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What Happens If There Is No QE3? David Rosenberg Responds

Tyler Durden's picture




 

Should the US approach June 30 and end up with the highly improbable scenario where there is no follow through monetization, which following Bill Gross' commentary from yesterday (which in turn piggy backs on what we have been saying for months - monetizing of gross issuance and all that) appears unlikely, what would happen to risk, and other, assets? Providing empirical color to that eventuality, which with every passing day is ever more urgent, is David Rosenberg who answers the question: "What happens if there is no QE3?"

From Gluskin Sheff's David Rosenberg:

We are now being asked this constantly and the follow-up is “who picks up the slack if the Fed stops its bond-buying program”?

The answer(s) is hardly complicated since we have a template for this in 2010. It is a very simple guidepost.

Last year, from April 23rd through to August 27th, the Fed allowed its balance sheet to shrink from $1.207 trillion to $1.057 trillion for a 12% contraction as QE1 drew to a close. Go back a year to the Federal Open Market Committee minutes and you will see a Federal Reserve consumed with forecasts of sustainable growth and exit strategy plans. A sizeable equity correction coupled with double-dip fears were nowhere to be found.

Now over that interval ...

  • S&P 500 sagged from 1,217 to 1,064.
  • S&P 600 small caps fell from 394 to 330.
  • The best performing equity sectors were telecom services, utilities, consumer staples, and health care. In other words — the defensives. The worst performers were financials, tech, energy, and consumer discretionary.
  • Baa spreads widened +56bps from 237bps to 296bps
  • CRB futures dropped from 279 to 267.
  • Oil went from $84.30 a barrel to $75.20.
  • The VIX index jumped from 16.6 to 24.5.
  • The trade-weighted dollar index (major currencies) firmed to 76.5 from 75.5.
  • Gold was the commodity that bucked the trend as it acted as a refuge at a time of intensifying economic and financial uncertainty — to $1,235 an ounce from $1,140 and even with a more stable-to-strong U.S. dollar too.
  • The yield on the 10-year U.S. Treasury note plunged to 2.66% from 3.84%.

So you see, the bond market actually does better (same was true during QE1) without the Fed balance sheet expansion than with it. Why? Because the Fed’s real goal is to ignite investor risk appetite. Bernanke et all have not kept it a secret that the real aim of the QEs is to generate a liquidity-induced rally in the equity market. If bond yields end up rising as they have for most of the past six months but occurs with a rising stock market and greater economic strength, then the Fed is totally cool with that and again Mr. Bernanke has stated that very bluntly (even if the higher mortgage rates that ensue drive another knife into the heart of the housing market). When the Fed stops QE, as we saw last year, risk appetite fades and the economy sputters — a development that will likely be even more acute this time around given the accelerating fiscal restraint at all levels of government that is just around the corner.

So who buys the bonds when Ben leaves the building?

The same folks who were the buyers last year from April to August. The ones who were switching out of equities, commodities, and other risk-assets.

Now you know how to play the second half of the year!

 

 

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Thu, 03/03/2011 - 11:52 | 1014951 falak pema
falak pema's picture

June 31??? lol...we are in alice in wonderland! TY. TD. So the deadline is...for knowing if QE-3 is officially on or off as per BB forward plan??...

Thu, 03/03/2011 - 11:46 | 1014958 Ray1968
Ray1968's picture

ES put options!

Thu, 03/03/2011 - 11:48 | 1014963 emsolý
emsolý's picture

Somewhat related:

John P. Hussman: Cash and Credit - Implications for the Financial Markets

http://www.hussmanfunds.com/wmc/wmc110228.htm

Thu, 03/03/2011 - 11:46 | 1014966 buzzsaw99
buzzsaw99's picture

Whatever happens JPM & GS will profit.

 

1) They will know in advance what the fed is going to do.

2) They used all the loss reserves and income for bonuses so if somehow they do lose they will get another bailout.

Thu, 03/03/2011 - 11:46 | 1014968 101 years and c...
101 years and counting's picture

"What happens if there is no QE3?"

The US defaults.

Thu, 03/03/2011 - 11:57 | 1015017 Sudden Debt
Sudden Debt's picture

I propose in anticipation of the US default, you all ship you good looking woman to Europe.

They can serve the Europeans as cleaning ladies and in return they can send a part of their paycheck back home to support the family.

The cost of living will be kept as low as possible for them. They can sleep in the bed of their masters, and if they produce babies they'll also get a bonus for the donation to the stem-cell clinics.

