Fed Minutes Old News, There Will Be No QE3!

EconMatters's picture

By EconMatters, Aug. 22, 2012

The Fed Minutes are from the July 31-August 1 meeting, this was before they latest run-up in asset prices. For example, WTI was $88 dollars a barrel then, now it is $98 and with the new asset prices any QE3 thoughts have now been priced out of the market. In short, the Fed minutes from three weeks ago are outdated. There is no way with eight dollar corn prices and 4 dollar gas that the Fed does any major QE3, just forget that notion.  

Chart Source: US EIA, August 22, 2012


The very run-up in asset prices has in essence precluded the Fed from being able to act, prices and inflation are too damnhigh to do any material actions now. So the bulls can start re-pricing this fact out of the market or they are going to be severely surprised when no major QE3 initiative comes down the pike.


Talk about putting the cart ahead of the horse. The bulls have taken and ran with a far- fetched notion that has a very low percentage of occurring right now. The old trade of buying the rumor and selling the news is actually backfiring this time because of the run-up in food, oil and gas. The Fed`s hands are now tied on this one even before they got a chance to do anything. 


Chart Source: FT.com, August 22, 2012


Expect some market signals that no QE3 will be coming in next week`s Jackson Hole speech. The rise in commodities will be mentioned, and this is the signal for NO QE3 of major proportions. Sure, Bernanke may throw the market a bone, but that`s about it! This is an election, and the last thing Bernanke, Obama, or any politician in office wants is high food and gas prices.


As usual the market`s first reaction is usually wrong, then they think harder about the issue and then take the other side. Bernanke got so much criticism the last two QE initiatives over high food and energy prices; well they were lower when they were entertaining the idea. But this latest run-up has pushed these commodities higher than they were during the other QE initiatives in the case of Gas prices and food prices.


In short, there is no room for Bernanke to move on this one, he is effectively boxed in, and eventually the market will get it, but they are pretty dumb most of the time. They usually have to be beaten over the head with the concept of $12 corn and $5 gas before they get a clue that this would instantly get Obama fired, Bernanke kicked out of office, and send the Global economy straight into a nasty recession.


You think China is having a hard landing now, just wait what QE3 would do to their fragile economy. If a QE3 initiative would be implemented, there would be an initial spike in commodities, then the side effects would push the Global Economy over the ledge, and ironic enough you will not be able to give commodities away.


You think Europe can handle high energy prices right now? Forget about it, half the Euro-zone is in a recession right now! Can you say Food riots in China? Nope, Bernanke and crew would have to be the dumbest Fed in the history of Fed governance on monetary policy.


Even if they were that stupid, there is no way Obama would let them self-destruct his seemingly locked bid for a second term. That`s the ticket for winning an election have run away food and energy prices right during the home-stretch of the campaign.


I don`t think so, these are smart people. They may make mistakes from time to time, but this is a NO Brainer given the run-up in gas prices since the last Fed Meeting. It doesn`t take a PHD Economist from Harvard to recognize that things have changed since they last met and discussed the issue, namely asset prices have risen dramatically.


Therefore, given the fact that environmental conditions have changed, this completely changes the data that they put into the equation regarding possible QE3 policy, and the new data effectively eliminates even the bandwidth available to maneuver here in regards to loosening policy measures. The start of both QE 1 & 2 had much lower starting points for commodities in the form of food and energy prices. This was after major market sell-offs, but the exact opposite has occurred this time as markets are in the midst of a humongous rally in Risk On Assets.


In short, the conditions are dramatically different from the first two QE initiatives in regards to Pre-Conditions or available flexibility to undertake an asset raising initiative which is emblematic of these types of monetary tools.  


Nope, there is no way in hell with these current asset prices that QE3 is anything other than a major letdown for markets. Expect the Fed to start signaling the markets of this case starting next week.


