion in January, he reminded the CNBC audience how far the Russell 2000 had come under Fed ministrations). Could he therefore stand idly by in the face of a new bear market. Byron Wien, vice chairman of Blackstone Advisory Services, went on record the other day predicting a summer swoon in stocks following the scheduled winding down of QE2 in June. Let us say that Wien is right, and that, furthermore, drooping stocks are accompanied by sagging house prices and a weakening labor market. Bernanke was hard put to explain why he chose to let Lehman go while acting to save Bear Stearns. He would be harder put to explain why he chose to implement QE1 and QE2 but, in another hour of need, refused to launch QE3." And "Sooner or later, gravity turns speculative markets into investment markets. When this transformation occurs, the Fed will confront the need to bail out the innocents it had previously bailed in. Hence, QE3." And therein lies the rub. Simple, sweet, and, for the US dollar, suicidal.

 

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slow_roast's picture

Bernanke not likey Grant; he ruins the surprise!

slaughterer's picture

He would be harder put to explain why he chose to implement QE1 and QE2 but, in another hour of need, refused to launch QE3

Why is Grant ascribing the ability to reflect and the need for justification to Bernanke? The Bernank will never need to explain himself except in a cheesy autobiography long after the fact, when it does not matter.  I am sick of every analyst with some "insight" into the Fed writing as if they could see inside the Bernanke's mind.  

markmotive's picture

Three reasons that QE3 is inevitible (eventually):

1) 70% of rich Americans still think we're in a recession (although they're spending more).

http://www.planbeconomics.com/2011/04/19/70-percent-of-affluent-american...

2) Simply raising rates by a quarter-point would require a full-reversal of QE2

http://www.planbeconomics.com/2011/04/21/john-hussman-on-rising-precious...

3) The last time the Fed tried to withdraw (2010) all hell broke loose

http://www.planbeconomics.com/2011/03/03/what-happens-if-the-fed-withdra...

 

kengland's picture

There will be no QE3 in the short run. Bernanke wants the public to come to him on this one. They will to. The mass are not ready for real rates just yet. To levered still. Baby boomers need to have this market rise, at all costs, in order to retire. Once they see that without his help the thing comes down, they will accept the poison.

 

Book it

johngaltfla's picture

I concur. A short term spike in short term (2's,5's) rates with some reverse repos and an overnight and discount rate (25bps or so) hike in June should set the tone. Let the equity markets crash 15-30% hard, reign in the commodity players, help the ECB, and then create a re-elect Obama rally in Q1 with a massive and crushing flood of dollars starting in November or December.

After all, why start QE3 in the middle of a "recovery"? (Snicker, snort, belly laugh)

Tabarnaque's picture


What you say makes a lot of sense. But QE2 is all about
funding the huge government deficit. When it ends in June, who will come to buy
treasuries? The question is: How long can they last (given their spending
madness) without QE3. I doubt they’ll be able to last until November without facing
severe liquidity problem. As anyone tried to guesstimate how long the government
can survive without QE3? One month, two months, maybe three??...

Commander Cody's picture

The CONgress will need QEinfinity.

tomster0126's picture

thoughts on QE578 five years from now?  for real though, things are looking pretty pretty gloomy.

 

www.forecastfortomorrow.com

Goldust's picture

PIMCO got a lotta cash hanging around, and would probably like to buy a dip in treasuries, no?

smlbizman's picture

there will be no qe3.....they will call it something else, it will be the same program but it will be something patriotic, so patriotic we will not even ask for any lube.....

Pegasus Muse's picture

As anyone tried to guesstimate how long the government
can survive without QE3?

As anyone tried to guesstimate how long the dollar can survive with QE3?

DXY now at 74, down 1.5 in two days. The Bernank is boxed in.  

citizen2084's picture

I think you and Schiff areright on this point. QE to help the economy justification is bulls%^t.  This is about funding the emipre. The Fed has acquired >$1t in 6 months, it took China 20+ years to acquire a trillion, and they are not going to acquire an additional trillion. 

The Fed has to fund the empire. Warfare and welfare is expensive.

Ciao

linrom's picture

As John Cleese would say "Smart, very smart."

Boston's picture

Exactly.

 

And 10s rates could dip--temporarily--until "hints" of QE3 get dropped again, ala Jackson Hole 2010.

Lord Welligton's picture

Excellent kengland.

A generational war.

And a class war thrown in.

The children of the baby boomers will not thank their parents for this.

And all that college debt as well.

 

I can see some family infighting on the horizon.

