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On QE3, Wall-Mart, Munis and the briar patch for the banks
A “proper” subsidy?
What’s the proper function of the Muni bond market? Keep in mind that
this is not ‘free money’ we are talking about. Munis are tax-free. So
there is always a subsidy attached to their issuance. Building a new
bridge or highway has benefits for the public. Financing school
construction and all manner water/sewer projects also benefits the
public. There are dozens of example I could give where the tax subsidy
is justified as it creates a greater common good. But not this one:
It’s over (QE that is)
All of the Fed talk of late points in one direction. There will be no
QE3 after 6/30/2011. We have not heard from Bernanke on this. I doubt we
will. But I do expect that either the WSJ, NYT or WAPO will have an
article in the next week or so that has the Chairman’s words embedded in
the story. That article will be the point in history were the QE experiment actually dies.
We will still have QE1-Lite. This is the re-investment of principal from
MBS holdings. Given that interest rates have risen significantly the
prepay speed of the MBS is going to slow to a trickle. Future POMO
operation will be in the $10-15b monthly range. They will have little to
no impact.
The question in my mind is will we see a reversal of the QE consequence
to the big markets? Is the private sector economy able to operate
successfully without $100b a month in POMO? We are about to find out.
IMHO the Fed should have started the process of regularizing credit
costs a year ago. They should never have done QE2. If that had been the
case we would not have seen the big jump in equities. Inflation would be
somewhat tamer. But they chose instead to step on the gas at precisely
the wrong moment. Bernanke got spooked by bad numbers in the summer. He
made a bad choice and when he got pregnant with QE2 nine months ago he
got stuck with the policy. To have changed direction at midstream would
have meant that Ben would have to acknowledge the mistake. Not likely.With the benefit of hindsight even he would (privately) admit to that today.
But now we have to (again) go through withdrawal of a short-term sugar
high. That has always been messy in the past. Uncertainty (AKA:
Volatility) is going to have to rise as a result. Fast markets are coming.
Rumors of News?
WASHINGTON
(MarketWatch) — Officials at five major banks involved in
home-loan-service settlement talks have been summoned to Washington for a
face-to-face meeting with state and federal regulators, the first since
a proposed settlement leaked out.
I wish I were at this "friendly" chat. Look for this to be the “Big Fix”
to the mortgage foreclosure crisis. The big banks will yell and scream
at all the proposals. In the end this will cost them at least $20b. But
they will love the results.
Remember the Uncle Remus story of the rabbit who begs to be thrown in the briar patch?
Brer
Rabbit shuddered. "Hanging is a terrible way to die! Just terrible! But
I thank you for being so considerate. Hanging is better than being
thrown in the briar patch.
Scratch out my eyeballs! Tear out my ears by the roots! Cut off my
legs! Do what'nsoever you want to do with me, Brer Fox, but please,
please, please! Don't throw me in that briar patch!"
We know how that story ended….
Speaking of briar patches, getting eyeballs torn out, and having legs and arms hacked off, how about that Wal-Mart - Supremes story that is due out today?
The shares are $52. I think that is a neutral price. Meaning the market
does not know how to handicap this massive lawsuit. It should break one
way or the other. It should do it by the close. My bet? The Supremes
fold 5 to 4. There will be no class action law suit against the company
that "America Loves" (to hate).
»
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1.) End QE and the share market will give back all its gains from March 2009 in so little time something like catatonia will set it for the investing public.
2.) End QE and there is no one else to take up the slack with respect to Treasury issuance. These shores will reach a state of currency collapse far more rapidly by ending QE than by continuing it, because the economy, as weak as it is now, will be dealt a far worse blow in the wake of a termination of QE. Ending QE will cause employment to futher crater, and decimate tax receipts which will increase the odds of default-not a defacto soft default, but actual default- by a great deal.
3.) Nothing short of some sort of legislative coup d'etat- think an effective, as opposed to a feckless, Ron Paul- will even slow down the next round of QE. I haven't even mentioned Japan, though others have. Pay no attention to the hand wringing going on in some quarters that QE must end. It isn't going to end, because without it, rates would already be far higher. Ponder this, because it is a crucial plank in the argument against the idea that ending QE is actually a consideration. QE is tantamount to managing a terminal illness with morphine, and folks who suggest, let alone assert, that QE is going to be discontinued, imagine any doctor letting a terminally ill (cancer) patient suffer without palliative care. Think again!