 

Thu, 03/03/2011 - 12:02 | 1015037 patience...
patience...'s picture

In your dreams...

Thu, 03/03/2011 - 12:06 | 1015067 Sudden Debt
Sudden Debt's picture

I'm just trying to help out...

 

I can house 4 "cleaning ladies" because I'VE GOT A LOT OF CLEANING THAT NEEDS TO BE DONE!! THE WOOD NEEDS TO SHINE!!

 

Thu, 03/03/2011 - 12:29 | 1015191 I am more equal...
I am more equal than others's picture

Only 4... should be at least 7 ... one a day will keep the player at play... rinse then repeat

 

Thu, 03/03/2011 - 13:12 | 1015370 MachoMan
MachoMan's picture

The proposal is inherently flawed...  you expect a good looking american woman to lift a finger in the home?  You'd have more luck just printing an ad looking for prostitutes/escorts...  at least there isn't any misconception...

Thu, 03/03/2011 - 12:58 | 1015316 Head for the Hills
Head for the Hills's picture

Funny coming from someone who lives where

swinging dicks from USA have been occupying

the place since 1944.

Thu, 03/03/2011 - 14:25 | 1015693 Miles Kendig
Miles Kendig's picture

Which is why he suggested it.  Just wait until Ukies start dropping Hryvnia on BL American imports

Thu, 03/03/2011 - 12:15 | 1015101 Eternal Student
Eternal Student's picture

Naw. We just ship the ugly ones, stamp them with a AAA rating, and the European's will be delighted. After all, it worked so well before. And it's a win-win all around.

Thu, 03/03/2011 - 12:19 | 1015145 Captain Kink
Captain Kink's picture

+10  OMG, LMAO!!!

Thu, 03/03/2011 - 13:58 | 1015575 augmister
augmister's picture

Not to Europe, CHINA!  Send those milk-jug blond CA Valley Girls over to China to be auctioned off to the highest bidders (gold only).   That way we export both inflation and drama!

Thu, 03/03/2011 - 19:02 | 1016790 malek
malek's picture

Hahaha, you got the hang of it!
+69

Thu, 03/03/2011 - 12:01 | 1015038 Spastica Rex
Spastica Rex's picture

>THFFPTF!< Milk just went out my nose.

Thu, 03/03/2011 - 12:08 | 1015070 Confused
Confused's picture

Looks to me like europe has all the beautiful women.

 

http://www.cdc.gov/nchs/fastats/overwt.htm

 

How about we swap. You can keep the money they would send home. Sound fair? 

Thu, 03/03/2011 - 12:20 | 1015143 piceridu
piceridu's picture

Funny shit

Thu, 03/03/2011 - 12:30 | 1015189 66Sexy
66Sexy's picture

Europeans? LAWL they are in worse shape than we are. At least we wll go down fighting; europeans are already conquered.

Thu, 03/03/2011 - 15:48 | 1016089 doggings
doggings's picture

go down fighting? only once the TVs go off.

Thu, 03/03/2011 - 12:56 | 1015301 serotonindumptruck
serotonindumptruck's picture

We will send you Madeleine Albright.

Thu, 03/03/2011 - 13:29 | 1015448 New_Meat
Thu, 03/03/2011 - 14:04 | 1015605 trav7777
trav7777's picture

HAHAHAHAHAHA

You want AMERICAN women?  These are the most self-absorbed and delusional women on the planet and you think they will clean for you when most prefer to outsource their own chores to illegals?

American women are toxic...you can have them

Thu, 03/03/2011 - 18:13 | 1016607 naughtius maximus
naughtius maximus's picture

Agree! total toxic assets the lot of them

Thu, 03/03/2011 - 14:46 | 1015806 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

This is coming from a Belgian whose country is about to be torn in two and default. It is more like ship the Belgian ladies to us Americans. Ohhh la la!

Fri, 03/04/2011 - 01:18 | 1017651 Silver Super Bu...
Silver Super Bull Market's picture

If the US defaults what exactly will happen?

Thu, 03/03/2011 - 11:47 | 1014969 gmak
gmak's picture

The June 31st date must be the limit for an asymptotic curve. We approach but never fully arrive (except in ancient greek stadiae).

Thu, 03/03/2011 - 12:36 | 1015214 Bob
Bob's picture

Zeno disagrees, but you may be right--the Chairsatan is on a train of printers that is inching closer and c-l-o-s-e-r to the speed of light.