 

Euthanasia is looking bullish.

narnia's picture

The baby boomers are the big losers here.  They are our nation's creditors.  The Fed is taking us down the path of a $ breakdown, which equates to a national bankruptcy that, at this point, has no judge. Trust me, you are better to be 20 with your whole life ahead of you than 60 looking into the abyss.

subqtaneous's picture

Losers? If you're 60, your whole adult life has been one of the rarest, longest golden opportunities to get your financial security in order.

ManOfBliss's picture

Very insightful. I totally agree. Nobody has had a better chance to become wealthy.

Heavy's picture

Though one had 60 years to look at abyss and fix it, I mean it was right fucking there, Fed Res has been bad for 100 years, we all knew/know it, apply fire already.  The other has twenty years, the sins of their father, ambition, and easy access to fire.  One bought the ticket and took the ride.  The other got drug along for the ride.  I'm somewhere in the middle.

nodoctor's picture

This.

The line from The Godfather was "Today the Corleone family settles all debts" - that is what will happen in about 45 days. Fourth turning indeed, it will be the great intersection of trends:

To QE or not to QE
Debt ceiling
Tea Partiers
Budget
Social Security
Taxes
Silver spike
Gold spike
Banks with horrible books
Fukushima
2Q GDP
Oil spike
Gasoline spike
ZIRP
Libya
Iraq
Afghanistan
Comets
Supervolcanoes
Pestilence

It is all coming to a head very soon and I believe the powers that be would rather destroy everyone else's currency than their own. The fall will be choreographed and all markets will suffer. The government may shutdown. Then they hope that the people will beg for a government solution, for a central bank solution. The media will comply. God help us if they give us those solutions.

Heavy's picture

Water

Food

Shelter already went belly up and got foreclosed.

Population

Solar Maximum

Monetary Evolution/Collapse/Clusterfuck?

Deforrestation

and lets say Middle East Awakening (though how awake can they be if they're signing up for central banks?)

 

There that should help finish the confluance list.  Both of our lists may exceed 45 days by a bit however

nodoctor's picture


45 days for the beginnings of the great financial inhale soon followed by the great financial exhale which will be something more horrible still.

I do see everything coming together though into one great singularity of dread. Maybe even by October. Something beautiful may be born from this. Something beautiful may die.

Either way remember the four P's

Provisions
Protection
Precious metals
a Plan

Logman's picture

Junked for a sentence containing the one word "This.".  Take your shitty memes back to your crappy gamer forum.

tmosley's picture

Junked for being a pretentious ass.

Popo's picture

I'll take it a step further:   There will never be anything actually called "QE3".  It will be 1000 small operations which are done in stealth.  These operations will of course, amount to QE3, but they will never be referred to as that, or even as individual parts of a greater program.  The Fed knows full well that the only way it can possibly continue to decimate the dollar is to do it in obscurity.

Hence the Fed's recent propaganda campaign promising a new era of "openness".  The exact opposite is what's coming.

There will be QE3.  But it will never be discussed, acknowledged or alluded to.   QE3 will be a black op.

tomster0126's picture

no matter what, nobody's kids or grandkids are going to be secure in the future.  Thoughts on restructuring a new Social Security plan?

 

www.forecastfortomorrow.com

NotApplicable's picture

The Bernank will never need to explain himself except in a cheesy autobiography long after the fact, when it does not matter.

To be titled, "If I did it."

All Risk No Reward's picture

>>To its congressional directed dual mandate the Bernanke Fed has unilaterally added a third<<

wrong.  you are being played like a chump.  there is no dual mandate.  read the mandate in section 2a of the federal reserve act.  google it.  it is there.  you can read it.

the mandate is singular - to keep monetary and credit aggregates in line with GDP growth.

that's it.  after the singular mandate are the dual benefits OF FOLLOWING THE SINGULAR MANDATE.  reading comprehension for the win!

the fed pawns off, orwellian style, the dual expected results of the mandate as the mandate itself.

why would they do that?

SO THEY CAN BREAK THE SINGULAR MANDATE AND CRIMINALLY BLOW THE WORLD'S LARGEST CREDIT BUBBLE / BUST OPERATION IN HUMAN HISTORY, THAT'S WHY!

and since you have no idea what the real mandate is, you don't call them on it.

but you should!

Paul E. Math's picture

The Humphrey-Hawkins act of 1978 is interpreted by most as giving the Fed that 2nd mandate. 

That's the way law-makers intended it and the Fed has been only too happy to accept this additional mandate.  How else could the Fed justify the role it played in bailing out its Wall Street masters?  Bailing out Wall St certainly had nothing to do with growing the currency level in keeping with the growth of GDP.

