Quantitative Easing

Frontrunning: May 29

  • Snowden: 'no relationship' with Russian government (Reuters)
  • Bond Surge Worldwide Drives Index Yield to One-Year Low (BBG)
  • Shares flirt with record highs on ECB easing bets (Reuters)
  • Goldman Shuns Bonds Pimco’s Gross Favors in ‘New Neutral’  (BBG)
  • Porn may be messing with your head (Reuters)
  • Dish to Become Largest Company to Accept Bitcoin (AP)
  • To Make a Killing on Wall Street, Start Meditating (BBG)
  • Apple to get Beats, music mogul Iovine for $3 billion (Reuters)
  • Fink Says Leveraged ETFs May ‘Blow Up’ Industry  (BBG)

John Hussman's Rant: "Someone Is Going To Have To Hold Stocks At These Prices"

"...for those who find our work to be a constant source of irritation to be regarded with open disdain, I am retracting all of it herewith – for you alone mind you – and I leave you free to buy with both hands to whatever extent you are inclined. Not that I encourage it really – that would be bad Karma – but someone is going to have to hold equities at these prices. It would best be those who are fully aware of our concerns and prefer to reject them. So the more you dislike my work, and particularly if you are nasty about it, I have no objection to you accumulating – perhaps on margin – as much stock from other investors as possible."

Kyle Bass On China's "Contraction" And "The Fed's Worst Nightmare"

With the Fed tapering and both China “I don't think the markets are discounting what’s really happening in China,” and Japan’s currencies likely to weaken, the net impact on the U.S. will be deflationary, Kyle Bass warned in a recent presentation. That trend will be accelerated by the improvement in the balance of trade for the U.S., which had its current account deficit shrink due to increased hydrocarbon production. Bass warns, the crucial moment will come when the U.S. reports a sub-6% unemployment rate, meeting the target it has set for normalizing its monetary policy by ending QE and raising rates. He predicted that will come in July. That will be the Fed’s “worst nightmare,” he said. Raising rates would stifle growth and recreate unemployment problems, which would be disastrous politically, according to Bass.

The Connection Between Oil Prices, Debt Levels, And Interest Rates

If oil is “just another commodity,” then there shouldn’t be any connection between oil prices, debt levels, interest rates, and total rates of return. But there clearly is a connection. As we have seen, rising interest rates will bring an end to our current equilibrium, by raising costs in many ways, without raising salaries. It will also reduce equity values and bond prices. A rise in the cost of extraction of oil, if it isn’t accompanied by high oil prices, will also put an end to our equilibrium, because oil producers will stop drilling the number of wells needed to keep production up.  If oil prices rise (regardless of reason), this will tend to put the economy into recession, leading to job loss and debt defaults. The only way to keep things going a bit longer might be negative interest rates. But even this seems “iffy.” We truly live in interesting times.


Echoes Of 1937 In The Current Economic Cycle

It is not too early to ask how the present US business cycle expansion, already more than five years old, will end. The history of the last great US monetary experiment in “quantitative easing” (QE) from 1934-7 suggests that the end could be violent. Autumn 1937 featured one of the largest New York stock market crashes ever accompanied by the descent of the US economy into the notorious Roosevelt Recession. As we noted previously - it's never different this time...

27 Huge Red Flags For The U.S. Economy

If you believe that the U.S. economy is heading in the right direction, you really need to read this article. As we look toward the second half of 2014, there are economic red flags all over the place.

Who Is The New Secret Buyer Of U.S. Debt?

On the surface, the economic atmosphere of the U.S. has appeared rather calm and uneventful. Stocks are up, employment isn’t great but jobs aren’t collapsing into the void (at least not openly), and the U.S. dollar seems to be going strong. Peel away the thin veneer, however, and a different financial horror show is revealed.  With the Ukraine crisis now escalating to fever pitch, BRIC nations are openly discussing the probability of “de-dollarization” in international summits, and the ultimate dumping of the dollar as the world reserve currency. The U.S. is in desperate need of a benefactor to purchase its ever rising debt and keep the system running. Strangely, a buyer with apparently bottomless pockets has arrived to pick up the slack that the Fed and the BRICS are leaving behind. But, who is this buyer? At first glance, it appears to be the tiny nation of Belgium. Clearly, this is impossible, and someone, somewhere, is using Belgium as a proxy in order to prop up the U.S. But who?

The Modern Investor's Manifesto

The stock market is filled with people who know the price of everything, but the value of nothing.” – Philip Fisher.

A 51-point personal perspective on some of the challenges facing today’s investor...

Fed President Says It Is Fed's Fault Markets Ignore Fundamentals

Equity markets are not happy about the Fed's Charles Plosser's economic exuberance ("3% growth no matter the weather" which is 20% above consensus of 2.5%) and his 'good-news-bad-news' monetary policy hawkishness ("may need to raise rates sooner rather than later"). But perhaps the most crucial part of his speech this morning was what the headlines notably left out. Plosser admonished his global central bank brethren: "if central banks do not limit their interventionist strategies and focus on returning to more normal policymaking aimed at promoting price stability and long-term growth, then they will simply encourage the financial markets to ignore fundamentals and to focus instead on the next actions of the central bank." Simply put, he warned, "central bankers have become too sensitive and desirous of managing prices in the financial world.."

Bernanke The Sophist: The Deception Behind QE

Bernanke's legacy: a deceptive case for a failed policy.

Sophistry: the use of fallacious arguments, especially with the intention of deceiving. The Federal Reserve's core policy of quantitative easing (QE) is based on a deceptive but appealing argument voiced by former Fed Chair Ben Bernanke.

No QE Coming From The ECB

On Monday we posted "Goldman Says European QE Will Come In 2015 At The Earliest, If At All" in which we showed for the latest time that Europe's grand delusion that 'QE is coming" (a rumor originated late last year by none other than a French bank) and all of which has already been fully priced into peripheral bonds and local stocks by now, is nothing but yet another massive bluff by the former Goldmanite and current ECB head who has taken lying about the future to a whole new level. Today Reuters confirms as much when it reports that while the ECB may ease modestly (a step which will achieve nothing to unclog the loan creation pathway to private companies), it will not undertake QE at this point.

Treasury Yields Tumble In Europe, US On ECB QE Disappointment

Overnight Europe got two mini lessons: i) that rumors spread by conflicted French banks about "imminent" ECB QE don't always, if ever, come true, after the ECB spent a decent portion of the overnight session explaining, via Reuters, that while the central bank would engage in "some stimulus for the euro zone economy but falls short of the large-scale effect the ECB could unleash with a major program of quantitative easing (QE) - money printing to buy assets. Such a QE plan is still some way off." Precisely as we warned. The other lesson is that when QE or even hopes of QE fade, bonds get bid due to rotation out of equities into "safe haven" assets. As a result, German Bund yields tumbled with stops taken out (and Goldman stopped out on their Bund short) through the 12 month lows of 1.4% with 10 Year yields following lower and dropping to 2.565% hours ago, or a level not seen since November 1.

Why The Bond Bubble In Peripheral Europe Is A Problem

Headlines were made earlier today as Ireland’s ten year borrowing costs dropped below the UK’s for the first time in six years. Given that it only recently exited a bailout programme and not long ago was mired in the worst crisis in a generation, this is a pretty astonishing turnaround. Nor is Ireland alone. Spain and Italy can now borrow at similar rates to the USA on ten year debt. More broadly, in the past year peripheral countries borrowing costs have plummeted to levels seen before the crisis, or below, as countries begin exiting bailouts and returning to the markets. There are three key factors driving this 'bubble" and five major problems stemming from this seeming nirvana.