JP Morgan On QE 3: "No Way, Jose"

Tyler Durden's picture

Just out from the only economist at JP Morgan who is even remotely credible, Michael Ferolli.


Our answer is: no. We think it is very, very unlikely. In a nutshell, we don't think the inflation or inflation expectations data are near the point where the Fed would consider further large-scale asset purchases, and even if the inflation data were to start to move in that direction the potential political fall-out is so great that the Fed would be extremely reluctant to purchase more assets.
The recent economic activity data has been decidedly disappointing. By some broad measures such as GDP, it could well be the case that the first half of this year will look even worse than the second and third quarters of last year -- the quarters leading up to the FOMC's decision to purchases another $600 billion of assets. While the growth data may look similar, a crucial difference thus far has been inflation. Last year, core inflation was decelerating through the middle part of the year. So far this year, core inflation has run below the Fed's target but at least it has shown signs of possibly moving back up toward the target. Just as important, inflation expectations were moving down last year; this year they have held up fairly well. These expectations may have received a boost from QE2, a boost which is about to fade. Indeed, the Fed's own measure of 5yr-5yr forward TIPS breakeven inflation expectations is near the lower end of the range seen since the November QE2 decision. Nonetheless, if we are right that growth will improve in the second half this should give some support to pricing power and to inflation expectations.
Even if we are wrong on a second half rebound, we still believe the political hurdle for further asset purchases is tremendously high. The backlash from Capitol Hill after last Fall's decision probably took the Fed off-guard, and the political impact was not a prominent factor debated in the lead-up to the November decision. Our sense is that this time around it would have to be a major consideration, even if such a sentiment is not expressly conveyed in public communications from Fed officials.
In the absence of further asset purchases, what options are available to the Fed if the current soft patch does not prove to be transitory? In a February speech, Vice Chair Yellen discussed some policy options "if there were an unexpected faltering of the recovery." Two options were mentioned, both relating to communications. First, the Fed could adjust forward guidance to push back expectations of the timing of the first hike, and second, they could shift back expectations regarding the timing of when the Fed contracts its balance sheet. Given that it appears the market is currently pricing in very little Fed tightening, either traditionally or through balance sheet renormalization, the marginal impact of either of these steps for easing financial conditions is likely quite limited. As such, it appears that without taking significant political risks there is little the Fed is able to do to support the recovery if growth fails to rebound as anticipated next quarter.



So... anyone feel convinced?

In other words, we just need two more QE 3 denials, before the cock crows, for it to be officially confirmed.


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??'s picture

memo to MHFT or should that be from MHFT

OutLookingIn's picture

NO? That means QE III is on the way!

Mountainview's picture

QE3 yes, but under a new name LM1 (Liquidity Measures 1) followed by SEM (Special Economic Measures)...and on and on...

flacon's picture

It will be called "Zim-Stim" - (short for Zimbabwe Stimulus). 

TwoShortPlanks's picture

The next series will be called 'Foreclosure Easing'...forcing the Banks to lend, agian, and again, and again. This is uberleverage for the banking uberspeculator...the creation of a Housing Derivative Market.

john39's picture

well that does assume that a total crash is not, in the end, the real goal.

metastar's picture

Sure you've read all these truths before ...

  1. "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."
  2. "I believe that banking institutions are more dangerous to our liberties than standing armies..."
  3. "The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Cash_is_Trash's picture

Printers online. Check!

Analysts ready. Check!

Plausible deniability. Check!

...and lift-off of QE3, paving the way for further economic collapse and transfer of wealth never before seen.

Hugh G Rection's picture

It's not needed... good.


Then give back the $25bil, cover all your silver shorts and stop manipulating Ag you fucking bastards.


O and sorry for missing the last 7 mortgage payments assholes, this underwater squater wants you to produce the paperwork... as soon as Linda Green gets a chance to sign the docs.

Arrowflinger's picture

Linda Green is bigger than Santa Claus.