Not to mention that M0 is ramping over the last month regardless!
If congress doesn't lift the debt ceiling that doesn't necessarily make QE dead, it may just come in another new format. When all else fails, they'll just change the rules.
I can see the fed moving to buy bank bonds direct. TARP to infinity!!
The back-ups will fail simultaneously. Remember, it’s a global IC chip. If you are not at a gate, get there. If you are there and waiting for it to open, turn your anxiety into productive capacity by preparing to be at future gates. It’s the traveling salesman problem. Do not employ anxiety in an effort to repair past mistakes. That’s the black hole. Time is simply accelerating too fast to go back.
The states are tapped, with mass layoffs coming, Canada is going over the housing edge, and the US is already inside of a double-dip. Stay away from the critters that cannot employ anxiety productively, especially if they are in numbers. Go back and forth, keeping your gap at the edge.
Just for fun, go to a social service parking lot, check out their cars, and compare to the average worker. Funny, I am not allowed to layoff my single men before laying off married men, but they can discriminate in favor of unmarried women with children.
If you need cash, go to Wal-Mart with your checks and ask for $20 back and repeat. Funny, the mortgages and credit card payments, approved by the Fed, are waived, but it's against the law to kite $20 from a check.
Go figure.
I am also pretty sure there will be no qe3 until markets start to show real deflation. I am also going to go on record as saying I believe bond yields may fall if it becomes clear that qe3 will not happen, just as bond yields slightly rose initially when qe2 started. The only reason I see to start qe3 after some lag at the end of qe2, would be that inflation was not at acceptable levels, meaning that we were seeing real deflation again.
100% wrong baout no QE3. Wait until they televise the first protesters breaking bansk windows....or some downtrodden starved-looking mother with child and politicans will get a Hank Paulson look alike who will claim," it's QE3 or the end of the world."
I guarantee Ben will cave in and print another few trillion. Plus, who is footing the bill for the Billions/month of the Lib-ya invasion?
Guess how much Ben must print to feed those jets...sodliers....and so on?
Two things:
1.) Reminder, tomorrow -
http://www.ampedstatus.org/network/groups/the-siege-federal-reserve-protests-beginning-march-24-402017764/
2.) How much revenue would a 1% tax on every CBT, CME, DJ, NASDAQ etc. trade generate annually?
wow. big call, should be interesting...
qe3 = money for nothing and your checks for free.
In 2012, if you open a new checking account at Bank of America, not only do you get a free toaster, but they'll throw in a free foreclosed home if you sign up for a home equity line of credit. No proof of ability to repay required.
Late night movie channels will be sponsored by used home salesmen replete with large breasted assistants who reveal card after card of "super deals" at "BernakeThon 2012" the 2013 are coming in and we've got to clear out all our old inventory. Our loss is your gain, financing available.
Bruce, nothing that has happened due to QE2 is really troubling for congress or The Bernank.
Therefore we will have QEs until something comes up really, truly troubling:
- Someone gets really afraid of the deficit? Don't make me laugh.
- Bond markets crash / yields spike? Nope, hasn't happened yet and -with lot of manipulation in bond auctions etc.- will go on a lot further
- Treasury holders selling big time? Japan just has a good reason to sell a bigger pile of their US bonds and they have announced to issue additional J-Bonds. China seems to have its own playbook, likely they will not change either.
- Inflation all over the world? Who cares. It's our dollar but your problem!
- Inflation hitting home big time? This is the only thing that will wake up Joe 6pack (sooner or later), and when that happens, our politicians will be forced to do something about it. Note: What we are seeing now is just the faintest beginning of inflation in the US.
So: QE3 guaranteed.
Not because I like it (it is completely crazy), but because there is no "better" option for politicians. The situation caused by QE first has to get so bad, that something else starts looking like a better option.
QE3 is poison, the name dies, but the game continues. As we ponder, the bright ones are thinking up a new name for QE3 - its likely a drinking party.
