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Four Reasons Why QE 3 Will Not Be Announced This Friday
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The biggest even this week is Ben Bernanke’s Jackson Hole Speech which will take place on Friday August 31. It was at Jackson Hole in 2010 that Bernanke hinted at QE 2. With that in mind, many investors believe that the Fed is about to unveil or at least hint at a similar large-scale monetary program this Friday.
We, at Phoenix Capital Research, disagree for three reasons. Number one, stocks are at or near four-year highs. With stocks at these levels, there is little reason for the Fed to use up any of its remaining ammunition.
Secondly, food prices are soaring due to the worst drought in 56 years. Some 63% of the lower US 48 states are experiencing a drought. As a result of this, the USDA has said that 50% of the US’s corn crop will be in poor to very poor condition. Soybeans are in similar shape.
Thirdly, gas prices are near their all time highs.
As far back as May 2011, Ben Bernanke admitted publicly that the consequences of QE (higher food and energy costs) were outweighing the benefits (higher stock prices).
With stocks where they are today and food and energy prices where they are today, there is little reason for the Fed to unleash QE 3 or any large monetary program. Indeed, if the Fed were to do so, it would most assuredly cost Obama the election as the ensuing inflationary pressure would hit voters’ pocketbooks.
With the election less than 100 days away and Mitt Romney and the GOP increasingly targeting the Fed and specifically Bernanke as a problem, the Fed isn’t going to do anything that could risk Obama losing his bid for re-election. This is especially true given that there really isn’t a sound argument for more QE at this time: food prices, energy prices, and stocks are high, while interest rates are at or near all time lows.
There is a fourth and final reason why QE is not in the cards. QE is a policy through which the Fed prints money to buy Treasury or Agency debt from the banks. The problem with this is that these bonds are the senior most assets that the banks use to backstop their trading portfolios.
In the case of the TBTFs, these banks only have $7 trillion in assets back-stopping over $200 trillion in derivative trades. The last thing these banks want is to swap out their senior most assets (Treasuries and Agency bonds) for more cash (remember the banks are already sitting on over $1 trillion in cash in excess of their required reserves).
In simple terms, the banks don’t want cash. They want bonds, which they can use to leverage up their trading portfolios: their primary source of revenue with interest rates at or near zero.
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 assets/collateral. And QE takes this out of the system.
For this reason, we believe it is highly unlikely the Fed will announce QE at this time. There really is no reason for it to do especially since QE would in fact hurt the big banks: the very institutions the Fed has been trying to prop up.
Swing by www.gainspainscapital.com for more market commentary, investment strategies, and several FREE reports devoted to help you navigate the coming economic and capital market changes safely.
Best Regards,
Graham Summers
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This one is going to be the make or break for ya soothesayer. If QE then I will never click one of your links again. Ever.
"...Ben Bernanke admitted publicly ...."
ben bernanke's public utterances are as reliable as a constipated mule climbing the andes....
on the other hand monetary accomodation is not limited to qe and it will proceed apace....the derivatives tower demands it and that inferno will be fed.....yet, the banksters are in a bit of a pickle....as currency debasement raises the price of gold, their short positions become imperiled.....that leads to a nasty set of consequences not even the irresponsible frat boy punk jamie dimon could stomach....
No kidding.
the kidding is the Feds public mandates
the real business is the Feds private monopoly on societies money supply
the elite know to sugar coat a turd... Govt is the big sugar coated turd for society to swallow, not much sucking left for the public to realise what a pile of crap they've got lodged in their teeth
never take sweets from strange men as Mum used to say ..pity nobody listened
"...since QE would in fact hurt the big banks: the very institutions the Fed has been trying to prop up."
Bingo
fuck the unemployed mandate, fuck the Feds inflation-rate mandate too
the only thing the Fed cares a diggade boo about are the parasites of Washington and Wall Street
the real economy (Main Street) can go hang
If we get QE3, gold rockets to the moon ($2500+ in just a few months). One additional reason this happens is mentioned in the article - the banks don't want cash. In the past, gold was not an option because it wasn't a tier 1 asset. As of January 1st, however, it is, and gold presents an amazingly attractive non-investment investment. As I understand it, after Jan 1st gold counts as pure capital without liability offset PLUS gold can appreciate very substantially --- vastly faster than any freaking bonds or loans which are all pegged at historical low interest rates.
This is probably the reason Bernanke won't do any formal QE now... or ever. However, the federal reserve will purchase infinite government debt (pretend-not-QE), which means they will actually be doing massive QE from now until their system collapses.
Bernanke can buy gold too. He was not complete when he told us that "he could only buy treasuries and agency bonds". What if QE3 is the Fed buying a trillion dollars worth of gold? Maybe we should call it QE-G or golden QE.
