A Pros And Cons Analysis Of QE3

Tyler Durden's picture

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King_of_simpletons's picture

The pros: Rich will get richer.

The cons: Main street will get a fatter rod up their arses.

thames222's picture

and the rich getting richer is a pro how???  and main street getting rammed up the arse is a con?  hmmm



Bicycle Repairman's picture

Hmmmm.  Looks like there will be more QE.  If they have to make the people beg for it, they will.

Henry Chinaski's picture

Painted into a corner.

It will be QE3.  Good point, though: It won't be announced so much.

Rainman's picture

...like the grease fart nobody heard coming. SBD

Dejean Splicer's picture

Of course Wall Street is for QE3.

"A Pros And Cons Analysis Of QE3"

Some might argue that it's all about the con.....

disabledvet's picture

i would argue "Wall Street is schizoid" on QE.  It both loves (secretly) and loathes it (secretly as well? the "no comment" is the scream of silence, no?) Clearly "the average American" is FOR QE 3 as he will not have to pay the true price of those goods he receives.  To be honest from "our commoner side of the coin" we must also agree that should QE 3 end then "prices must rise in order to reflect the reality of actually having to pay for the good."

LawsofPhysics's picture

If enough corporations see more QE impacting their margins, there will be no more QE.  However, since we have a GDP that is not based on actually manufacturing anything of real value, well, you get the idea.  More jawboning to come I'm sure.

Dr. No's picture

They may even go back to purchasing mortgages and not just treasuries

TBTF et al are out of treasuries.  There is no more need for the FED to buy them.  Infact TBTF wants treasurie prices to increase.  Do any TBTF still own mortgages?  If so, this would provde some support to the theory they will buy MBS.

Cleanclog's picture

I think they'll buy sov. debt and munis.

Dr. No's picture

Potentially.  We have seen this movie before.  The FED buys what the TBTF want to dump.  First it was toxic MBS.  Next, the FED surveyed the primary dealers on the amount needed for QE2.  My guess is the amount of QE2 was exactly the amount the TBTF need to realign their portfolios out of treasuries.  Next?  Just look at a TBTF balance sheet.  What is most toxic?  Could even be CC debt if TBT screams loud enough.  If there are no toxic crap on TBTF balance sheets, there will be no QE3. 

ZackAttack's picture

It's actually in the Fed's charter that it can't purchase munis with more than a 6 month duration.

I'm sure some kind of indirect Maiden's Hymen-type structure can be setup to workaround this pesky limitation, though.

Dr. No's picture

treasurie prices to increase

EDIT: treasury prices to DECREASE. 

Cleanclog's picture

And don't forget that Obama wants to be re-elected (and Bernanke wants to be re-appointed). QE3 or whatever the continued monetization program is called, enables more spending than austerity or inflation would - not to mention trying to prevent the rising costs of servicing government debt if interest rates rise.  

I concur that no specific program is likely to be announced.  But the Wall Street powers will know what's up and run the markets accordingly.  Fed will try to "slip" it past Main St minions.

SheepDog-One's picture

Lets see if they can slip it past China, who is now actively dumping dollar debt.

divide_by_zero's picture

+1 At some point China will likely rather take a virtual haircut now via the weaker dollar than wait until they need to make change for $10T dollar bill.

Cassandra Syndrome's picture

QE3: Hyperinflationary Depression

No QE3: Financial System Collapses

No QE3 would be less painful and quicker.


LawsofPhysics's picture

I agree.  Especially if China keeps buying our agricultural products.

SheepDog-One's picture

YES we're such a strong exporter of agricultural products....oh wait its not the 1980's anymore we're now a net importer.

SheepDog-One's picture

Economic data stronger yet weaker, build a 'war chest' of imaginary dollars....hmm yes I see. Well lets see how many are fooled by the now childish FED antics of doing QE3 but not announcing it, and how the toxic dollar reacts. Im sure the Chinese will be bamboozled by that super cunning move.

WTF why cant these people admit the FED is stuck and theyre at the end of the line? This shit isnt fooling anyone except the very dumbest people among us.

ghostfaceinvestah's picture

Oil at $140 will put an end to any further QE.

In fact oil at $110 will see that QE2 ends as scheduled imho.

ZeroPower's picture


However, will have to see if any sort of MENA peace (an oxymoron if ever there was one) would take it down to under $100.