Is it possible that they've expanded the monetary base enough that with a few years of moderate inflation and a little austerity, the good citizens, municipalities and governments of the 'developed' world might just make good on their debt repayments?
Is it hell!
This shit is structural, demographic and fucking geological. It's a fact... and they might lay off the QE accelerator for a little while but we all know they'll panic sooner or later...
and when they do...
Gold, Silver, Wheat, Oil and fucking manure are where it's at.
Hey, speaking of Uncle Remis, My wife says when I speak about the whole thing becoming a " Tar baby" i'm saying something racist. I just thought it was a story about not being able to get rid of something.
B T F D theres no way theyre pulling the plug
http://www.youtube.com/watch?v=H_4nupAxvNw
Well they have to pull the plug, what goes up must come down...a tree never grows to the sky...theyre done, its only a matter of time!
This same crap has been done SO many times thru history, and it was always different that time, until it suddenly came crashing down. There IS NO and NEVER WILL BE a print to infinity!
No, they do not have to pull the plug. If you're toaster is on fire, you don't have to pull the plug either; you have the option of just waiting patiently until the whole house burns down around you ? Get It. You're being too reasonable.
No, I do not think QE will end. It might have a new name and be structured a little better. That is because Pappy Hokum (Bernanke) will come to the same conclusion as Mammy Yokum (if you don't know, then it is too hard to explain), said conclusion being:
Inflation is better than deflation because it's nicer.
Squeeky Fromm, Girl Reporter
Yeah, that's about the level of analysis, alright. "I like it cause it just feels better". I call it the "Thelma and Louise" method of government finance.
HAS to end! Im sorry but you people are delusional, no one ever has or ever will print themselves out of bankruptcy and a world depression!
'QE will never end' sheesh you people are RIDICULOUS believing the biggest scam ever which is transparently broken and over already!
And no one can drink their way out of their problems, yet sooo many try. Pappy Hokum will try, and his replacement will try, and, oh what the heck--pass me the bottle. . .
Squeeky Fromm, Girl Reporter
Squeeky Fromm, girl reporter? Is my aged mind going, or was that the person who forgot to put a round in the chamber before pointing the .45 at President Ford's head and pulling the trigger? The San Francisco Examiner published an X-ray photo of a .45, showing all the bullets in the magazine, and pointing out the essential l error; in case anyone wanted to try again, I suppose. What a country, you couldn't make this stuff up. Great Avatar.
Oh, Silly, I am not that one. But, just FWIW (Which means For What its Worth), The REAL Squeaky Fromme didn't forget to chamber one, she left it out on purpose. She wasn't trying to kill Pres. Ford, just get her message across about how we were killing the planet and the poor little animals.
I have always been "Squeeky" or the "the Mouse" to people, and the "Fromm" is about a psychiatrist person who wrote about freedom.
Squeeky Fromm, Girl Reporter
Theyll only try for so long, and THEY knew from the start how long their facade would go on for, not us. But I can sense the planned time for reversal of it all is quite near.
Bruce,
I hope you are right about no QE3. Wow, Uncle Remus ... haven't seen that book cover in 50 years.
When I think of the possibility of a foreclosure settlement, I remember the scene from "Snatch" with the rabbit and the two dogs. The attorney generals of the various states should remember it too. They need to remember the question,
"Daya like dags?"
Somebody is going to be outnumbered and pursued by the dogs. The AG's get to decide if it is them or the bankers.
barliman
Jim Grant in congressional committee said as much. WE ar living in a make believe world.
I'm surprised no one sees the playbook . . . Fed will ease off the gas in the next month or so, let the markets sell off 20% between now and June, claim the need for more stimulus, start QE3. Might as well make money on both sides of the mountain.
If they push the rest of the world markets into the crapper, the money will flow into treasuries at ridiculously low (maybe even negative) rates. China and the EU in chaos, Japan on the ropes, and oil at $30/bbl -- Bernanke and Geithner are now heroes. They won't need QE3 and if the crisis is over in 6-9 months, Obama can thump the "Rebuild America" drum for his reelection bid.