Rainman's picture

I am convinced our gubmint masters will do anything to cover up any and all previous fuckups with even more outrageous fuckups as necessary.

luk427's picture

How can anyone take what JPM or Goldman says seriously. They are the two most corrupt companies on the planet.

OutLookingIn's picture

Yes, and by proxy own the government. No matter one party or the other, they have both by the financial "short" hairs!

Hugh G Rection's picture

Didn't you see "Too Big To Fail" on HBO???


Hank Paulson sold all his Goldman stock before moving to conflict of interest.  Fed and Treasury care about the American People, not their buddies at Goldman and JP.  No sir, no conflict at all..


<sarc off>

White.Star.Line's picture

Once graft starts, it's so, so, so very hard to stop....

Jim in MN's picture

Well, it would be rather a faux pas to start QE3 without a TEOTWAWKI event first.  Ergo, it is impolite to 'see it coming' because that undermines the time-honored tradition of 'whocoodanew?'...

White.Star.Line's picture

Diversion almost seems unnecessary with the public slumbering along.

aheady's picture

Yeah, that's what I was thinking.

Fiat2Zero's picture

This diversion is targetting ZH readers.

MyKillK's picture

Why does the Fed care about political backlash? They don't go through elections and Congress doesn't have the power to stop anything they want to do.

DosZap's picture

Congress if they had testes, could pass a law today,and do away with the Fed.

Get enough votes from both parties, and the Pres cannot even veto it.

Bye bye Bennie & the Jets.

Hugh G Rection's picture

You forget how the Fed deals with pesky elected officials?

Fiat2Zero's picture

They don't, but they don't like to get called in to testify.  Then BB has to try to explain to our idiotic congressmen very basic economic facts and terms.  Oh and he might run into Ron Paul in the restroom and have to flip him the bird.

The fact is that the Fed is independent of congress.  They don't even have to tell them what they are doing (even after the fact).  Nor do congress want to know what the Fed is doing.  If they did, they'd have to try to understand economics, which they don't.

BB will do whatever he wants, and hide it.  We'll find out many years later what was done, if ever.

nah's picture

when the only tools you have are cover ups and subsidies

ghostfaceinvestah's picture

There was great political opposition to TARP too, it even failed a House vote, until they crashed the stock market in threat.

Expect the same this time, just like after QE1.  Should get a nice market correction in a few weeks.  If there is no further printing it will turn into an all-out crash.

fuu's picture

That was a beautiful day.

oogs66's picture

if they crash the market again I swear i will cover shorts and get long and play their game like a nice sheeple

sbenard's picture

I hope he's right, but expect he's wrong.

Re: Yellen's comments.

I don't think either "option" will work because if/as the "soft patch" (sounds strangely reminiscent of last summer, doesn't it?) gets any softer, the market will already be anticipating an extention of the dates of the first interest rate hike and the Fed's "contraction" of its balance sheet "assets" (if they can be called that). If the softness continues, they will already be baked into the cake.

QE3 is a done deal as far as I'm concerned. So is the resulting inflation!

earnulf's picture

JP Morgan lying through their silver plated teeth.   But no QE3 till the public and CONgress screams for it.

Bay of Pigs's picture

Yes, it's all about fear and brainwashing at this point.

"Help me, I'm drowning" (Congress to the FED)

Then throw them the anchor (QE3).


jiggerjuice's picture

Stealth QE3 at first. If the market drops, say, 5-10%, then the hounds will be screaming for QE3 outright - the hounds being Congress, who will demand that their insider trading deals remain in the green no matter what. Oh, and the banks too.

The only way to win trading is to copy bank prop desks or Congressional trades. Of course, infinite greed means Goldman will sell Congressmen shit wrapped in yellow foil and then short it... Until then, I doubt anyone in power will care enough to put them behind bars.