At that point, still a chance for more stimulus.

equity_momo's picture

MENA violence is barely responsible for pushing the price of oil up. If the entire region sat down for tea and cupcakes tomorrow , oil might dip to 100 for a nanosecond - the only thing taking oil down hard for any significant length of time is an end to money printing or a global depression caused by higher oil prices resulting in demand destruction.  I believe we clearly have an oil supply problem but just see what taking Emerging Market growth out of the equation does to it : it'll push peak oil concerns out another decade or two.

ZeroPower's picture

If by barely responsible you mean $10-$20 then i'll agree. But whats $10 among friends right.

Oil already had its nice run from the ~$40 lows making it was back up to the 90s. But then its just flew up to where it is now, if you'll remember, only based on those very MENA troubles.

So again, depends on what you mean by barely responsible. In a world where $200+ oil is inevitable, this MENA situation won't even be spotted on the longer term chart. But until we get to those new highs, we must focus on the issues at hand surrounding the prices before getting ahead of ourselves.

equity_momo's picture

Just look at an oil chart since QE2 was announced : the trajectory was pointing towards where we are now regardless of MENA unrest. Its been a steady grind - the spike in Jan then went sideways until the relentless trend caused by money printing caught up.  Anyway , its semantics.

AR15AU's picture

This is rubbish. QE3 in any form will break the USD below 70 and unleash a panic... They need one more deflationary plunge before they can do this.

SheepDog-One's picture

Exactly. This idea of 'stealth QE' is for simpletons...China sees.

Bazooka's picture

i have not seen any comments here ar ZH about the fact S&P dividend yield being less than 2%...!!!

QE1, QE2 have not increased this to above 2% which would be bullish. Rather, despite these QE efforts, dividend yield has persistently remained under 2%.

Also, Mutual Fund cash holdings are near record lows...wow.

So, QE3 will only have harmful effects.

tomster0126's picture

What about oil at $150?  Peak is our biggest concern....also, as long as oil goes up, the dollar goes down. 





ZeroPower's picture

as long as oil goes up, the dollar goes down. 


Depends on America's monetary stance at that point, as well as whether we're in a liquidty providing (QE) environment. Hint: look at 07-08 run in the dollar coupled with the oil run.

SheepDog-One's picture

Right, and we're in such a stronger position now than in 08 with the dollar.

ZeroPower's picture

Indeed, weaker situation with dollar and oil is thus priced higher. If it was due to such high demand as in 07-08, then we'd already be through that $147 high. The demand simply isn't there as we all know the recovery is not in full effect... thus the negative correlation now btw crude and DXY.

Am confident this correlation will switch (as it has many times before) to positive once the printing madness stops.

Cassandra Syndrome's picture

Imo, peak oil happened when more oil was being produced than was being discovered about 30 years ago. That spread has widened substantially in the past 10 years.

Also, maybe coincidentally, the international petroleum exchange was founded in 1980. Did that help to keep prices artificially low as the divergence grew over that past 30 years? Are we upon the day of reckoning? Have the chickens come home to roost?

treemagnet's picture

Still doesn't matter - extensions of QE simply goose the carry trade and finally crush margins.  Same deal, it ain't sexy but when our debt is repriced for risk (now real), the jig is up.

slewie the pi-rat's picture

OMG!!! I'm Channeling Chairzelbub!!!

1/4% increase.  inflation is now vanquished!  goobermint must get spending under control.  we continue to see green shoots in spite of the fact that there are none.  b-bye!

equity_momo's picture

At the end of the day it doesn't matter who is for or against QE , the only metric that matters will be the market. The cost of international and domestic business priced in dollars against the purchasing power of the American consumer will decide how far QE goes.  Infinite QE is not a possibility with the correlation commodities have shown to money printing in the past 1 to 2 years.

ivars's picture

A little bit on a sad note:

I wonder what is Krugman writing now? On other hand, coming middle class Reich of the USA also sounds chilling. Within 10-15 years , Anschluss of Canada ( resources) , Mexico ( resources plus cheap labour/manpower). The Greater USA to counter the Great China.

Its a pity theories like Keynesian do not work long term and when they are needed they are finally disproved, especially if You are dealing in world reserve currency. Life would be much easier and nicer if they did work. But for some f.. reason they don't . And then we have nationalists coming to power, and neo-fascism as life saver for the USA, and neo-stalinism for China.