Further Reading - Bernanke's Dual Mandate Trap


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dumpster's picture

rage-ing baloney .. the fed prints... say no QE but each month they keep the presses grinding to cover trillions of short fall

what is this letter circle jerk writing .. no QE .. he must live in a festered old shit house with blinders on.

when the fed moves lips  their lip lies  .. the nose get longer

rubbish for no QE.. and a minus 10 for a nothing burger article  and a glowing account of  a nose bring brown

DeadFred's picture

Some time ago the Fed decided it needed to emphasize communication as one of its tools since the effects of it its other tools were limited (not their words). I now read that as continual propaganda that more QE is just around the corner. Its just propaganda, they can't print.

DeadFred's picture

Some time ago the Fed decided it needed to emphasize communication as one of its tools since the effects of it its other tools were limited (not their words). I now read that as continual propaganda that more QE is just around the corner. Its just propaganda, they can't print.

ebworthen's picture

FED:  "Yes we know the economy is in the shitter, but we are getting levitating equities by mumbling and hinting about QE3 and we only have one more bullet so we're going to pull this six shooter in and out of it's holster and twirl it around a lot."

odatruf's picture

"But tonight I say, we must move forward, not backward; upward, not forward; and always twirling, twirling, twirling towards freedom!"

Kodos gets my vote.

Whats that smell's picture

Less like Doc Holiday and more like Barney Fife?

hannah's picture

the fed is printing right now....why do you think the market goes up....? jesus christ. there isnt any 'money' to buy the market up. it comes from fed operations.

the problem is that the fed cant QE as much as it wants to...i believe they are at an impass. they cant do a massive qe without real inflation killing everyone this time.

LMAOLORI's picture




The Fed doesn't care about real inflation the items you really need to live like FOOD, Gas, Heating Fuel are no longer in the inflation index

orangegeek's picture

Spot Gasoline topped at 3.09 recently and fell to 2.84 in two days.  Not a sign of strength.  It has been retracing this drop over the last 3 days.





Eugend66's picture

The Bernank will only print to cover govt`s bill. As he always does. And there is no way he can stop doing it. For that there is no need for some press release, it is on auto-pilot.

LMAOLORI's picture



The bernank also prints to feed it's member banks and they are hungry


"He points out that the Fed said unless incoming data point to “substantial and sustainable” strengthening in the recovery more accommodation is likely to be “warranted fairly soon.”

Fairly soon is an interesting construction given that we are approximately 10 weeks away from the presidential election and nearly a year ago Congressional Republican leaders took the unprecedented step of writing Fed Chairman Bernanke “expressing their reservations” regarding additional Fed intervention. They wrote “the board should resist further extraordinary intervention in the U.S. economy,”



Mercury's picture

Posted elsewhere but this is just too good:

The BOE examines the results of its QE program  and finds:


“The Bank’s asset purchases have been almost entirely of gilts, causing the price of gilts to rise and yields to fall.  But this in turn has led to an increase in demand for other assets, including corporate bonds and equities.  As a result, the Bank’s asset purchases have increased the prices of a wide range of assets, not just gilts.  In fact, the Bank’s assessment is that asset purchases have pushed up the price of equities by at least as much as they have pushed up the price of gilts.


By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these asset.


For a defined benefit pension scheme in substantial deficit, asset purchases are likely to have increased the size of the deficit. That is because although QE raised the value of the assets and liabilities by a similar proportion, that nonetheless implies a widening in the gap between the two.  The burden of these deficits is likely to fall on employers and future employees, rather than those coming up for retirement now.”


So, printing money and buying assets has boosted the wealth of “The 5%” and driven pension funds deeper underwater.  Nice work chaps.


Hat tip: FT Alphaville

YesWeKahn's picture

It is sad that people call Bernanke a politian, he is not only a politician, he is actually a corrupt one by birth.

JOYFUL's picture

Gibberish. From someone who should* know better.