Thu, 03/03/2011 - 11:46 | 1014971 TradingJoe
TradingJoe's picture

They cannot and will not stop printing, if they do.....Total Collapse! Rosie just stated the obvious but only very mild! The FEDs put themselves into a corner from which there is no escape, the only way is DONW and B(D)UST!

Thu, 03/03/2011 - 14:49 | 1015833 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Two results can come from this:
1) Continue printing. Inflation will collapse margins sending companies into a tailspin.
2) Stop printing. Debt deflation occurs along with a default. Pick your poison Chairsatan.

Thu, 03/03/2011 - 11:46 | 1014972 John Wilmot
John Wilmot's picture

I think we've got a few more months before the likely summer stagnation/correction when QE2 ends and before QE3 is officially announced. Summer 2011 shall be one great BTFD.

Thu, 03/03/2011 - 11:48 | 1014974 Azannoth
Azannoth's picture

The FED is like a Whore with rabies spreading it's legs and offering a 'no interest' service financing

Thu, 03/03/2011 - 11:49 | 1014976 reload
reload's picture

"Now you know how to play the second half of the year!"

 

Thanks-keep buying Gold. That was my plan anyway.

Thu, 03/03/2011 - 11:49 | 1014978 Quintus
Quintus's picture

I hope  "The ones who were switching out of equities, commodities, and other risk-assets." have a lot of money, 'cos Ben has quite a few trillions in new issues he needs to find buyers for over the next few years.  Personally, I think Rosie is being overly optimistic in assuming that there's enough free cash on the planet, absent the Chairsatan and his printing press, to soak up the supply.  There will be more QE because there has to be.

Thu, 03/03/2011 - 11:48 | 1014983 Sudden Debt
Sudden Debt's picture

THERE WON'T BE A QE3!!

 

it will be called the MSD 1.0 (The Money Shitting Donkey)

Thu, 03/03/2011 - 11:53 | 1014992 Goldbugger
Goldbugger's picture

They won't call it QE3, they will just do it and hide it like they did with M3.You don't need to know the man behind the curtain...

Thu, 03/03/2011 - 11:55 | 1015009 falak pema
falak pema's picture

Hardly. It has to grow through POMO circuit. Or it's not on FED books. Which other way is there. Those primary dealers will never do it w/o official FED cover. No way.

Thu, 03/03/2011 - 12:26 | 1015167 Captain Kink
Captain Kink's picture

They will simply extend QE2, First by slowing their purchases in the last 2 months to 50 or 75 Billion and stretching the original 600 bil for an extra couple of months, then by continuing at that rate through the end of the year...Unless equities get cracked this spring--due to MENA, European Sov Debt, or some other issue--which I would put at 50% minimum probabililty.

Thu, 03/03/2011 - 11:53 | 1014994 mcguire
mcguire's picture

wrong question..  the real question is how will the markets and the fed respond to ww3..

Thu, 03/03/2011 - 11:57 | 1015023 falak pema
falak pema's picture

WW3 is already on! It's the monetary war raging. You're referring to WW4 the military hardware war when WW3 is over, and presumably the US/FED the loser.

Thu, 03/03/2011 - 11:53 | 1014995 Yardfarmer
Yardfarmer's picture

there is simply no feasible alternative to monetization. the die is cast. the Fed's real goal? no, not the ignition of investor risk appetite, but the devaluation of the dollar, hyper-inflation and with it the implosion of the US economy and unprecedented massive social chaos upon the ash heap and rubble of which to build the Novus Ordo Saeclorum.

Thu, 03/03/2011 - 12:27 | 1015176 Captain Kink
Captain Kink's picture

bingo.

Thu, 03/03/2011 - 12:36 | 1015212 LawsofPhysics
LawsofPhysics's picture

We have a winner.

Thu, 03/03/2011 - 12:45 | 1015258 Rodent Freikorps
Rodent Freikorps's picture

That is really gonna suck.

Thu, 03/03/2011 - 13:15 | 1015393 ElvisDog
ElvisDog's picture

Ugh, not the New World Order again. Remind me who would be on the governing council of the New World Order. The reason there will be no global New World Order is that presumably it would not be an efficient way to run the world. Economic output would decline, right? The world is already on the brink of global revolution because there are too many poor people who can't afford food and energy. And you suppose that when the New World Order makes people more poor, more hungry, and colder that they will just sit around passively? No fucking way. Your New World Order would last about two months and then be followed by New World Peasant Revolt.