TradingJoe's picture


agent default's picture

Ok fine so there will be no QE3.  So the US will service and repay its debts in real terms instead of inflated dollars. I don't believe they can.

DosZap's picture

What a sack of horse manure.


They have NO options but to do so.

And they know it.

So do we.

suckerfishzilla's picture

If you don't know all of the details of the deal yourself then wager that JP Morgan is lying.  It is probably an absolute.

Josh Randall's picture

This is french for "Please don't buy anymore PM's -- because the dollar will be stronger with no QE" sorry Morgue - lets see your shorts! 

suckerfishzilla's picture

JP Morgan is the oracle of lies.

PulauHantu29's picture

"Oft before I swore but was I sober when I swore."

Deflationary depression = Riots in the streets

INflation = Higher prices and a few complaints

QE3 in some form is coming....100% guaranteed imho

Arrowflinger's picture

Ferolli didn't really say there would be no QE3, he just thinks it is politically dead until there is enough deterioration to foment an excuse.

JW n FL's picture

No Worries!


Secret Off Book 0.01% Loans for everyone except "We the People"!


Do you need money?


Are you are a known terrorist?


No Worries!! the FED has you covered! with a special, off book Loan! Look we gave Gaddafi $100's of Millions of U.S. Dollars while the U.S. Citizen was forced from their homes by illegal seizure!


The Politicians are owned by us.. so don’t worry.. the courts are owned by us.. so dont worry..


Come on down today for you backdoor, off book loan(s)! You won’t be disappointed! Just ask Gaddafi!


This special will last for a really long time so no rush, successfully operating now for over the last year!!


SHHHHHHH.. don’t tell “We the Sheepeople!” LOL!!!


JW n FL's picture

Technically our loans don’t count as U.S. debt proper!


So there is no need to raise the debt ceiling!


Time to make those scumbag, working class, out of work free loaders squirm!!!


Forced Austerity! Let’s see what we can push out of these sheep!!!

SheepDog-One's picture

Thats all thats ahead for america, more impoverishing and 3rd worlding. 

AGORACOM's picture

This further supports my call back on March 30th that QE3 will be delayed ... but it will come  (

In a nutshell, there is little political support / economic basis for further QE ... until the floor starts to fall out again and QE3 does find political / economic support.

In the meantime, we are heading into potentially volatile times with the potential to damage / create wealth .... and I don't think the powers that be mind this scenario at all.


George ... The Greek ... From Canada


Cdad's picture

Oh more QE?  Who will buy the XRT then?  

BTW...what a masterful arbitrage trade on that ETF today.  Simply magical.  You have to tip your hat, really, at the scheme which works...until it doesn't.

I've never seen an entire group of stocks trade so obviously into hurricane like headwinds...even as one after another of the individual names contained within have taken massive hits.  The trade now has narrowed to a few key names.  Nothing like a thin and narrow bid to create wealth.

Thank you for this wasteland, Ben Bernanke.  Thank you too, Hank Paulson [even as HBO romanticises your epic heist].  Thank you Mary Schapiro for being so patient with criminal syndicate Wall Street bankers, giving them so much time to unwind their crimes by looking the other way and keeping your staff so busy meeting relentlessly with bankers in order to best determine which SEC laws can just be forgotten about.  

SheepDog-One's picture

HA HA great post as usual Cdad!

Robslob's picture

Since they are overleveraged anyway they just don't want anybody to get a jump on them...fuck JPMorgue...!

JW n FL's picture

0.04% is over leveraged?


what do you mean sir? how dare you lead people to think that more leverage than before the crash is a bad thing! shame on you.. Shame! On!! You!!!


Everyone go back to grazing.. it all good! no worries! everything is under control and going to plan!

lieutenantjohnchard's picture

the economist confirms the fed is a political animal. and to think to see inside (audit) the fed would compromise their independence. looks like the fed can be cowed afterall with pushback according to the economist.

i think it's spin. they'll find a way to do qe3 in one form or the other.