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No QE3 Right - So Why Did The USD Just Hit A New Cyclical Low? Citi Explains Why
If you are confused why at one point every word the Chairman said was the equivalent of one pip lower for the DXY and 10 cents higher for gold, wonder no more. Here is Citi's Steven Englander asking, and explaining why the USD just hit a new cyclical low.
From Citi's Steven Englander
Asset markets pretty much liked the FOMC statement and really liked the press conference, but that's not the same thing as liking the USD. Consider the chart below -- the blue line shows the tick-by-tick drop in DXY (the dollar index) from noon to 4PM New York time, encompassing the FOMC statement and the press conference. The red line is the S&P and the green line is the two year yield. The question is what surprised the market to such a degree that the USD basically hit new cyclical lows.
The factors:
1) the Fed comfort zone with how core inflation is evolving -- investors may have been looking for an upgrading of the degree of inflation concern that did not emerge either in the statement or in the press conference comments -- neither emerged
2) the dismissal of USD weakness as a factor driving commodity prices -- echoing a speech by Fed Vice-Chairman Yellen a few weeks ago; rapid growth in EM economies was viewed as the major factor in commodity price strength
3) the comments on a strong dollar policy were treated pretty much as pro forma relative to the view that a stronger US economy is a prerequisite to a stronger USD in the medium -- a view that embraces USD weakness in the near-term -- "The second thing we are trying to accomplish is get a stronger recovery and achieve maximum employment. Again, a strong economy attracting foreign capital will be good for the dollar."
4) reference to the success of QE2 -- in particular to the gains in stock and credit prices as the measure of the success of QE2 -- by implication a weaker USD is an unindicted co-conspirator in that success
5) the emphasis on the measure of Fed ease being the stock of assets owned rather than the flow -- by implication the end of QE2 would be the end of additional easing but not the beginning of tightening -- the implication for the FX market is that a backing up of asset prices at the end of QE2 would be unwelcome.
6) given the success claimed for QE2, the conclusion "we've taken our forecast down just a bit, taking into account factors like weaker construction and possibly just a bit less momentum in the economy" seems very tepid.
It is not clear how much of these comments should have been viewed as a surprise and certainly whether they merit taking the EUR and AUD among other currencies to new cyclical highs. At a minimum they reinforced the view that any shift in policy was happening slowly and is still heavily contingent on economic outcomes. From the perspective of markets there is little to discourage flows into EM and the ongoing reserves diversification needs that have steadily weakened USD with G10 as well as versus EM..
The USD moves reinforce a story that is well known and widely priced in. It is clearly the path of least resistance at the moment, but also is increasingly contingent on ongoing global growth and asset market strength. The Fed did nothing to discourage that thinking, but at a certain point the distinction between USD weakness and asset market strength may become more clear than it is now.
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"buying power" is useless, in our monetary system debt needs to increase, and since private debt isn't increasing, that means the government has to increase it, but the problem is the govt can't afford the interest on the debt, so they need Benocide to buy it and remit the interest payments back to the govt, thus the Fed balance sheet needs to grow or this all collapse.
correct, but more specifically, the "buying power" of silver is awesome in this depression back in reality-land.
Yes, thank you for adding a dose of sanity in this discussion. The debt has to increase faster than the combined rates of the faux economic "growth" it's supporting and the rollovers and interest payments that come due. The compounding will overtake their ability to fund it. At a point in the near future Bernanke's only option is to drain liquidity from the system, or risk looking like the greatest fool of all time.
The dollar v. asset divergence will continue to the end of the quarter. There simply is no reason to not purchase assets at this point, especially if you are making the difference on rates by buying securities and selling them to the Fed. I see this having some volatility over the course of the next month, but with dollars trending down, equities and commodities (esp. metals) trending up. Many will unload a few weeks before the end of the quarter, but most will offload all of their shares going into Q4. After that, equities will see a big dip with a dollar jump. Commodities (esp. metals) will get crushed in the short term. But, even though there will be dollar strength, yields will rise due to the hole left by the Fed's closing of the valve. Most people won't know what to do, and they will inevitably go into Treasuries (haha, it's a safe bet, right?).
In either case, it will be a rollercoaster ride for the next 2 months, with the dollar taking a beating in the end. It will have its heyday in the early 4th Q, but it will be nothing but a head fake. Once those yields start to rise, those that went into Treasuries (not enough to fill the void), will figure out that market rates are biting them in the ass. That is when metals will take off.
At least, that is my current perspective.
One disconnect - how does a weak dollar attract foreign capital ? Once foreign currency is converted (buys) $$ assets, it's then subject to the same ongoing devaluation.
Bueller ? Bueller ?
What does it cost to borrow a dollar? I think that will answer your question.
I should also mention that it is not as if there are not plenty of dollars floating around the world to come right back. In fact, I think most foreign capital markets would like to offload a few dollars at this point. In fact, now would probably be a ripe time to do so. Better to get rid of them in US assets than to hold them.