Thu, 03/03/2011 - 14:23 | 1015685 SilverBaron
SilverBaron's picture

The New World Order comes after the revolts and WW3.  It is after the mass die off.  See the Georgia Guidestones.  Maintain world population under 550 million!  That means over 6 billion must die.  Ten thousand will fall at your left and ten thousand at your right.

Thu, 03/03/2011 - 11:55 | 1015003 EscapeKey
EscapeKey's picture

1. Buy treasuries.

2. Pledge treasuries as repo collateral.

3. Goto 1.

No QE necessary. John Law engaged in a similar scheme.

Thu, 03/03/2011 - 12:18 | 1015136 Horatio Beanblower
Horatio Beanblower's picture

Good old, John.  He was simply misunderstood.

Thu, 03/03/2011 - 15:59 | 1016132 Non Passaran
Non Passaran's picture

Now I see why usign GOTO is not a good practice!

Thu, 03/03/2011 - 11:57 | 1015004 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Major war before June even comes, to distract the masses... it was the plan all along. The same scam played on the masses time and time again, they never learn! Why else do you think the Bernank was printing and wall street has been pillaging faster than anyone could imagine? Because they know the end is nigh.

Get a new script elite, for those of us awake, it's getting boring seeing the same old plays played out.

Thu, 03/03/2011 - 13:02 | 1015327 YHC-FTSE
YHC-FTSE's picture

There is always that possibility and it fits. But just because it fits, does not mean it will happen - I learned that lesson when war with Iran never materialized near the end of Bush's presidency despite 3 carrier forces converging in the Gulf and the economic meltdown was just being felt. 

Thu, 03/03/2011 - 13:19 | 1015411 ElvisDog
ElvisDog's picture

I disagree. There won't be a major war before June because the system is still holding together, and as long as the system is holding together TPTB will want to keep the system going (because they are the ones who benefit from it). Egypt was a little messy, but TPTB got their man in power after Mubarak. Libya isn't really threatening the current system either. Saudi Arabia seems to be holding things together at present. From the point of view of TPTB, they survived the recent crisis.

Thu, 03/03/2011 - 11:55 | 1015008 nonclaim
nonclaim's picture

On a long enough timeline... QE drops to zero. We know QE will end some day like any other previous program. So, the relevant question is not when will it end but what will be created next, before it ends.

Something will be created...

Thu, 03/03/2011 - 13:37 | 1015478 New_Meat
New_Meat's picture

We're at "Peak QE?" - Ned

Thu, 03/03/2011 - 11:55 | 1015012 buzzsaw99
buzzsaw99's picture

They will just go back to secret money laundering through the UK or the Cayman Islands.

Thu, 03/03/2011 - 13:13 | 1015383 Rogerwilco
Rogerwilco's picture

The practical limit for those shenanigans was $30B-$40B a month, so it wouldn't be much use these days. But hey, who cares about "secret" anymore? Bernanke dared Congress to stop him in 2009, and they did nothing to hold him back.

Thu, 03/03/2011 - 11:56 | 1015013 The Axe
The Axe's picture

The dollar is telling you that there will be more Q....period....

Thu, 03/03/2011 - 11:57 | 1015014 lbrecken
lbrecken's picture

if you truelythink QE3 is coming then stop your ramblings Typer that the mkt is over valued and will correct...cause if thats what you believe then America as we know is done cause this ecomonic lie will continue thru 2012 and O will get re-elected

Thu, 03/03/2011 - 13:21 | 1015029 TruthInSunshine
TruthInSunshine's picture

Dear Ben, if you've come this far, maybe you're willing to come a little further. You remember the name, don't you? We could use a good man to help us keep our project on wheels. We'll keep an eye out for you and the chessboard ready. Remember, Ben; Hope is a good thing, maybe the best of things, and no good thing ever dies. We will be hoping that this letter finds you, and finds you well.

Your truest friends,

Lloyd

and

Jamie

 

xoxoxoxoxo

 

- Letter to Ben Bernanke from Lloyd Blankfein & Jamie Dimon, co-signed, in making a somewhat coded reference to QE3.

Thu, 03/03/2011 - 12:07 | 1015041 bingaling
bingaling's picture

So who buys the bonds when Ben leaves the building? Nobody , isn't that the point of QE2 . Isn't that what the last few weeks have hinted . Flight to safety is in gold and silver ,and the swiss franc and even the Euro(a bit )  not US bonds . There will be QE3 because there has to be . Is the world going to embrace the MAO dollar by the end of the year is an article I would like to see . Are US bonds going to have to be sold in MAO denominations instead of FRN'S ?

