The media has been replete lately with a variety of different government officials saying that there will not be a third round of Quantitative Easing. Even the great Ben Bernanke himself on April 27th spoke against the possibility of QE 3. This isn't surprising, of course, because in order for something like QE to have the most effect it needs to be, well, a surprise. However, I am throwing down the gauntlet and making the call - there will be Quantitative Easing, and a big one most likely, by the end of summer. There I said it; of course, I have actually been saying this for the last couple of months and it doesn't take much of a real genius to figure it out considering that we are heading into a presidential election year. However, it most likely won't be called QE 3 since the term QE is now politically and socially almost taboo.
We wonder how consumers are expected to contribute to the recovery?
The downturn in the economy caught most economists by surprise. They have yet to realize that we are now in a stagflationary economy. All the signs are there, yet they have no explanation for it. QE3 anyone?
The idea of turning the EU into a Bankster's Paradise (where you lose sovereignty to your creditors) slapped the Dollar down to it's lows of the day and boosted the EU markets and US futures and gave us our re-shorting opportunity on oil.
John Taylor (Not The FX One, The One With The Rule) Says Fed Funds Rate Should Be 1.0%, Sees No Rationale For Further QESubmitted by Tyler Durden on 06/01/2011 08:58 -0500
A month ago, Zero Hedge first posted (well, technically we read it at Stone McCarthy but beat everyone else to copying and pasting it first), that according to the Taylor Rule, so widely abused by the lemming central planners in the Marriner Eccles building, the effective Fed Funds rates should, for the first time since the GFC, be positive. This is what SMRA said: "For the second consecutive quarter, the original-specification, quarterly version of the Taylor rule, based on real GDP figures and the GDP price deflator, produced a positive result. The previous day, the BEA released its advance estimate for real GDP figures in Q1 2011. Based on those numbers, the Taylor rule prediction for the federal funds rate target in Q1 2011 is +0.4%. In the previous quarter of Q4 2010, the Taylor rule prediction was +0.1%." Now, Taylor himself, in his blog, confirms that not only should the Fed Funds rate be positive, it should be 1%.
Gross' Compares Bondholders To Slowly Boiling Frogs, Explains How PIMCO Is Profitable Despite Treasury Short PositionSubmitted by Tyler Durden on 06/01/2011 07:31 -0500
Make no mistake. A new variety of quantitative easing has already begun in a big way, and is generating its desired effect. The same $600 billion that stampeded into risky markets is doing a 180 and then stampeding right back out again. We might even see bonds peak and risk assets bottom on June 30, the day QE2 ends. Clever Ben, clever.
The recent sluggishness in equity markets has certainly affected industrial commodities over the past few months, if not gold, which as pointed out earlier is just 2% below its nominal highs and rising despite the 4th margin hike on the Shanghai Gold Exchange overnight - once again gold is seen at the apex of the fiat currency replacement pyramid. So what could cause a rally in industrial commodities in the near term? Sean Corrigan lists the four key catalysts, whose occurrence listed in order of probability, could rekindle the recently faltering rally.
Freedom on quantitative easing, deflation, restructuring, gold, etc.
Commerce is the lifeblood of a nation. Without the free flow of trade, without financial adaptability, without intuitive markets driven by the natural currents of supply, demand, and innovation, cultures stagnate, countries whither, and one generation after the next finds itself deeper in the somber doldrums of economic disintegration. In an environment of transparency, honesty, and the absence of monopoly (government or corporate), on the rare occasions in history that these conditions are actually present in one place at one time, we often see an explosion of prosperity and true wealth creation. When local, decentralized markets are given precedence over subversive elitist leviathans like mercantilism or globalism, a wellspring of abundance bursts forward. Free people, building true free markets that serve the specific needs of individual communities and insulating the overall economy from systemic collapse; this has always been the wave of the future. Not “integration”, “harmonization”, or some fantastical nonsensical “global village” administrated by a faceless unaccountable transnational entity like the IMF, infested with sociopathic maid raping euro-trolls. Unfortunately, average Americans today have grown far too accustomed to having their commerce, and thus their livelihoods, micromanaged for them. The bottom line is, if the daily fiscal life of the average American were to deviate from today’s norm even slightly, the results would be devastating. There is no flexibility in our current system. All is rigid and fragile. There is no backup plan.
For nearly 30 years we have had two Global Strategies working in a symbiotic fashion that has created a virtuous economic growth spiral. Unfortunately, the economic underpinnings were flawed and as a consequence, the virtuous cycle has ended. It is now in the process of reversing and becoming a vicious downward economic spiral. One of the strategies is the Asian Mercantile Strategy. The other is the US Dollar Reserve Currency Strategy. These two strategies have worked in harmony because they fed off each other, each reinforcing the other. However, today the realities of debt saturation have brought the virtuous spiral to an end. One of the two global strategies enabled the Asian Tigers to emerge and grow to the extent that they are now the manufacturing and potentially future economic engine of the world. The other allowed the US to live far beyond its means with massive fiscal deficits, chronic trade imbalances and more recently, current account imbalances. The US during this period has gone from being the richest country on the face of the globe to the biggest debtor nation in the world... So what could possible stop this ideal symbiotic relationship from continuing to feed on itself? A number of factors, all of which are now coming together to end this Virtuous Cycle.