Whether they should have this additional mandate is another matter entirely.  Personally, I think the Fed should have no mandate whatsoever, the Fed should not exist at all.  But that's another issue.

Tail Dogging The Wag's picture

"Investors need to diversify, they need to own some real estate, they need to own some farmland, they need to own some equities, some cash, and some precious metals..."   Marc Faber —Investment analyst

Got real estate and farmland outside your home country yet?

http://www.thorssoncapital.weebly.com

tmosley's picture

Pfft, a loser like you is questioning Jim Grant's record?

I guess beggars CAN be choosers.

Gubbmint Cheese's picture

I guess the proof will be in the pudding Leo. Are you willing to say that the US economy can stand on its own two feet without any more stimulus?

So - if/when QE3 comes into play will you finally admit that the US economy is completely reliant on Fed provided life support and isn't 'recovering' as has been previously sold to the public?

Or will you instead ignore the life support of QE3 and keep on claiming things are getting better?

 

hambone's picture

Leo???***crickets***chirp***

Leo, kinda hard to not acknowledge the $150B dollar monthly entirely unsustainable deficit that keeps the economy from shutting down and falling off a cliff.  But if it's maintained dollar falls off cliff.  Classic lose - lose.

akak's picture

LOL, yet another smug, ignorant, and explicitly pro-status-quo comment by Leo junked into oblivion, with over 50 members here disgusted enough by it to junk it as the statist, conformist, bow-to-our-sociopathic-masters crap that it was.  Good job ZeroHedge cleanup crew!

Billy Bob's picture

Mr Mosley

Leo is a respected contributor to this site.  His reporting on Pension issues is welcome, and insightful. He has been bullish on the market and he has been right.  His opinion about the direction of the market has brought him significant criticism and character assignation.  Why diminish the contributions to our site by a very hard working, insightful, and usually correct contributor by calling him names.

It is one thing to view the macro economic environment and have a bullish outlook.  Frankly, that outlook is easily dismissed.   But having the macro outlook and also being right on the market has brought Leo and people here like him much criticism.  I suspect Leo, and the others with his view, have done pretty well for the past 2 years, while the doom and gloomers (myself included) who have continually expected the market to decline, have suffered substantial losses. 

 

I love to read Leo, and Robotrader.. .they have been right where it counts.. in the pocket book.  It really takes an adult to hold the economic views of much of the reader ship here, my self included, and still be able to BTFD because the TA tells me I should.  Have we seen the top today?... I think maybe we have, but I went into the close long, with very tight stops.

Can't we appreciate the views of those with whom we disagree with out casting aspersions?  After all, this is not religion, sex or politics?  Or is it?

 

Bill 

tmosley's picture

In real terms, they have NOT been right.  In real terms, they have lost purchasing power.

Respect in this field is earned by outperformance.  Both Robo and Leo have consistantly underperformed, as far as I can tell.  But then, they only really tell us about their winners.  How long has it been since we heard from Leo about his Chinese solars?  Big stinkers that he held onto for WAAAAYYYY too long.

I used to trade.  I made a lot of money.  Often, I even beat the market.  But I don't trade anymore, because I can see this "market" for what it is, a shambling zombie coming to suck out the purchasing power from anyone stupid enough to gamble in it.  The fact that these "bulls" have been unable to see the fundamental changes, and indeed support the Ponzi, and WORST OF ALL, try to get others to throw away their purchasing power, makes them truly despicable.

I don't really care about pensions, and have read very few of his posts on the matter, and those long ago.  Pensions don't matter--they will be nationalized within two years at the longest.  That is the truth of the matter, the "gospel", that I have used to become quite wealthy, and have encouraged anyone and everyone to follow.  Physical silver and physical gold.  Anything, really, that you can hold in your hand, have physical access to, and defend if necessary.  At this point in history, owning ANYTHING else is a sure ticket to poverty.

Further, the fact that little old me has been able to outperform the numbskulls by simply owning physical silver makes me right, and them wrong.  That is the only thing that matters--purchasing power.  Who gained it, who lost it, and who preserved it.  Follow these hucksters to your collective doom if you like, but I will continue to call them out until I myself am proven wrong.  If that should happen, I will be HAPPY, because it means I can keep working at a job I love in a flowering, vibrant economy.  I don't think that is going to happen.

NotApplicable's picture

All pensions will go the way of PBGC, which will be the aggregator that feeds the Treasury "market."