Thu, 03/03/2011 - 12:04 | 1015048 AN0NYM0US
AN0NYM0US's picture

a tax holiday for US corporations and their trillions of offshore profits and  some sort of gov sponsored write down for the millions of undewater mortgages will be the next phase

 

 

Thu, 03/03/2011 - 12:07 | 1015066 New Revolution
New Revolution's picture

Don't worry about it,... its an academic question.

Thu, 03/03/2011 - 12:08 | 1015071 BennyBoy
BennyBoy's picture

QE2 will become QE "for an extended period".

No QE3, QE4, etc.

Think of it as QE as needed. And it's needed almost every day.

Then it becomes a back burner topic.

Thu, 03/03/2011 - 12:20 | 1015147 buzzsaw99
buzzsaw99's picture

apply as req'd.

Thu, 03/03/2011 - 12:29 | 1015185 Captain Kink
Captain Kink's picture

Lather, Rinse.  Repeat.

Thu, 03/03/2011 - 12:09 | 1015073 koot
koot's picture

I have to disagree with David on several counts.  First, most deflationists which David is rarely mention the Deficit of the US governments when they present their argument. They tend to ignore debt of Federal, State and municipal governments and are quick to point out the purpose of QE3 to inflate equities which is not entirely true.  Second, they tend to ignore changes and current world events focusing on what happened in past.

Big mistake David.

Thu, 03/03/2011 - 13:13 | 1015387 MachoMan
MachoMan's picture

They know it is there, they just don't want to admit that this may be the final failure to be the quality flight destination.  He'll be right if we are...  wrong if we aren't...  the other perspective is that we get multiple flights to safety from here on out, progressively stuffing less and less into the U.S. debt and more and more into PMs/real assets...

Thu, 03/03/2011 - 12:09 | 1015078 edmondantes
edmondantes's picture

I doubt if UST bonds will be a safe haven this time... even if they are it is like floating on a bed of nitroglycerine...

Thu, 03/03/2011 - 12:40 | 1015234 earnulf
earnulf's picture

For some strange reason the image of a massive belly flop into a pool of nitro crossed my mind.....

Thu, 03/03/2011 - 12:23 | 1015079 Zero Govt
Zero Govt's picture

Nothing like Govt policy, or in this case Benny the Beans ideas, on how to crank up the economy and get things working again. Bailing out Big Bad Banks and making them even bigger is sure to be a 'winner' for the US economy as is Obama and Timmay with GM and Chrysler.

Looks alot like re-arranging counterfeit deckchairs on the Titanic but there you go! Govt and its quangos meddling in the free market and picking winners, you know this is going to turn out fantastic

Thu, 03/03/2011 - 12:09 | 1015080 AN0NYM0US
AN0NYM0US's picture

oh and Rosie

what do you make of the S&P today? Is this still part of the suckers rally you proclaimed 5 or 6 hundred points ago?

 

Thu, 03/03/2011 - 12:10 | 1015088 RobotTrader
RobotTrader's picture

Right now, markets are saying "Full Speed Ahead".

I'm itching to short something, but not when I see moves like this....

What are the odds that the 2000 tech stock bubble comes back twice?

It's happening.  First time was 2003 - 2007.  Now its 2009 - ????

Thu, 03/03/2011 - 12:15 | 1015103 Zero Govt
Zero Govt's picture

Robot you say you're dying to short something... does that mean you're long something at the moment or still sitting on the fence?

Thu, 03/03/2011 - 12:15 | 1015118 asdasmos
asdasmos's picture

RobotTrader, just curious as to whether you think there will be a QE3 or QE2 extended?

Thu, 03/03/2011 - 12:19 | 1015130 lieutenantjohnchard
lieutenantjohnchard's picture

contraire, oh dear catfish mouth robo uber bull bear wannabe. making a fortune is so easy as you advised us and rosie recently. all you have to do, as you said, is short the top, ride it down and then buy the bottom at 666, like you said rosie should have done, like you. then you can retire to a los angeles apartment and live the life of a city gentleman.

nothing hard about it t'all.

btw: if you're wanting to short the market in the face of pomo and dollar devaluation by the fed does that mean we ought to fight the fed as you advised us not to do? or today, on this post, are you advising us to fight the fed?

cc: gentleman jim sinclair, eric king and max keiser.

