This page has been archived and commenting is disabled.
Welcome To The "QE2 Goldilocks" Matrix
While traditionally wrong conventional wisdom expects that tomorrow's QE2 will be great for stocks, and the more the better, that may well not be the case. In fact as BofA's Hans Mikkelsen points out, while a "High Case" announcement, or one in which a $1 trillion program is disclosed, will certainly wreak havoc on the dollar, it is this case that will likely have an adverse effect on risk assets: "A less positive reaction than the base case as it would make equity investors worry if things are worse below the surface, "what does the Fed know that we don't know"." The honest answer is, of course, nothing - the Fed is so clueless, it takes its cues from the PDs. But we already discussed that. What is important, is that the Fed likely knows this feedback loop as well, and since it wants to avoid breaking the dollar-risk assets inverse correlation, it is almost certain that any massive QE amounts will be avoided (which is not to say that the final outcome won't be the Goldman estimated $2 trillion - it will be). It does, however, mean that the Fed will seek to achieve a goldilocks outcome: not too low ($100 billion incremental program), or the high case: something "inbetween."
Below is a handy matrix for all to use and program into their HFT algos in advance of tomorrow's 2:15pm decision, together with some broad observations on why getting the QE2 number just right is so critical for Bernanke.
Let it QE
“Let it Be” from the Beatles song can mean “just relax”, which we find very difficult ahead of a week of intense news flow on the monetary policy solution (QE), any fiscal policy solution (mid-term elections) and the underlying economic problem (employment report), unless you believe in the Bernanke put.
“Let it Be” also can mean “Let it Happen”, and there is little doubt in the market that the Fed will announce a major asset purchase program on Wednesday following the FOMC meeting. Our economists’ base case is that the Fed will announce QE2 with an asset purchase program in the $500bn range, and more to come as appropriate to achieve a 1.75% to 2% inflation target. While we continue to have a healthy debate internally on the economic benefits of QE2, there is little discussion that the Fed can affect certain asset prices. In terms of economic impact the debate is about whether the benefits of QE2 are enough to outweigh the risks, especially the risks of stoking asset bubbles. We, as credit strategists, have argued that the risks outweigh the benefits while our economists take a more positive view on QE2.
Asset Price Reaction to QE2
The table below highlights the views across our strategists of the short term market reaction to the outcome of Wednesday’s FOMC meeting. In the “Base Case” scenario we expect a $500bn QE2 program with language tying action to inflation outlook and financial conditions. The “High Case” scenario is a hypothetical $1tr program while the “Low Case” scenario assumes a program in $100bn increments, data dependent (small probability of no action).
»
- 8964 reads
- Printer-friendly version
- Send to friend
- advertisements -
Have no fear folks the recovery is here. Check out the proof here:
http://realestate.yahoo.com/promo/the-coolest-home-upgrades.html
Waterfalls with firepits pits for ALL.
Can ya buy em with food stamps?
i hear 'underwater slave caves' are on on sale now.
500 billion dollars in QE funny money buys 370.370 MILLION oz's of gold at current prices.
lol. they sure have us fooled.
silver?
haha
2 BILLION oz's; thats only 56,670 TONNES. just for a paltry 500 billion bucks. Hunt Brothers, eat your hearts out.
QE to the moon, bitchez.
There's really no other way to make the math work
#hich a $1 trillion program is disclosed, w
#"what does the Fed know that we don't know"." Th
again... cluless idiot... its gonna be +1.5 trln..
hey stupid check out monthly treasury statements.. revenues brealy grows.. pulays +5%...
this fiun year sept 2010-sept2011 deficit is gonna be at least 1.8 trln $$$
who would is right mind buy $$$ denominated debt ???? only FED of course..
alx
Hey Alex try using a bit of sentence structure and a quick check to make sure you didnt use a bunch of symbols as letters. What do you think this is, Yahoo! Finance lunatic asylum?
Hungarian keyboard mb? Or windows explorer 2.0?
THey have said what it's going to be,hello?
500 Billion.............not enough to scare shit outa everyone, and enough to keep the folks happy.
When the Election map turns RED tonight,I expect a major uptick in consumer confidence, and a sense of false security.
Should be interesting, and will move the markets.
I expect the PM's to drop, (giving a good shot at a decent buy).
All is well..........................Hauuuuuuuuuuum Hauuuuuuuuum
(Meditation mode).
As tough as that was to read, Alex does have a point.
The posturing around the announcement is a little silly at this point. Everyone is looking for a "number", when they should be looking at the nature of purchases instead.