That would be absolutely hilarious.
I don't believe that will happen until the predators-DBA-banksters are clear their fiat system is on the verge of collapse. Until then, they have more to gain by holding gold down. But when they realize their game is finished, they have every incentive to buy all the physical gold they can convince people to exchange for fiat, fake, fraud, fiction, fantasy, fractional-reserve toilet paper.
There are some real dummies on this site.
Every time this guy writes a piece, a handful of dweebs emerge from the woodwork with withering condemnations - as if Tyler pointed a gun at their head and said "read this under penalty of death"
What the dweebs fail to understand is: SEO !!!!!!!!!!!!
Open ended QE to infinitely via the back door.
It will probably be a low key announcement after the election and I doubt they will refer to it as QE in a vein attempt to mask the undesirable side effects.
Perhaps you haven't heard "The Devil does'nt exist" but you sure do!
LOL
Don't expect logic from a horde of people taught to only buy buy buy. Not think.
In the event of Friday's disappointment I'd expect some drops especially in the EUR.
The EUR was weak as everyone and their aunts were short EUR. Not anymore. The reversal killed those who believed in EURUSD parity.
Now they are LONG EURUSD because they are "expecting" the new QE. -)
So the market seems to be expecting a move up and they are up for a little disappointment. -)
whoa whoa whoa...nobody uses Ben's logic against him. he will print, and use the money to develop more farm land, more energy E&P and turn lead into gold.
Graham....please......kindly.....will you.....fuck ............the fuck......OFF!
QE3 is his political tool, you fool
YesWeKahn "QE3 is his political tool, you fool"
And he will use it to get obama re-elected it's been working out just great for him so far and he knows he goes if Romney gets in. It would have to be this month because if it were announced in October it would likely be too late to take effect on the markets before the election.
"The Fortune 500 raked in a combined $824.5 billion in 2011 -- the highest sum ever, and 16.4 percent higher than in 2010. The five largest banks held 56 percent of all U.S. assets -- $8.5 trillion -- by the end of last year. The number was 43 percent in 2006. And corporate cash holdings are also at record levels.
So, yes, big business is doing fine under Obama. "
bankers love gubbermint backed bonds but they aren't just big fat parasites. [/sarc]
Hey Graham, when are you going to realease the expose on Manbearpig youve been working on?
Astounding how this clown has been short since S&P 666 and still has a forum to espouse his drivel.
Oh its now just 'obvious' Beardman wont announce QE3? 8 months ago you were called a lunatic for saying Bernank wont announce any QE3, it was the gospel at the time to 'know' QE3, QE4, etc were certainly coming.
Ben doesn't care about high food and energy costs as he has clearly demonstrated.
Bernanke's reign as the high priest at the Fed will soon be "transitory".
he should have been sacked in 2006 when the property bubble he didn't see coming burst, and again in 2007 when the banking-economic biubble he also didn't see coming also burst
it is a testiment to the public sector how the totally inept and incompetent can hold down jobs for so long
let me help you CORRECT your article title...."
Four Reasons Why additional QE 3 Will Not Be Announced This Friday"
bennie is still doing twist so the last qe hasnt stopped. add zirp in and why even announce 'new' qe....?
unusual isn't it?
http://expose2.wordpress.com/2011/11/20/a-voice-from-the-dark/
I expect that Ben will anounce that the fed now has enough shares for a hostile takeover of AAPL. The iBen can't be far off... then he can do QE from anywhere!
He can do QE from anywhere, and with his friends too!
This is a fantastic idea. The app should cost at least $4T dollars, to make it worthwhile.
Rehypothecation, still alive and well.
Throw in the housing "recovery" and the fact it won't work, I would agree that they SHOULDN'T, but that doesn't mean that they won't.
The thin air of J-Hole may cloud Bernanke's brain.
http://confoundedinterest.wordpress.com/2012/08/28/case-shiller-20-city-composite-rose-2-3-mom-in-june-consumer-confidence-falls/
One reason that you did not point out is the treasury still has money to spend. No printing is needed. If the treasurey was out of money they would be borrowing from the FED (QE/printing) because NO ONE else has money or is willing to loan us money.
The Treasury is limited by the legal debt ceiling, not the availability of dollars. With interest rates at zero, the Treasury will never have a shortage of dollars.
There are now 16 Trillion reasons why QE3 4 5 6 7 etc will happen. Like any good magician Bernanke is making you all look the wrong way. He needs to buy $ assets because fewer and fewer others are willing to. QE to the power of D
Thanks for stating the obvious.
Asshole.
Seconded. Phenix Crap It All "Research", specialty is plagiarism and quotes from the MSM.