Thu, 03/03/2011 - 21:37 | 1017165 All_Is_Well
All_Is_Well's picture

 

When the national average price of gas hits $4.25 - $4.50 you can short all you want.

 

Thu, 03/03/2011 - 12:12 | 1015090 asteroids
asteroids's picture

Is it not surprising that the market is ramping. All the action is before the market opens. Pump and dump. I bet market makers are setting up their short books.

Thu, 03/03/2011 - 12:16 | 1015114 TruthInSunshine
TruthInSunshine's picture

"Equities are higher today because the economy is fundamentally better and will improve going foward.

Ask your family members, neighbors and local merchants for more details on the green shoots sprouting about everywhere."

 

- Ministry of Truth & Information

Thu, 03/03/2011 - 12:18 | 1015133 Idiot Savant
Idiot Savant's picture

The answer(s) is hardly complicated since we have a template for this in 2010. It is a very simple guidepost.

Last year, from April 23rd through to August 27th, the Fed allowed its balance sheet to shrink from $1.207 trillion to $1.057 trillion for a 12% contraction as QE1 drew to a close. Go back a year to the Federal Open Market Committee minutes and you will see a Federal Reserve consumed with forecasts of sustainable growth and exit strategy plans. A sizeable equity correction coupled with double-dip fears were nowhere to be found.

Really, you're going to extrapolate future performance based on a small window, in which QE2 was pretty much baked in?

I find this presumptuous at best. Wait and fkn see what happens if the FED stops easing.

Thu, 03/03/2011 - 12:41 | 1015241 rubearish10
rubearish10's picture

Agreed. Unfortunately Rosey has consistently failed in his analysis. Any of us could come up with a more likely scenario assuming we are creative. For instance:

1. Bond vigilantes finally rebel with harsh avoidance 

2. USD landslides until it's clear UBAMA can be removed in 2012.

3. Escalating unrest tips equity markets (see great Tipping Point article yesterday)

4. PM's and Oil do happen to respond in full throttle to breathtaking extremes.

5. Equities get hammered despite USD exchange because margins are inverted.

6. Then post "final boom/bust" episode, a new era of US revolutionary change is finally enacted.

 

END

 

 

Thu, 03/03/2011 - 18:20 | 1016636 youngman
youngman's picture

There will be several failed auctions I think......how they will spin will be funny...snow probably????  no spring training for the football players...lol

Thu, 03/03/2011 - 12:23 | 1015162 sschu
sschu's picture

There will not be any meaningful action on the federal budget, it is political gamesmanship and stalemate.  So the question is where will the $$ come from to finance the $2-3 TRILLION (new debt plus rollovers) needed annually for the next several years.

Pots of money that exist are the Fed (somewhat indirectly), your 401K, retirement funds, international sources (Chinese, OPEC) and corporate balance sheets.  Or default. 

If we cannot fix our budget, and do not want to default, then someone has to pony up.  It is either the Fed or nationalization of private/public savings when the crisis ensues.

It will not be pretty.

sschu

Thu, 03/03/2011 - 13:23 | 1015427 ElvisDog
ElvisDog's picture

I totally agree. There won't be any meaningful budget reform at the Federal level, because the people don't want it. There is a lot of tough talk about "doing the right thing for our children" and such, but then no one wants to cut social security, medicare, and so on. We really do have the government we deserve - one that will kick the can down the road until the system collapses. And maybe that's not such a bad thing in that it might let the U.S. live the good life for a few more years.

Thu, 03/03/2011 - 12:26 | 1015173 Thomas Jefferson
Thomas Jefferson's picture

There will be more QE because there has to be.  Call it whatever you want.  QE 2 started in June 2010 but wasnt officially named until August 2010.  QE 3, named or unnamed, is in the bag.  Book it.

Thu, 03/03/2011 - 12:33 | 1015209 falak pema
falak pema's picture

I'll call it QE from Prada. Nice bag. Meryl Streep will love it.

Thu, 03/03/2011 - 12:30 | 1015188 Stuck on Zero
Stuck on Zero's picture

Here's the scenario.  China and US leaders get together and plan an exciting war.  Taiwan provokes China.  China attacks Taiwan.  We come to the defense.  China and the U.S. get to build lots of warships and war toys.  The U.S. government declares wartime powers, suspends Constitution, declares social spending austerity, and issues new $$ currency worth ten old dollars.  China reins in revolutionaries and Army takes over more businesses.  U.S. blocks all subversive Internet sites.  Taiwan is bombed into the stone age.  Military gets all new ships and planes.  Peace is declared.  China gets MFN and Taiwan in exchange for "respecting the rights of the Taiwanese".  Wartime powers just never seem to be rescinded.  All is happy among the ruling class. 