Not sure who all the treasury buyers are going to be at negative rates. It won't be Bill Gross. It won't be China, It certainly won't be Japan. Who's left? Oh yes . . . the magic Fed. Maybe Geitner should start issuing war bonds again . . .
Bruce you should hear what Jim Rickards has to say on this issue, very insightful imo. http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/3/27_Jim_Rickards.html
I'd wager Bruce has already seen that. ("QE1-lite")
No QE3 could accomplish several things for the FED.
They'll screw the average person you can rest assured.
Operation "bleed out assets" is only half-way through, so many, many trillions of assets to take from the baby boomers and gen X'ers!
One more time with feeling.....IF RATES ARE ALLOWED TO GO UP EVERYONE BLOWS UP
It....will....not.....happen.
ChairSatan has painted himself into a corner. He knows this better than anyone. All they are trying to do know is keep a lid on PM's and pull back commodities inflation by jaw-boning. Nothing more, nothing less.
Bruce,
I disagree with your assumption that the economy was on a self-sustaining trend when they did QE2.0 because the only thing we've seen in terms of investment has been a mini auto boom driven by easier money by banks following the firming of used auto prices that followed cash for clunkers combined with a big inventory build/cheap money for new cars effort by the Treasury - through their ownership of Ally Bank.
The second part of it, imo, was the wealth effect in front of the holiday season that got confidence up to the point where they opened their wallets.
For this to continue, the government will have to continue to offer loans that people will never pay back to maintain a 12.5 million per year rate on autos - something I don't consider sustainable.
Last orders anyone? It is either QE3 or WW3.
"I don't know what amount of deposit entries will be used in QE3, but in QE4+ people will use gold and silver, not sticks and stones" -Al Einstein
qe=mc ( monetary collapse )
Whatever makes the ratio 10-1 hot women to men and I'm included.
HOT women? No war necessary - just head to Japan.
I have feeling FED would be included too. Personally would prefer to be gone than to see that.
Can someone explain to me how interest rates can ever go up and not collapse the interest based derivatives market and thus the banks (along with just about every sovereign government)?
Mr Bernanke has always been very clear: if there is deflation he will print, period. What is less well appreciated is that hyperinflation comes from treating deflation with money printing. In other words, hyperinflation it is NOT an extreme form of inflation, it is a kind of DEFLATION, where the nominal economy is going up, but the real economy is going down. It is better described as "hyper-stagflation". We need a terminology tune up.
Hyperinflation comes from losing faith in currency, when people dump cash for anything they can get because it'll be worth less tomorrow.
Question:
QE ends...so who will buy Treasuries? China? They are selling. Japan? They are selling - need money for some kind of National Emergency. EU? They have problems as well, bailouts of their own to attend. The Cayman Islands? Um, yeah...we all know what that is about.
So who will buy Treasuries? Serious question. I don't buy QE ending, as it cannot.
I am RafterMan
"Bernanke got spooked by bad numbers in the summer." You mean, when everyone realized that mbs are black boxes? But now that no one will enforce the law, that doesn't matter anyway so no need for QE3.
Speaking about hearing from Bernanke -- I heard that he will be doing a Q&A with the press on April 27th. Yesterday, Brian Sullivan of FBN and Randall Forsyth of Barron's were talking about QE2. Forsyth was talking about the effects of monetary policy on food and gas prices. Brian mentioned that Ben Bernanke is set to answer questions on April 27th in a press conference. He said they didn't know the format, but he was hoping Bernanke would be asked tough questions on how he's going to get out of QE. Forsyth said he wishes Ron Paul could be a reporter at that conference. Brian responded that Barron's and Wall Street Journal could ask good questions. Forsyth said that he's afraid that they'd be too deferential. Interestingly, Brian agreed that the press can be too deferential when they are covering the Fed.
Author makes the mistake of confusing talk with actions. High-level lying has always been part of the toolchest. Didn't we see the same disinformation campaign in the prior lead-up?
fair point
I can't believe that BP would still be in business in the US after their malfeasance in the Gulf of Mexico. Are people still driving into BP gas stations and filling up? Are Americans that brain dead?
BP's gas stations are like a restroom at a roadside park, a courtesy.
Their money is made of sales of Crude.