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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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Out of the money puts baby!
me too, controlled? Bernanke wishes. I think he's gone by the end of the year.
hope you're right about replacing bernanke.
No more QE plus onerous new rules for Hedge Funds in July means at least a 20-30% correction coming; sell in May and go away?
The printing party is over! All we're waiting on is the terrible 'events' that cover it up!
The fix was in when QE began. What we're seeing is the feigning of withdrawl. How can they stop? What happens when the bond vigilantes are let loose?
At least that's my take. We'll know in October or when QE3 begins(I'd say no later than September 1).
Bernanke may well be sufficiently spooked by what QE has done to the commodity markets to let it lapse in June.
About a month of seeing what the end of QE does to the stock markets will be enough to change his mind. Again.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion...". None whatsoever.
I like to recall this simple rule; like a law of physics, it doesn't offer opportunity for discussion; I like it also because I can understand the mechanism, the why of it; it's very plausible.