Thu, 03/03/2011 - 12:37 | 1015218 falak pema
falak pema's picture

Will I be able to sell more QE-Prada bags? I don't want chinese copy cats!

Thu, 03/03/2011 - 12:47 | 1015266 Bob
Bob's picture

Aren't the originals made in China yet?

Thu, 03/03/2011 - 12:41 | 1015235 HellFish
HellFish's picture

Who's going to buy the 1.6T US defict if not the Fed?

Thu, 03/03/2011 - 12:41 | 1015242 YHC-FTSE
YHC-FTSE's picture

++++ Quality article. And a lot of v.funny posts.

Thanks.

Thu, 03/03/2011 - 12:45 | 1015263 kaiserhoff
kaiserhoff's picture

Nice piece, and well documented, but Ben is old news.  Small business is increasingly shutting down or going underground.  ZH does the best job around on business stats, but the official numbers mean less and less.

Arrest Bernanke

Thu, 03/03/2011 - 12:56 | 1015307 Dr. Porkchop
Dr. Porkchop's picture

Aside from the ponzi money printing shell game, let's also not forget about the toxic assets the banks put up for collateral that are currently worth fucking ZERO!

Thu, 03/03/2011 - 13:10 | 1015368 AccreditedEYE
AccreditedEYE's picture

Now you know how to play the second half of the year!

Which begs the question: What are we waiting for? :)

Thu, 03/03/2011 - 13:22 | 1015422 FoieGras
FoieGras's picture

No need to worry about QE3 or QE17. Any information a trader needs is in the price and in the tape.

"There is only one side of the market and it is not the bull side or the bear side, but the right side." -- Jesse Livermore

Thu, 03/03/2011 - 13:45 | 1015497 TruthInSunshine
TruthInSunshine's picture

Was that before or after he blew his brains out because of the '"market's" action?


"My dear Nina. Can’t help it. Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me."

Thu, 03/03/2011 - 13:27 | 1015435 tahoebumsmith
tahoebumsmith's picture

QE has only two purposes...One, to monetize the 1.5 trillion dollar debt in a way that doesn't look like we are just printing money to pay the bills...And two, to pump the markets sporadically in such a way the insiders that ramped their stocks with 0% money from the FED can liquidate their shares in pseudo mode as they pull more BTFD wannabes into the casino. There you have an easy explaination of QE..It's really that simple. Now since insiders are getting out in hoards and only need a little more time to double their 08 losses QE should end as planned and leave the BTFD dreamers holding the bag. However we have the debt to contend with and with no interest in bonds it will have to continue to cover the true incompetance of our government. In the meantime the insiders...Big Corps and Banks will take their insider selling profits and keep putting it into the bond flipping ponzi with the FED so they can actually quadruple their losses from the economic crash they created and keep the government from insolvency. There will never be a balanced budget and with more and more foreign countries turning up their noses on the dollar you can expect QE forever and as the TBTF'S keep raking in billions fliiping the ponzi bonds to keep the government afloat you can only expect the government's debt to increase.

Thu, 03/03/2011 - 13:31 | 1015454 rubearish10
rubearish10's picture

++++10000 Great RANT!

Thu, 03/03/2011 - 13:29 | 1015447 ivana
ivana's picture

meanwhile UST2Y +10,3% . volatility really strong . powers are printing and lowering yield but spikes are so strong . looks like massive unloading . if 0.8-0.9 will not hold ... panic!

Thu, 03/03/2011 - 13:31 | 1015455 HedgeFundLIVE
HedgeFundLIVE's picture

QE2 is coming to an end. Do I need to recap how many of the pundits referred to the rally of the last 3 months as the QE rally? Soon we will see the first real inflationary cycle in this country that we have seen in many years:  http://www.hedgefundlive.com/blog/hugo-chavez-the-peace-maker-give-the-man-a-nobel

Thu, 03/03/2011 - 13:38 | 1015483 alangreedspank
alangreedspank's picture

 

Househould debt now stands @ 147% of average income and, incidently, there are no savings.

Who's doing the buying in this market exactly ?

Who's crazy enough to buy stocks when the firms won't be able to do anymore sales because of the facts below ?

