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An Open Letter to the MSM: QE 3 Is Not Coming. Stop the Propaganda

Phoenix Capital Research's picture




 

 

Listen up Mainstream Financial Media, the Fed is not going to announce QE 3. You’ve been running the same tired stupid story after every single FOMC meeting since May 2011, desperately trying to spin everything the Fed says into a call for more QE.

 

The fact of the matter is that only a handful of Fed members have called for more QE. They are Charles Evans and Bill Dudley, both of whom represent financial centers (Chicago and New York). These guys want QE Infinity because they represent the banks and could care less about the average American. Heck, Dudley even went so far as to suggest inflation was under control because iPads are getting cheaper… at a time when food prices were at all time highs!

 

Those folks have been clamoring for QE all along. This is nothing new.

 

Let me explain why QE 3 is not coming and why your desperate feeble attempts to spin every Fed statement into a call for more QE is going to bite you in the tail.

 

The Fed cannot announce QE 3 because:

 

  1. Food prices are already exploding higher towards records
  2. Gas prices are sharply up
  3. Inflation is actually much much higher than CPI claims
  4. The stock market is at or near four year highs

 

Those are the obvious reasons that anyone with a working brain could figure out. Now let’s explain the more significant reasons that someone who actually grasps how the financial system works knows about.

 

If the Fed announced QE 3, or decided to monetize everything in sight, the bond market would implode. Every time we’ve had QE, interest rates have risen. More QE now after we’ve already had QE 1, QE lite, and QE 2 would signal that the Fed is willing to monetize everything under the sun. The end result would be an absolute catastrophe (the bond market dwarfs the stock market in size) as bonds would collapse, sending interest rates through the roof.

 

This in turn would take down many corporations as they’d be forced to default on their debt payments. It would also destroy the US economy as credit card defaults, mortgages, student loans, etc would be defaulted upon.

 

So no QE, guaranteed.

 

There’s another reason QE isn’t coming. QE sucks Treasuries out of the financial system. Treasuries are the senior most assets against which banks make their trades. Consider that the top four banks in the US (JP Morgan, Goldman Sachs, Bank of America, and Citirgroup) only have $7.12 trillion in assets backstopping over $200 TRILLION in derivatives.

 

When the Fed “monetizes” debt it is in fact pulling assets out of the system (swapping out Treasuries and other assets for cash). With over $224 TRILLION in derivatives outstanding this is the LAST thing the Fed wants.

 

Indeed, Bernanke has all but admitted this recently, saying "I assume there is a theoretical limit on QE as the Fed can only buy TSYs and Agencies… If the Fed owned too much TSYs and Agencies it would hurt the market."

 

Why would it hurt the market? Because the banks NEED these assets . And QE takes them out of the system.

 

Trust me… Bernanke knows about this situation in the financial system. This is why he propped up the four TBTFs as well as Fannie/ Freddie and AIG while letting just about everyone else go under: if these firms collapsed it would implode the system.

 

So QE is not coming. That’s a fact. You can spin the Fed’s language however you want but you’re just making stuff up. You’ve been wrong about QE 3 for over a year now. And you will remain wrong. All you’re doing is propping up stocks with your propaganda.

 

For more insights and market commentary visit us at www.gainspainscapital.com

 

Graham Summers

 

 

 

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Mon, 11/05/2012 - 09:29 | 2948241 watch2x
watch2x's picture

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Wed, 08/29/2012 - 17:20 | 2747956 dadichris
dadichris's picture

why do we even have to read posts from this guy anyway?

Fri, 08/24/2012 - 16:08 | 2735168 Zero Govt
Zero Govt's picture

"All you’re doing is propping up stocks with your propaganda."

Are you referring to Benny and his Russel 2000 obsession Graham?

Bubble Ben "stands ready" to do everything in his power (ie. print and print again) as does Mario 'printer' Dracula and Mervyn 'printer' King

these economic morons have to save the system they built afterall or they'll look like right chumps (cough)

Fri, 08/24/2012 - 09:20 | 2733407 orangedrinkandchips
orangedrinkandchips's picture

I believe it's COULD NOT CARE LESS......NOT IS THE KEY MISSING THING.....

 

The writer thinks Banks care....at some level....no! They could NOT care less....