1100-TACTICAL-12's picture

Well said tmosley, I quit a 6 figure job 3yrs ago in construction traveling, so I could see my kids grow up. I wondered what do I do for income? Thankfully my wife has damn near a 6fig job in health care. Any way to make a long story short I found ZH cashed in my 401K took the hit bought silver. Thank god for ZH. I now have a badass garden 100's of mason jars full of non GMO's. The market will certainly hold up as long as there is QE. "Anything you can hold in your hand" words of wisdom....

High Plains Drifter's picture

i keep telling people they are going to nationalize those damn things.(pension fund and retirement accounts ) ....hey should take the money out and take the hit and go buy PM. They think I am crazy. Oh well.

greenrain's picture

OK.  How does this work?  There is no "I want to buy PM" box to check on the early withdrawl form.  What kind of penatly did you pay?

OldPhart's picture

I took a loan from my 401-k, justifying it by withholding house payments until I got a foreclosure notice.  Paid the mortgage up to date, took the notice and pulled half my 401k stash out.  Making interest payments to my self at 7%, tax deductible, along with a increase on the prior 401k contribution.  Took the cash, bought silver in 2007.

I watch my 401k allocations pretty closely, as closely as possible that is, and move my allocations regularly.  YTD I've done about 13%.  I'm hoping that things hold together until next April, when I'll take another loan out and purchase more.

High Plains Drifter's picture

well one person i have been working on about it, has about 650,000 in a ira . she is 67. i told her to get the damn money out of there. she won't do it. oh look, the markets are going up and up and i am making money. i say to her. ok, where is the money. show it to me. she sees numbers on a page and she thinks everything is ok. can you just imagine how often this happens all of the time. these older people see numbers on a page and they think everything is alright. i tell her, they will confiscate it one day soon. national emergency if you will.  in answer to your question, of course there will be a penalty and most likely a taxable event. that is the way they have it set up. they want you to keep the money there under their control. this is why they have these penalites etc. the whole thing was a sham from the start if you ask me......so now all of this money is sitting there and evil men are looking at it and want it.......and.....they will get it..........

tomster0126's picture

nice--my life story follows not quite the same path but similar after the part about finding ZH, lol.  silver and gold have saved my life.

 

www.forecastfortomorrow.com

Atlas Shrieked's picture

what planet are you from?  As long as QE is in place, you cannot fight the Fed.  Going long since March 2009 was a no-brainer, if somewhat dicey, which I caught with some biotechs (lucky).  But going long SLW Nov. 2008 was complete skill.

For long-term bullion holders, dips are for accumulating.  One can trade staircase rise in PM, but being right and sitting tight I suspect has been more profitable and easier on the ulcer.

Shell Game's picture

Though I do not appreciate the viewpoints of the two gents you mention, I fully support their presence here.  Confirmation bias is not the cream that rises...  http://en.wikipedia.org/wiki/Confirmation_bias

akak's picture

Billy Bob,

Leo Kolivakis is nothing but a terminally short-term-thinking, completely amoral, contemptible coward and shameless Quisling for a massively corrupt, failing, and utterly unsustainable system run by sociopaths for the sole benefit of said sociopaths.  His numerous and unapologetic admonitions of surrender, both financial and moral, to these sociopaths and their evil web of debt, corruption, injustice and manipulation make Leo a blight on this site, and his presence here an insult to everyone who values honesty and the truth, particularly inasmuch as virtually everything he espouses --- his constant pro-Establishment drumbeat --- is in direct contradiction to everything that ZeroHedge itself espouses and for which it otherwise stands.

Yes, I damn Leo and all apologists for evil like him with every fiber of my being, and will be damned if I will ask for your or anyone else's forgiveness for doing so.  In fact, if you value truth and honesty in this time of precious little of either, you would join the vast majority of other members here who have justifiably junked the numerous vile comments of Leo into oblivion,  who challenge and denounce his disingenuous and ignorant shilling for the statist status-quo, and who oppose his incongruous inclusion as a contributor to this site.

bobert's picture

I for one am glad that we have available to us an opinion that is different than your's dumb ass!

 

akak's picture

Hollow and disingenuous pro-Establishment propaganda, malicious disinformation and unabashed support for an out-of-control and clearly malevolent financial and political elite do not constitute a "different opinion", as much as spineless cowards who refuse to stand up to evil try to thereby excuse it.  It is disheartening that there so many apologists for those shilling for the corrupt and sociopathic power elite like Leo even on this site.  What is wrong with you and all the sheep like you --- why are you so congenitally unable to recognize evil, and to confront it?  Are you THAT much of a coward?