If the announcement is an "open-ended" $100 billion a month, you might as well just assume Uncle Benny intends on funding the government's budget deficit on a month my month basis, and plug in a $1.2 trillion number.
The Fed needs to bitch-slapped if they even think about buying more MBS, but I think the high chance here is overvalued Treasuries, probably way out on the curve.
I would take a $500 billion number with a grain of salt... what would keep Benny from taking another $500 billion in QE in April 2011???? Only revolution, I'd gather.
If I were ANY foreign investor, I would be dumping $USD on ANY sign of further money printing. The problem is, the Fed has a very shaky framework for justifying that another round of QE is needed in the first place. All they are trying to do is lower the cost of funding our debt obligations by keeping rates low and devaluing the currency. If that's what foreign investors want, come on over...
BTW... I can't wait for the trade war legislation to be introduced by our new Congresscritters next year! Get the popcorn ready...
Note the insider selling in equities, now note the opening gap up on the big names were the selling is taking place. Free markup via stock index futures, gap up the stock start selling the insider inventory, newly created in most cases vis stock options. This sure is rigged.
'Wants to avoid breaking the dollar' I thought Bernankes whole goal was to bust the FRN?
and what if the markets won't react on it?
could very well be.
the privately owned federal reserve bank (that's for the newbies), will do what's best for the big banks that the federal reserve works for. at this point, doesn't that mean that the fed will buy more mbs?
Never before in world history has there been so much nervousness and anxiety about what the Fed is going to do or not do.
It is no doubt, the most widely publicized, oft-discussed "guaranteed sell the news" event of all time.
Everyone is positioned for it.
Time to start guzzling down some Monster and Red Bull and get ready for the action.
And might as well bring in some more FemBots to supervise the young traders...
"Watch the tape! Watch the tape!"
the blond looks kind of fat and they both need D+ breast implants!!!
SD,
Take a Chill Pill,(go steal some more Gold)(I am jealous!) it's the outfits, and D+ plastic sucks.
Plastic parts are for toys.
RT,
Thanks for the Eye Candy so early.....the Brunette is a real hottie.
Think she would talk to me about QE?.
I hate being teased. Just do the QE, Kill the Dollar and be off with you (The Market ). Just fucking do it already. Im all lubed up and ready to take it like a man.
Didn't Jezus say:
You just fucking try to nail me!! I'll take it like a man!
it didn't really turn out well for him he?...
BUT THEY DID WRITE A BOOK ABOUT HIM AND MADE A DOZEN OF B MOVIES!
Oh... and he should be coming back... just... about... any... time... now.
Great article on self-similarity, Medlebrot and critical market crashes by Ashvin Pandurangi.
http://peakcomplexity.blogspot.com/2010/10/fingerprint-of-instability-in-biology.html#comments
You know, I'm getting really sick of following all the intricate details of the Fed/Treasury/Market manipulations and fake government stats to try and make everything look better than it really is while TPTB are robbing us blind. We've got the jist of this shell game figured out. They are getting laughs out of us following the every detail of their BS.
The rich are using the "real economy isn't getting better" media blitz excuse for QE to hold off public anger so they can continue to pump as much money as they can get away with into their pockets before the rabble realize they're getting stuck with the bill and getting NOTHING for it and get pissed enough to try to do anything about it.
The markets are up today because they've made it to another election day with everyone's ballots offering ABSOLUTELY NO CHOICE WHATSOEVER! Do you want their BLUE candidate, or their RED candidate?
He who controls the Squid controls the Universe!
Nothing like knowing that something is absolutely wrong (unsustainable) and having the opportunity to bet against it. Simple math shows USA soon will be unable to cover just the vig on debt before QE2...
Anyone got any thoughts on what this announcement will mean for the euro price of PMs? I'm looking to up my holdings in Ag.
I'm so over QE2...Wake me when QE3 gets here.
Has anyone read this? http://www.cnbc.com/id/39868687
What are the chances he's going to come out with something like that? I thought it was all but decided $500 bil minimum.
This statement ruins the whole article's credibility: "Finally, it must be said that Bernanke seems a lot smarter today than he did a week ago."
touche but the point was is anyone realistically thinking less than $500B now?
Most amusing. In all cases the chart shows a range of -30bps to +20bps on 10YR well within the range of the past sixty days. Now thats useful. Total distraction.
the qe2 goldilocks matrix.
papa bear: someone's got their hand in my wallet.
mama bear: someone's got their hand in MY wallet.
baby bear: someone's got their hand in MY wallet. AND I DON'T EVEN HAVE ANY MONEY IN IT YET!!!!!!!!!