 

Kinda like when people say it's a mute point.....well....if it was a mute point, you wouldnt hear it! Moot point is more like it.....

 

 

Fri, 08/24/2012 - 09:17 | 2733398 Snakeeyes
Snakeeyes's picture

http://confoundedinterest.wordpress.com/2012/08/20/the-feds-slippery-asc...

The Fed better not try a big QE. It won't work, then the world realizes that Central Banks has no more impact.

http://confoundedinterest.wordpress.com/2012/08/20/the-feds-slippery-asc...

Fri, 08/24/2012 - 09:08 | 2733355 Hobbleknee
Hobbleknee's picture

QE3 will happen; they just won't announce it.  It's already happening. 

You can tell I know what I'm talking about by my correct usage of the semicolon.

Fri, 08/24/2012 - 07:55 | 2733117 NEOSERF
NEOSERF's picture

And marketwatch wonders why they are losing relevance...

Merkel: Germany wants Greece to remain in euro

Fri, 08/24/2012 - 07:55 | 2733116 Lost Wages
Lost Wages's picture

QE is going to have no effect on the election, because 99% of people have no idea what QE is and don't care enough to learn. Any candidate who talks about it will be stared at blankly by a sea of idiots.

Fri, 08/24/2012 - 07:47 | 2733088 Quinvarius
Quinvarius's picture

>>>These guys want QE Infinity because they represent the banks and could care less about the average American. <<<

So you know know why it is going to continue.  They all represent banks.  QE is for banks.  First for solvency.  Then for profitability.  Publicly acknowledged QE has never been about anything other than the banks. 

The whale trade should have killed JPM. 5 billion dollars when your bank is on 40 to 1 leverage is an ugly amount of collateral to lose.  That is how you know QE is accelerating.

Fri, 08/24/2012 - 07:03 | 2733009 EZYJET PILOT
EZYJET PILOT's picture

This is wrong, QE bails out banks and monetizes debt. The banks are leveraged up to their eye balls, they don't need treasury bills as assets to prop up the derivatives market becuase the Fed hands them money on a plate anyway. The banks front run the fed buying treasuries/MBS, the fed buys it from the banks. By this stage the US treasury has spent another billion, the cycle repeats with the banks buying the debt and selling to the Fed. There is a constant supply of ammo for these two insetious swindlers and crooks, the fed and the banks, to roll this ponzi until the day of judgement.

Fri, 08/24/2012 - 07:12 | 2733019 stocktivity
stocktivity's picture

Here's the one big reason QE3 is coming....If Obama loses, Bernanke is out of a job.

Wed, 08/29/2012 - 17:11 | 2747926 dadichris
dadichris's picture

I disagree - no president has a say over monetary policy, no matter who's the chairman

Fri, 08/24/2012 - 07:35 | 2733064 boogerbently
boogerbently's picture

It's a "lose/lose" for BO.

If they QE, the deficit rises.

If they don't QE, the market fails.

Fri, 08/24/2012 - 07:33 | 2733058 KidHorn
KidHorn's picture

As things stand now, Obama will win easily. I think it's the pubs that want QE3 so they can point the finger at reckless handling of the economy.

Either way, QE3 or an equivalent will eventually come. Probably early next year after the election.

I don't buy the argument of taking treasuries out of the system. There's a constant supply of new treasuries.

Fri, 08/24/2012 - 06:51 | 2732997 fijisailor
fijisailor's picture

Please excuse my ignorance.  This is a real question.  If FX rates are heavily manipulated does it matter which country QE occurs in?  Doesn't easing in Europe just spread out into inflation all over the world?

Fri, 08/24/2012 - 07:07 | 2733011 Ghordius
Ghordius's picture

that's such a good question. not long ago I was quoting here from Jesse's:

 

"To put it crudely, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. 

What needs to be discussed is the terms of the world’s surrender: the needed changes in nominal exchange rates and domestic policies around the world."

Martin Wolf, Financial Times, 12 Oct 2010"

Now, the point is that there is only one global reserve currency: the mighty King Dollar.

All the others are satellites. So easing in Europe leads to inflation in Europe, while easing in the US leads to inflation everywhere, particularly because India, China and the BoE adjust (and now the eurozone too).

It's a cool thing, a reserve currency. Like a huge credit card with unknow limit and payment terms.