Why should it be so inevitable? Can it not be changed, somehow. Life tells it can not, as history repeats, and humans do not change, but if there was knowledge beyond this that would predict the ugly outcomes accurately and convincingly, would not people change their behaviour?

Anyway, the Reich of the USA ( by the way, there is also nationalist 4th Reich in Germany and surrounding regions coming as another superpower-again ) and neo-stalinist China will be.... Who knows if they will be worse of better than previous, its relative, but the numbers killed in potential confrontation will dwarf all previous wars.

How to stop that and still maintain some reasonable distribution of resources with every one happy. NO WAY, i do not see, so far.


GOSPLAN HERO's picture

A clandestine QE 3 is impossible.

Robslob's picture

Or just think like a rich person, therefore QE3 in our face...let them eat iPad2's!

treemagnet's picture

How does a drug dealer make his clients understand how important he is?  Answer: Cut 'em off briefly, let them experience "cold turkey", and they'll never question his dominance again.

Sudden Debt's picture

There is also the stealth option. Just create money and don't disclose the amount or maybe a small amount.

In the short end that would be bullish untill the sceme is uncovered. But that would take a few years.

We'd see the effects like inflation but they could blame in on the QE2 and of course the evil speculators and that would fit in with the words of Obama.


Robslob's picture

I get the reference but weed never really had that direct impact on me like QE does for bankers...

plocequ1's picture

Just bring it on already. Jesus H! This phony left -  right, Pro and con, right and wrong bullshit is bullshit. QE will continue. Done. 

AC_Doctor's picture

Ben can print more Bens and the US citizen gets bent over.

Financial_Guardian_Angel's picture

Let's not forget who is making the decision and what their interests are. These big boys need to take care of each other and their wallets first and foremost.

First, they need the QE3 to accomplish that. Secondly, they want to stay in power so must disguise QE as much as possible, not from the Chinese or other countries but from good 'ole dumbass JoeSixPack. So it will be hidden to prevent any backlash. They are quite vulnerable now because of the obvious correlation between QE and oil. Hey, the Dems need to keep Obummer in his seat and $6 gas won't git er done. If they pull back, equities tank and their Wall Street buddies scream bloody murder. So they will tell China to go pound sand (or perhaps rice), brace their own portfolios for what they know will eventually come, and hope they are on a tropical island with a trunkfull of gold before someone starts pointing the finger at them.

Sounds easy enough to sell to: Wall Street, top Dems and GOPers for that matter, TPTB, the TBTF, and anyone else with the golden rolodex.

ivars's picture

QE3 will not happen. USA is not alone in USD market. There will be warnigns of retaliation or retaliation from China, Oil producers, even Japan  ( but they are selling anyway under the disquise of quake funding needs) . UK?

I think FED will conclude that QE2 has achieved its targets ( spin, but with inflation they are correct) and increase the rates. It is not USA currency, its world reserve, and USA military has proven to be overstretched to take care of financial issues other than oil supply.


SilverRhino's picture

>> QE3 will not happen. USA is not alone in USD market. There will be warnigns of retaliation or retaliation from China, Oil producers, even Japan 


It's not the foreign devil that has them worried.   QE2 stops and all assets go into a nosedive until people are screaming and begging for QEIII ...

Meanwhile Asia will continue to lay hands on as much oil, PM's, food, resources to ride out this storm.    BTFD

ivars's picture

Except oil and chinese imports. That will not nosedive but grow faster and anyway take the economy, gdp, stocks with it. QE3 will not solve growth or stock market issues for more than 1 month since inception. so why start it?

slaughterer's picture

What the author proposes as the most likely outcome is a stealth QE3-lite targeting longer dated treasuries to support the mortgage market, with funds taken from re-investing old Treasury holdings or from a "war chest."  He thinks it will be a "minor negative" for the market.   He does not talk about the consequences of this on the market (PM, equity, bond, etc.), but the attitudes of various interested parties towards QE measures as they exist now, neglecting to go into detail about how counter-parties adverse to QE might react to QE3-lite.  This article seems a little too simplistic for me, but accurate and even ingenious in devising a stealth model that is the most likely compromise, if indeed the Fed compromises, which is not a given.