I think rewriting the children's bedtime stories vis a vis the FEDtime stories would be a great start to educating our children about why they won't have any May-Po in their bowls for the next few generations.
Sigh.
The only way for the Fed to achieve this Goldilocks outcome is by accident. The Fed clearly has no control over what people do with the money once it prints it.
Instead of Goldilocks, we'll have another asset bubble, followed by a burst and then be eaten by the three bears as we spiral into a depression so deep as to implode the United States and its government (the currency, of course, will be used for toilet paper).
Todays action would indicate that QE2 is NOT priced in. Looks everyone wants to be in place for the breakout of the highs on tomorrow's anouncement and short squeeze. I don't beleive todays action is stictly based on inverse of the dollar. Equity markets will do what it wants when it wants regardless of the dollar.
Guys, is simple. The Demorats are going to get their ass handed to them today. The Fed will announce 200B a month for 12 months to drive the dollar down. The mediabots will claim that the economy crashing is Wall Street's reaction to the election. The lameduck congress will hurry legislation giving even more power to the Fed as part of crisis management. "We must save the economy!!!!" The Fed will then buy out all existing underwater mortgages and fraudulent MBS's thru Fannie and Freddie (thats were the 200B a month will go). Bankers get a fat bonus at the end of the year.
Speaking of the 'Beatles', how's this for foreign policy (figuratively) ...
link ... http://www.nasa.gov/topics/universe/features/across_universe.html
~~~
For the first time ever, NASA beamed a song -- The Beatles' "Across the Universe" (Nothing's gonna change my world) -- directly into deep space at 7 p.m. EST on Feb. 4, 2008.
The transmission over NASA's Deep Space Network commemorated the 40th anniversary of the day The Beatles recorded the song, as well as the 50th anniversary of NASA's founding and the group's beginnings. Two other anniversaries also are being honored: The launch 50 years ago this week of Explorer 1, the first U.S. satellite, and the founding 45 years ago of the Deep Space Network, an international network of antennas that supports missions to explore the universe.
The transmission was aimed at the North Star, Polaris, which is located 431 light years away from Earth. The song will travel across the universe at a speed of 186,000 miles per second. Former Beatle Sir Paul McCartney expressed excitement that the tune, which was principally written by fellow Beatle John Lennon, was being beamed into the cosmos.
"Amazing! Well done, NASA!" McCartney said in a message to the space agency. "Send my love to the aliens. All the best, Paul."
Lennon's widow, Yoko Ono, characterized the song's transmission as a significant event.
"I see that this is the beginning of the new age in which we will communicate with billions of planets across the universe," she said.
It is not the first time Beatles music has been used by NASA; in November 2005, McCartney performed the song "Good Day Sunshine" during a concert that was transmitted to the International Space Station (› Related Story). "Here Comes the Sun," "Ticket to Ride" and "A Hard Day's Night" are among other Beatles' songs that have been played to wake astronaut crews in orbit.
Feb. 4 has been declared "Across The Universe Day" by Beatles fans to commemorate the anniversaries. As part of the celebration, the public around the world has been invited to participate in the event by simultaneously playing the song at the same time it is transmitted by NASA. Many of the senior NASA scientists and engineers involved in the effort are among the group's biggest fans.
"I've been a Beatles fan for 45 years – as long as the Deep Space Network has been around," said Dr. Barry Geldzahler, the network's program executive at NASA Headquarters, Washington. "What a joy, especially considering that 'Across the Universe' is my personal favorite Beatles song."
~~~
We have all cheap uggs for sale in our website http://www.salesuggs.org ! You can meet all your needs for UGG hot sale here and will certainly be satisfied with the top quality at low price. All UGGs on sale are made with the 100% genuine sheepskin from Australia and are hand-made in our own factory completely. So you need no to worry about the quality and the cheap UGGs for sale are all to be delivered in free shipping. Enjoy the large discount!
1.
UGG Amberlee
|UGG Kensington
|UGG Elsey
|UGG Langley
|UGG Roxy Short
|UGG Roseberry
|UGG Oliviya
|UGG Raya
UGG Brookfield Short
Welcome to our website-- http://www.ugghots.com , we are making the promotion for many uggs now.Here is a chance for you that you want to buy good ugg classic boots by cheap price.At present our hot sale snow boots has :
| UGG Delaine Boots
| UGG Gaviota Boots
| UGG Gissella Boots
| UGG Evera Shoes
| UGG Upside Boots