 

Fri, 08/24/2012 - 08:23 | 2733168 agNau
agNau's picture

Easing in Europe devalues the Euro and gives Euro denominated goods advantage over other currencies. This situation is what started the devaluation race in the beginning. The devaluation has been the driver to constant need for more, as the system implosion feeds on itself. Economic contraction as jobs and business is lost, creates a declining stream of revenue, and increasing need for more printed money to fill the shortfall.
The current shortfall FAR exceeds the ability of the worlds reserve currency. China prepares to take the reins from the US Dollar by buying G & S, and working with other nations to trade outside that restrictive and increasingly worthless currency.
Operation twist is now "out of ammo!" as the video on ZH of FED bond ownership proved. The ONLY option the FED has is massive, continuous printing.
The reality is that the FED has never stopped printing. Just the announced, overt, massive dumps of money have been curtailed through the "twist" operations.
If the current dictator is reelected, most likely he will make good on buying more corporations and running them through the government, which will move printed money into the economy, which will inflate, and increase the need for more.
Simply put, the end is cut in stone. The sights we see on the road there may vary.

Fri, 08/24/2012 - 06:04 | 2732950 lolmao500
lolmao500's picture

But eh, Gas is only 8$ a gallon in Germany and 8.5$ a gallon in Italy... NO BIG DEAL...

Fri, 08/24/2012 - 06:27 | 2732965 eurogold
eurogold's picture

I live in Germany and I can confirm that Gas costs 8$ a gallon.

QE 3....QE 4 are coming... and can only be prevented when the Chinese get pissed off enough.

p.s. the chinese are already pissed

Fri, 08/24/2012 - 07:59 | 2733129 NEOSERF
NEOSERF's picture

Raise food and energy prices enough that China collapses, Europe collapses and the US gets to ride in on a big horse with the Obama Doctrine...wars are underway, you just don't see the shots fired any more.

Fri, 08/24/2012 - 04:42 | 2732916 Grand Supercycle
Grand Supercycle's picture

SPX / DOW / NASDAQ / DAX / FTSE choppy daily charts are still breaking down.

http://www.zerohedge.com/news/2012-12-24/market-analysis

Fri, 08/24/2012 - 04:20 | 2732903 andrewp111
andrewp111's picture

Bernanke may not be able to monetize Treasuries as he already has too many, but he can legally monetize gold. And so can the rest of the world's central banks. What if all the world central banks did a massive coordinated multitrillion dollar gold buy, and sustained that buy by sopping up the entire mined output of gold in the world? It could be the only thing they have left.

Fri, 08/24/2012 - 07:36 | 2733068 KidHorn
KidHorn's picture

All this would do is drive up the price of gold. The last thing the FED wants.

Fri, 08/24/2012 - 03:25 | 2732861 Jack Sheet
Jack Sheet's picture

Phenix Crap It All Research.

Fri, 08/24/2012 - 03:01 | 2732838 YesWeKahn
YesWeKahn's picture

Evans, Yellen are corrupt like hell. Put them in jail.

Fri, 08/24/2012 - 02:32 | 2732814 Young
Young's picture

Of course its not coming - they're already doing it. It's the latest thing from the Fedsters, they call it *drumrolls* STEALTH EASING

Fri, 08/24/2012 - 02:05 | 2732795 q99x2
q99x2's picture

No comment.

Fri, 08/24/2012 - 01:35 | 2732768 ak_khanna
ak_khanna's picture

The market operators are using expected QE as an excuse to kill the shorts. Once most of the shorts are out of the system and go on the long side, the operators will themselves take the short position and move the market to the downside using poor economic data as an excuse to kill the longs. This is what markets are in today's world.

The stock, commodity and currency exchanges have been reduced to gambling dens whereby the more powerful traders with deep pockets move the markets to maximize their own profits at the expense of the remaining not so powerful players. The big boys have enormous money power to move the markets in the direction which results in maximum profits for themselves. They effectively use the media to lure the other players in the market to a position where they would incur maximum loss.

www.letstalkmoney2012.in

http://www.marketoracle.co.uk/UserInfo-Akhil_Khanna.html

Wed, 09/12/2012 - 09:48 | 2785389 absente reo
absente reo's picture

I just checked out your two most recent articles on marketoracle.