And continuing with the rates discussion from the prior post, next up we have that "other" bond manager, DoubleLine's Jeff Gundlach, chiming in on what would cause a treasury rally following QE2. His assessment: nothing short of a confirmed double dip, or "zero GDP growth." Dow Jones reports: "Over the past two months, government bond market participants have fiercely debated whether the end of the Fed's $600 billion in Treasury bond purchases in June will trigger a market sell-off or rally...the U.S. government bonds' rally in recent weeks shows investors have already bet the Fed's exit from the market will boost safe-harbor Treasurys because the economy will slow. So any gains will be limited. "The 10-year Treasury yield has hit the moment of truth," Gundlach said in an interview with Dow Jones." Needless to say, 0% growth, which is already in the cards according to a simple correlation analysis between Y/Y GDP growth and initial jobless claims, will force the Fed, in the absence of another fiscal stimulus (which everyone knows is not coming from DC this year and possibly next year either), to step up double time and to launch far more easing to offset the economic weakness which we have been predicting for 6 months, and which the recent Japanese earthquake, and Chinese slowdown, merely accentuated. The only wildcard continues to be Japan, which many have expected would take up the monetary slack and issue tens of trillions in yen in QE, yet which has so far been slow to come, leaving the ball in either the US or European court. However, with the ECB in transition as JCT wishes to cement his hawkish legacy, the only real alternative continues to be the Fed. Oddly enough, stocks today appear to have started to already price in the start of QE3. When this sentiments shifts to precious metals and crude, our advice would be to hide you kids, and hide your wife...
Gold and silver are lower today with profit taking, Chinese bond buying and increased risk appetite being cited for the price falls. Reports of China buying Eurozone government debt may have led to a rise in the euro and equities. However, the scale of sovereign debt risk internationally is such that even significant and ongoing Chinese buying would be unlikely to contain the crisis. While most of the focus has been on Greece and Eurozone sovereign debt issues, the not insignificant risk posed by a U.S. sovereign debt crisis increases by the day. The risk of a US default continues to rise which can be seen in the sharply increased cost to insure U.S. sovereign debt. The squabbling between Democrats and Republicans last week as the U.S. debt ceiling of $14.3 trillion was being reached did not help sentiment towards U.S. debt. Nor did former Soros’ partner Stanley Druckenmiller, the billionaire former-hedge fund manager and legendary investor, comment in the Wall Street Journal that the Federal Reserve’s bond purchases are a fraud and a “Ponzi scheme”. He advocated a U.S. default or a technical default, saying “"technical default would be horrible, but I don't think it's going to be the end of the world. It's not going to be catastrophic."
The single greatest conceit of the Status Quo in the U.S., China and Euroland is that systems and trends can be tightly controlled. That conceit is slowly being revealed as hubris, as all sorts of things are spinning out of the control of the centralized authorities and financial elites in each geopolitical power center. Does anyone really think the people of Greece will stand idly by while the state treasures of their nation are transferred to the banks which foolishly lent billions to a visibly risky enterprise? The banks, of course, lent freely to insolvent governments throughout the European Union, confident in the backstop of the E.U. itself....Does anyone really think the uprisings against this transfer of national wealth to the "too big to fail" banks in Europe will fade as unemployment rises and the true costs of the transfer become apparent to all?...Does anyone really think the banks are really that precious to the people they are stripmining? Just how awful would it be if all the big banks with exposure to sovereign debt in the E.U. went belly up and were declared insolvent? A handful of very wealthy managers would lose their jobs, a handful of very wealthy owners would lose their stake, and all the pension funds and mutual funds which bet on the infinite passivity of the citizenry and the infinite checkbook of the E.U. would lose, too. It's called Capitalistic risk and return, baby, and return can be negative. All the big players assumed the citizenry would quietly line up to have the clothing ripped from their backs and their flesh flayed to extract the pound of flesh "owed" the banks. But as the citizenry of Europe wake up to costs of the stripmining, which extends now to the taxpayers of Germany, Finland and beyond, they are withdrawing their support of the financial Status Quo.
As the Fed-engineered stock market rally rolls over, then perhaps the Mainstream Media sitting in the press box sucking corporate-sponsor provided beverages will awaken and look at the progress of the Fed's game: lots of corporate hits, but no runs, nobody on base and zero RBIs (runs batted in)--that is, no jobs created despite the trillions in treasure lavished in new credit. It feels like we're entering the eighth or ninth inning of the Fed's perversely destructive game, and all we need is an umpire to call "STEE-RIKE!" and end the doomed-from-the-start "extend and pretend" game the Status Quo has been playing since 2008.