The policy of the regime currently in kontrol of the fates of some 300 million Merikans is to kreate money from nothing in order to purchase government debt...and replace the lost tax revenues from a private sector which has to all intents and purposes - kollapsed....

the necessary ancillaries to this policy are growing inflation and a declining $...perception management has been used to mask the fact that both of these are actually occcuring...the ultimate effect of which masking will simply be a loss of kontrol - runaway inflation & dollar kollapse. As Jim Willie has repeatedly stated...QE never stopped:

"Little does the investment community realize that QE was followed by QE2, and Operation Twist was actually QE3, which morphed into QE4, while the entire nest of central bankers engaged in Global QE. In fact, the pathetic fact of financial life is that QE to Infinity is the working theme"

Kollapse won't necessarily happen before the [s]election, but it's silly to suppose that it can't...it's the law of unintended konsequences, which haunts any intricate konspiracy - when Flight 93 ended up in a field inside of stuck in the side of WT7, the only solution was to pull it...this is the same krew and they can be expected to pull the same kind of manoeuvre if the circumstances warrant. The fate of the Kenyan is simply not an important factor in the decision making here.

QE is on, announcement or no announcement. There are no markets. Currency destruction & hyperinflation are assured, and some folks just don't see the forest for the trees. Scrubs on skates.

*It's increasingly necessary to ask after the motivations of the top banner pundits here who are going to greater and greater lengths to push themes and narratives which are simply variations upon the scripted MSM storylines ...customized for the special interest readership of the 'alternative' blogosphere...for an amazingly clear and precise alternative to these "alternative" alteregos of the moneypower. check out http://danielamerman.com/articles/2012/FiveC.html ...this guy be the best antidote to bamboozzling eKonomic bs on the net!


i-dog's picture

Re: Daniel Amerman:  Hmmm ... I've got problems with at least 2 of his premises. I'll read further before commenting further (or retracting).

Otherwise, I totally agree with you on the amount of propaganda being carried by ZH in recent months. But, though allowing shills, er...contributors and guest posters, to flood the site, at least TD isn't personally adding to it (as far as I've seen, and I've been watching closely).

JOYFUL's picture

it's definitely the top banner that is the shill spill\way...my theory is that they pay for the space, that in the case of at least 3 0f them, that fee it forwarded from u no hoo, and that their presence, like Strafor, is a quid pro quo from the powerz - we let yu stay online, free to talk straight, but yu gotta have the boyz up above....seen it happen before, as well as many fine truth-tellin sites get co-opted.

As for Dan da man, he won my favor when I once wrote to ask how he could turn out stuff so easy for folks to understand and act upon...in a sea of bs....turns out he's a lake o the woods area lad(Minnesota)...Sigurd Olson country, and has turned many a blade in the dark waters of that golden land, and points futher north...yu get a chance to do a lot of good think when sitten in a canoe for 10 hours a day!

maddogs's picture

When the Fed talks suffenctly about QE, we get QE. The bulk of QE has gone to Banks International Inc... JP Goldman ect.    The E.U. will likey the greatest recievers of 'Liquidity/U.S. Fiat-QE.

Bye Bye American Pie...again

falak pema's picture

EconMatters : So you don't see a major Asset Risk Off sell period into November as Bob Janjuah predicts?

eigenvalue's picture

Econmatters is a contrarian indicator. I remember back in 2010 (she was called AsianBlues back then), she was a great bull on China. However, China was just about to face the start of the crash at the moment.

Bubble's picture


LowProfile's picture


They should have thought

I see your problem right there.

Solarman's picture

Who then buys the Treasury bonds?  They have trapped themselves,either they lost control of the bond market (and gold goes up) or the commodities market (and gold goes up).  The banks are going to be slaughtered if bond prices fall (they own all of these Treasuries).


I guess only a market crash pushes private money into bonds, and cools the commodiiy markets.  Am I missing a correlation here?


Obama et al will not have an easy ride to his coronation.  

DavosSherman's picture

When morons are involved, bet on nothing logical.  Between Bernanke and the assclowns in Europe there are some giant sized morons!

They'll fuck it up.