Afterwards, take advantage of the head fake dollar rally.
"Bueller? Bueller?" LOL
So The Bernank says no QE3 eh?Jim Rickards reckons he can still POMO around $750bn a year rolling over the current balance sheet,that's around $60bn a month about half the current rate of subsidy.
Tyler reckons he will only be able to rollover around $30bn a month about a quarter of current purchases,so my question is who has got it right?
Clearly neither theory comes close to the current POMO regime so why did the market rally and surge towards the close with the prospect of a huge drop off in potential POMO purchases?
Or has the market merely concluded that Bernanke has nowhere else to go but print whatever is needed,coming clean and telling the truth seems to matter little,everyone seems to have come to this inevitable conclusion without having Bernanke blurt it out in that wavering,trembling voice of his.
We are at the point where the Fed has no choice but to write checks on itself. We are now at the point of no return. The Fed will stop purchasing, but the reality will set in; QE will continue. I don't think that the market is oblivious to this, they just want to get in on the action before we reach inevitability. The basic premise from my viewpoint is that you get the action while the action is good. After that... Well, we'll worry about it when we get there.
The Bernank and his criminal buddies will tank the US economy for the sake of more trillions for the most dangerous ppl in the world. Mission accomplished.
While psychology may indicate the dollar is going down as a vote of disapproval, there is the real woirld input of low interest rates in a world of higher rates for other currencies, even the Euro. Also. it does not help to be the reserve currency and print trillions which is defacto devaluation. However, Fed policy seems to have in the short term been beneficial in mitigating some of the contractions of the current economic collapse. The jeopardy remains in spite of efforts of the Fed for the current culprit is not of the Fed making. We, the world, are running out of per capita supplies needed to sustain our current living standards, let alone the emerging markets.
The question is germane, if Rickards is correct, if this is enough to offset the internal contraction of credit and the bleed off of so much into speculation. The stock market says yes, the currency market says no, and real judger will be interest rates. My personal belief is that we have reentered the '70's deja vue. Once the surplus is allocated, rates will rise without further printing. But then, the admission of further printing means we have lost it. At some point the lid blows off. Wheel barrow time.
Fu Ben andFU to the banks. Fuck the Bitchezz .
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+5 nice.
What BS.. The POMO monies go to the selective banks who pump up stocks and othe assets. When the POMO monies are turned off, who will have NO LOSS RETURN CASH to pump up stocks then. Stock will fall after QE2 ends, and this will tighten wallets as confidences are shattered and porfolios are in the RED...
the game will be in MAY- JUNE
http://www.readtheticker.com/Pages/Blog1.aspx?65tf=188_euro-approaching-another-cycle-top-2011-04
http://www.readtheticker.com/Pages/Blog1.aspx?65tf=180_cycle-review-dont-tell-the-retail-investor-but-2011-04
FEDs ONLY concern is keeping rates low, nothing else. So if needed they will start QEIII to accomplish that.
For now they think that $62.5 billion (Rickards figure) reinvestments each month from maturing securities will be sufficient enough to do that job. I call it QEII+. I think the FED will have to start QEIII eventually cause without it the economy will implode.
Stock= Size of Feds balance sheet
Flow= Buying new securities - creating money.
the economy has already imploded! the dead do not know that they have died!
The world will have no choice but to accept devalued Bennie-bux. :roll:
Its all political postering.
Former Bush Treasury Secretary: Lawmakers Opposed to Raising Debt Ceiling “Are Our Version of al-Qaeda Terrorists”…http://weaselzippers.us/2011/04/27/former-bush-treasury-secretary-lawmakers-opposed-to-raising-debt-ceiling-are-our-version-of-al-qaeda-terrorists/
(1) Why does anyone pay 500K for someone to write up this shit that is already out there? Like a secretary's job
(2) Seems the public really believe in this shit
Most folks in the USA do lack the Critical Thinking skills.
It isn't just in the US, trust me. It isn't as if economics and financial figures are running in the minds of the average individual. I would say that those that think of this stuff may constitute 5% (if that). And, of that number, even less actually know what they are talking about.
the usd hit a new cyclical low because the ghost of gideon gono haunts....he has abducted the body of ben "i'm a shithead" bernanke....
USD getting killed in Asia. No one believes Bernanke is going to stop with QE2. There is a green light to sell dollars. I am amazed at ths - he is the only central banker unconcerned by the value of his own currency.
For years the Fed has expanded its power by operating in almost total secrecy. But now, with enemies parachuting in from all quarters - from China, from critics in the U.S., from nervous investors worldwide and from an economy collapsing under its spectacularly dangerous policies – the Fed has decided to come out from behind the curtain.
Its hope, of course, is that it will be able to control this new message of pretend openness. But, IMO, this action is a sign of weakness and fear and when the public learns more and more about the Fed, the results can only be good for America.
Asia absorbs US inflation, crazy...Now Asia is going into a war cycle re: Thailand and Cambodia.
All we need now is China saying enough, get ready for the UST hell sell.