Observations after a quick skim:

a) very wordy

b) no practical use

 

If you're going to write stuff, you may as well make it concise, easy-to-read, and have practical use (for speculation purposes).

There is so much shit to read these days, people can't be bothered reading long wordy articles that have no illustrations and no obvious practical use.  We just don't have the time.

 

 

 

Fri, 08/24/2012 - 00:44 | 2732702 cranky-old-geezer
cranky-old-geezer's picture

 

 

If the Fed announced QE 3, or decided to monetize everything in sight, the bond market would implode.

What?

Every time we’ve had QE, interest rates have risen.

What?

The end result [of QE3] would be an absolute catastrophe (the bond market dwarfs the stock market in size) as bonds would collapse, sending interest rates through the roof.

What a DUMBASS MORON. 

The exact OPPOSITE thing happens in QE.  The bond market LOVES QE.  Bond prices RISE, not fall.  Yields FALL, not rise.

The very PURPOSE of QE is to KEEP THE BOND MARKET FROM COLLAPSING, particularly treasuries.

GS is a TOTAL DUMBASS IDIOT.

The ONLY reason Bernokio holds back on QE3 is to prevent USD losing WRC status

... which is mighty close to happening anyway.

Fri, 08/24/2012 - 10:02 | 2733560 ChanceIs
ChanceIs's picture

Have to agree that GS really showed his ignorance on this one:

1) Interest rates rising with QE???  I have lost my a*& being short Treasuries during QE.  After all, more money printing means inflation, rising interest rates, and falling bond prices.  Sorry.  Rates dropped and bonds rose - and I go clobbered.

2) No more Teasuries for the banks to purchase if we have QEIII???  GS - you ignorant slut.  The Treasury has been isuing $1 trillion plus in new Treasuries every year for the past four years.  That has been the amount of the deficit.  I am not talking about rolling over old debt.  I am talking about each new dollar borrowed by the federal government to fund the operational deficit.  The Fed has been buying about 40% of those.  Who else would be that stoooooopid I ask you.  Call that QE or not.  It doesn't matter.  They end up on the Fed's balance sheet. 

Moron.  (Mind you I don't usually engage in name calling, but GS really screwed the pooch on this one.)

OBTW:  Is the Fed really restricted to buying on Treasuries and mortgage paper - be it agencies or toxic MBS?  The Fed has swapped about $1 trillion of US $ for Euros.  If I give you dollars for Euros, did I not just purchase your Euros - even if we agree to reverse the purchase later or you pay me (in the form of interest) for the foolishness of having purchased your Euros?  Those trillions are in circulation.  The Euro banks use those fresh $$$ to roll over $$ demoninated Euro bonds - or buy worthless new Euro soverign debt - over Angela's near dead corpse.  That raises the price of Euro bonds.  Does that not have a knock on effect in the bond market around the world??

Why does the Fed resist being audited if it isn't purchasing every type of security under the sun?

Some suggest that while the Fed has told us that Operation Twist is "sterilized" (i.e. no new money is printed), it is in fact printing new money to buy (back) the short term paper it is selling through overnight repo auctions.  This is also know as Repo 105.  It is a fraud because the short term debt (in this case) doesn't appear on the Fed's balance sheet - done with the purpose to mislead the public.

 

 

Fri, 08/24/2012 - 07:40 | 2733075 KidHorn
KidHorn's picture

Interest rates go up at the commencement of QE because investors are trying to front run the FED. When the FED buys treasuries, they try to pay the maximum price, not the minimum. Investors know this and know whatever price they pay, the FED will pay more.

Fri, 08/24/2012 - 04:28 | 2732906 andrewp111
andrewp111's picture

Interest rates have risen during each QE episode, and then fell after the QE ended. One explanation is that QE boosts expectations of growth, so rates rise. Another explanation is simply that markets are irrational.

If the Fed wants long rates to fall, they will not do QE. QE is the Fed buying a quantity of assets. The Fed can set long term rates by simply declaring the rate and pledging to defend it at all costs. They did this during WW II, and it does work.

The purpose of QE, according to Professor Bernanke, is to inflate asset prices in order to maintain the value of collateral held by lenders. It is all about the solvency of banks and keeping collateral prices higher than they otherwise would be. It is undeniable that QE inflates the price of stocks.