 

Thu, 03/03/2011 - 13:47 | 1015519 TonyV
TonyV's picture

Betting against Rosie has been the trade of the year. Actually let me rephrase that: Betting against Rosie has been the trade of the decade.

Thu, 03/03/2011 - 13:54 | 1015555 ssp2s
ssp2s's picture

Heh.  How are those gold shorts working for you?

Thu, 03/03/2011 - 13:57 | 1015570 Jasper M
Jasper M's picture

I am kind of amazed, and a little disappointed, at the near universal credulous acceptance of the notion that QE actually Does anything. 

The market Fell through QE1. So the notion that QE "must" be continued, to save (insert allegedly sacred cow) seems to me to be false on its face. When the market decides to go down, it Will go down, and all the King's horses won't stop it. 

Stop buying into the Myth of the Potent Director. Central banks get run over by the markets all the time. They will get run over again. 

Thu, 03/03/2011 - 14:20 | 1015669 ghostfaceinvestah
ghostfaceinvestah's picture

Good note from Rosie, maybe the blind squirrel does find the nut occassionally.

I have been saying this for some time - the end of QE1 was a prelude to what will happen if QE2 really ends.  This fake economic recovery is entirely dependent on money printing.

Of course money printing is destructive in its own right, as we are seeing now, the question is one of who suffers - the rentiers under deflation, or the middle class under hyperinflation.

Bernanke has clearly chosen the latter, but it will be interesting to see if political pressures lead us to the former.

Thu, 03/03/2011 - 15:09 | 1015903 JR
JR's picture

So, Rosenberg, a leading bond bull whose bonds increase in value in a bull market when interest rates are declining, is saying if Bernanke stops QE the yield on the 10-year U.S. Treasury note will plunge even more as money will flee from risk into bonds. This morning’s benchmark 10-year Treasury note price was down 16/32 to yield 3.531%; just ahead of the better-than-expected jobs report the note yielded 3.488%.

Bond investors profit, of course, when bond prices keep climbing and yields go down.

As Rosenberg says, somebody has to suffer, it might as well be those two or three savers left in the U.S. economy. Bankrate.com national average 1-year CD rate is 0.48% APY – quite a meager return for people living on fixed incomes.

“So you see, the bond market actually does better (same was true during QE1) without the Fed balance sheet expansion than with it…,” says Rosenberg.

When Tom Keene said in October of 2010 that the highlight of the weekend was a WSJ op ed article by Chuck Schwab (Enough With the Low Interest Rates!)  urging that the target interest rate be increased now because savers are getting killed without making credit readily available, Rosenberg discounted any help for savers, suggesting that savers would be the only ones helped by an interest rate increase and “the stock market would be hurt.”

The reason Rosenberg and the Fed want to target savers, of course, is that they are a prime source of the stored value in the economy that Bernanke needs to plunder for his initial dollar monetizations.

Said Rosenberg: “What is raising interest rates going to solve?  You can argue it’s going to help savers who have money in bank deposits.  If you start raising interest rates what is it going to do to the stock market? Because the stock market is part of saving as well.  If you raise interest rates what is it going to do to bonds?  The bond market gets clobbered.  A lot of people have their savings in bonds…” 

Like Rosenberg.

Thu, 03/03/2011 - 16:19 | 1016104 virgilcaine
virgilcaine's picture

Mkt looks a little tired here.  That QE is like adrenaline, but the US junkie does go through withdrawals also.  Crawl US Junkie..crawl like a junkie in search of a fix.

Silver is looking flat.. if there was a QE on the Horizon you know Silver would be leading the Charge like it did all last Yr.

Natural Gas was left behind though.. not sexy enough.

 

No it's time for the junkie to take a rest.. Ben knows his subjects well.

Thu, 03/03/2011 - 16:39 | 1016286 poydras
poydras's picture

Bernanke has communicated that QE 2 is open ended in terms of time and amount.

The logical approach is for the Fed to transition to use less specfic phrases such as "reduce the pace" and "as necessary."  The Fed has to transition the populace into accepting QE as a normal, continuous operation.

Another less likely approach is for the President to direct a formal devaluation.  The P in POMO becomes formally permanent.

Fri, 03/04/2011 - 09:39 | 1018091 Platinum_Investor
Platinum_Investor's picture

It's going to be exciting fireworks coming up in April - June with the US debt ceiling

being raise and the decision how they will spin the next QE.

 

It's the best reality show ever

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lsjcma's picture

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