"No one believes Bernanke is going to stop with QE2. There is a green light to sell dollars. I am amazed at ths - he is the only central banker unconcerned by the value of his own currency."
good comment... BUT!
Bernanke IS NOT, not, NOT concerned with the value of the U.S. dollar.... THE ONLY THING that Bernanke is concerned with is GS & JPM stock price and "earnings" ("profits") - he is a HIRED PUPPET FRONT-MAN for the bankers, and he ANSWERS TO THEM, and them alone.
That Bernanke & the Fed GIVE A DAMN about the dollar (or the American economy) is the (second) BIGGEST PROPAGANDA SNOW JOB of the past decade.
It is really amazing how STUPID The Bernank is: IF HE HAD ANY IDEA of THE DAMAGE he is doing to MILLIONS of people in the world on behalf of the Jamie Dimons, Lloyd Blankfeins, Hank Paulsons, John Paulson, and other debtor's-hell overlords, HE WOULD DEMAND PAY on the par with THEIR stolen, taxpayer extorted, bailed-out (tens-of) millions of $$.
but he is a clueless, arrogant, bureaucrat appartchik who actually thinks he is competent & doing "a good job;" even if day by day he moves increasingly closer to those bureaucrats who PRESIDED OVER WEIMAR INFLATION (which is to say, the economic MISERY and RUINATION that led directly to the worldwide massacres, destruction, & mayhem of WWII.)
Bernanke is not clueless, dear Fiat: He's in control of a game where he owns both teams. Government in his hand on one side; to-big-to-fails on the other.
Right now his banks are in trouble: their real-estate portfolio values are sinking. And the government - well, he's gotta prop up the bond market to keep Uncle in fiat.
Deflation scares the hell out of him - the cartel becomes insolvent if deflation sits in, so he's going to inflate.
Poor fellow is stuck between a rock and a hard place!
i short the 30 years every fucking yield dip. Thats my 'Silver deal'
DXY at 73.07 as I write.
Silver Bitchezzz.
Let the USD keep falling like it is, and there will be a revolution here, in one form or another.
Count on it.
Just wait until gas is $5 a gallon, let alone $7 a gallon, on a national basis.
Even the nice Sheeple will see red.
Europe has $9/gallon. People drive smaller cars, live closer to work, take share public transit. Sheeple can't do jack squat.
Higher gas prices will turn public to support alternative energy programs to gain independence from middle east's natural resources.
Time to use your brain to solve the problem, instead of your brawn to forcefully extract natural resources from others under puppet regime.
Oh and no more listening to zionists or Saudis either unless they happen to come up with alternative energy source first.
Your idea seems to parallel the President's "plan B" when his cool carbon tax hit the skids.
Fortunately for the 'sheeple' there is a much better solution (alt energy technologies are simply not there yet) - that is: run your car on dual-fuel Nat Gas (CNG). Abundant; inexpensive; domestically made; gets us off foreign oil; cleaner burning; already deployed in Europe.
Much better than buying Chinese-made solar panels.
Last time I checked, we were in no position to 'force' Iran or Saudi to sell us oil. If we could, we'd have control over the price.
It's getting so bad, that the Canadian strippers in Windsor are actually throwing the dollar bills back at the patrons from Detroit.
DID BEN FORGET
http://www.youtube.com/watch?v=UuCgxDbOgqM&NR=1
72.99 11:00 PM EST 4/27/2011
Where does a noob go to learn about the DSX? Considering how close it is to 2008 (when silver and gold dropped nearly in half) I wonder what it's effect will be on commodity prices.
Where should I begin to learn about this dollar value tracking? What is it tracked against?
The US Dollar Index (USDX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies.
It is a weighted geometric mean of the dollar's value compared only with
USDX goes up when the US dollar gains "strength" (value) when compared to other currencies.
USDX started in March 1973, soon after the dismantling of the Bretton Woods system. At its start, the value of the US Dollar Index was 100.000. It has since traded as high as 148.1244 in February 1985, and as low as 70.698 on March 16, 2008, the lowest since its inception in 1973.
The makeup of the "basket" has been altered only once, when several European currencies were subsumed by the Euro at the start of 1999.
USDX is updated whenever US Dollar markets are open, which is from Sunday evening New York time (early Monday morning Asia time) for 24 hours a day to late Friday afternoon New York time.
USDX can be traded as a futures contract on the IntercontinentalExchange (ICE). It is also available in exchange traded funds (ETFs), options and mutual funds.
http://en.wikipedia.org/wiki/USD_Index
+1
Thanks for the usefull information.
72.89 @ 23:20
From "The Onion":
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Panelists discuss how owning a top-of-the-line MacBook or an iPad 2 is actually essential to finding a new job.
It's total bullshit that long term capital gains on real estate, stocks and some other assets are taxed at 15%, but not for PMs.
What a crock of shit, double-standard tell that the government despises competition (when you buy real money with your fiatski toilet paper confetti, that's competition).