Fri, 08/24/2012 - 01:21 | 2732745 markar
markar's picture

He's actually right about interest rising during QE. The 10yr yield went up quite dramatically during QE2. What he's wrong about is no more QE. More QE is as certain as the sun coming up tomorrow.

Fri, 08/24/2012 - 07:32 | 2733055 boogerbently
boogerbently's picture

They need to let interest rates rise. That way they could actually make money from buying their own debt.

Pretzel (govt.) Logic.

Fri, 08/24/2012 - 00:43 | 2732700 Yardfarmer
Yardfarmer's picture

So no QE, guaranteed.

bwahahahahahaha! you need to go on TF'NM AM radio with all those other idiots like Tom O'Brian. I don't even know why they even post your insensible drivel here.

Fri, 08/24/2012 - 00:19 | 2732683 antidisestablis...
antidisestablishmentarianismishness's picture

"You’ve been wrong [...] for over a year now. And you will remain wrong. All you’re doing is propping up stocks with your propaganda."

The pot calling the kettle black.

Fri, 08/24/2012 - 00:18 | 2732681 hannah
hannah's picture

funny...the fed will do whatever it thinks it needs to do to protect themselves...but this time they shit where they eat and have no where to hide....no neutral country to go to.they have screwed the pooch big time....and i think they realize this. living behind steel gates for ever while the peasants wait to kill you really isnt much fun....and there isnt anywhere to run.

...an endless zombie movie.

Thu, 08/23/2012 - 23:49 | 2732652 common_sense
common_sense's picture

so, at the end, will be more QE... it's clear, may be this time they call it "vals QE". cause apparently they took twist last time to make it more understable. So, Welcome, VALS QE!! dancing with the euro....

Thu, 08/23/2012 - 23:19 | 2732610 headless blogger
headless blogger's picture

I can't wait 'til the whole fucking thing tanks.

Thu, 08/23/2012 - 23:18 | 2732607 Advoc8tr
Advoc8tr's picture

because they represent the banks and could care less about the average American.

 

Pedantic I know but it is annyoing when a saying is butcherd to infer the exact opposite of what it was intended to....

 

The correct use of the saying would be

because they represent the banks and couldn't care less about the average American.

I.E.  they could NOT care any less than they do.  If they could care less it infers that they do care do begin with?

Wed, 09/12/2012 - 09:41 | 2785344 absente reo
absente reo's picture

Isn't "could care less" an American English thing?  In British English, it's "couldn't care less".

But yes, logically, the BrE version makes sense; the AmE one does not.

Fri, 08/24/2012 - 00:05 | 2732672 antidisestablis...
antidisestablishmentarianismishness's picture

Yes, I agree, an annoyingly common error. But while we're on the topic you've got your infers confused with implies.

Thu, 08/23/2012 - 23:15 | 2732601 Elmer Fudd
Elmer Fudd's picture

"If the Fed owned too much TSYs and Agencies it would hurt the market"
Huh?

Thu, 08/23/2012 - 23:08 | 2732589 Mbuna
Mbuna's picture

Saying that Bernanke just propped up the 4 big  banks and let just about everything else go is an outright lie.  And that makes me suspect this whole piece.

Fri, 08/24/2012 - 04:58 | 2732927 Western
Western's picture

Wrong.

Thu, 08/23/2012 - 23:08 | 2732588 vote_libertaria...
vote_libertarian_party's picture

No...no...NO!!!

 

QE is not about pumping up GDP.

 

It is about preventing the bond bubble from popping.

Fri, 08/24/2012 - 08:01 | 2733132 NEOSERF
NEOSERF's picture

Interesting point...at this point perhaps the Fed is less concerned about anything except keeping bond prices where they are...pretty clearly as soon as the rise happens, borrowing costs go through the roof, mortgages and refis stop dead and then Houston, we have a problem here.

Thu, 08/23/2012 - 22:41 | 2732535 Slightly Insane
Slightly Insane's picture

I wish YOU would quit calling them "Main Stream Media"  .... because they are NOT .... "Main Stream".

I would prefer "Propagandists for the FOOLS, IDIOTS, MORONS, and RETARDS", or even "Lame Stream", or  "Shills for the Commie Bastards"

Do NOT follow this link or you will be banned from the site!