An Open Letter to the QE Crowd: GIVE UP!

Phoenix Capital Research's picture


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So… all of you were clamoring that QE 3 was coming. It was guaranteed.


Well guess what. It didn’t. You were wrong. 100% wrong. All we got was the same tired “the Fed stands ready to act” tagline from Bernanke.


This was the obvious conclusion anyone who actually bothered doing research would come to. Bernanke stated as far back as May 2011 that the consequences of QE outweighed the benefits. He also stated a month ago that for the Fed to buy too many Treasuries or Agencies would “hurt” the financial system.


But no, everyone and their mother was positive QE was coming today. Nevermind what Bernanke actually says. Nevermind that food and gas prices are near records. Nevermind that the political consequences of QE now would assuredly cost Obama the election and result in Mitt Romney taking the Fed to task once he was in office… QE was definitely coming today.


You were wrong. You’ve been wrong for over a year. The fact the market has ramped after the Fed disappoints only shows how desperate the QE crowd is (“surely this leaves the door open for QE down the road”.  We’ve been through this same tired scheme over 10 times now.


It’s 100% totally and completely pathetic. And the fact so many people buy into it is proof positive that sadly many investment professionals don’t have a clue how to perform critical analysis or even accurately engage with reality.


So Bernanke disappointed. Next up is the ECB. What happens if it disappoints? What happens if the whole “Central Banks can save the day” philosophy turns out to be total nonsense?


Just a thought. One that might be worth considering given that the claims of more QE have proven to be bogus for over a year now.


Graham Summers


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boiltherich's picture

Graham, we said? Try the MARKET said, and their pronouncement by COB yesterday was unequivocally certain, QE3 is coming and not just breathing hard. They poured hundreds of billions into both stocks and debt markets with the 10 year yield plunging by more than 11 bps from 1.66 down to 1.56 where it ended for the day.

In order for anyone to be wrong about the timing of, or even if there will be a QE3 we will first have to see QE2 end. Maybe the disagreement rises from a definition of QE, and you might well be right depending on your definition of QE, but that does not make others who define it differently wrong.

My own definition of it is the use of large quantities liquidity, directed at banks for the benefit of banks and the central government, and any interference with private markets by the fed which seeks to manipulate both equities and interest rates using significant levels of cash or credit or regulations regarding capital controls or reserve requirements, or any other "tool" they have access to, legal or otherwise, under the undefined and unregulated smoke screen of "exigent or unusual circumstances..." which in effect says we have been in and still are in an emergency situation. As long as the Fed is dictating both higher than market price levels and P/E's in equities while hold interest rates at what we all can agree is a NIRP state we are in a QExyz.

Back on August 16 you posted the following...

"My questions to anyone who says that money printing or more QE will help us:


  1. We’ve already seen massive central bank coordinated interventions… they all failed (September 2011, November 2011, July 2012). What makes this time different?
  2. QE 1, QE lite and QE 2 have spent in the ballpark of $3 trillion. That’s roughly 20% of the US’s GDP and we’ve had the weakest economic recovery in the post-WWII era… how would more QE help?"

The answer is NOBODY at ZH that I have seen with the possible exception of the patently sarcastic Million Dollar Bonus (Steven Colbert?) has ever suggested any QE would help, quite the reverse, and I want to point out that just because QE 1, QE Lite, and QE 2 did nothing to help the economic situation that has not stopped them from undertaking more QE and is in fact probably the reason more QE is ongoing as well as more and larger QE is in our future. In fact why don't you tell me what other options central bankers have other than massive money printing at this point? They cannot simply give up on QE and just let the global economy sink into depression without appearing to do something, if they did they would be sacked and replaced with others who will act even if we all agree those actions not only won't help but will make finance sicker by the day.

You also said back on July 3 "The Fed, by buying Treasuries is making insolvent banks even more insolvent. It is a short-term gain (liquidity) for a long-term disaster: banks need as much collateral as they can get their hands on right now. And with Treasuries rallying (raising the value of the banks' assets) any aggressive Fed program to take Treasuries out of the system would be a MAJOR step towards another solvency Crisis a la 2008."

First of all I would like to point out that ALL banks at this point are nothing more than branch offices of that huge private mother bank we call the Fed. So if the Fed exchanges (as opposed to the term buys) dollar denominated credit/FRN's for treasuries from it's branch offices that does not mean that collateral has left the banking system. Second, since the suspension of mark to market ( FASB Statement no. 157, Fair Value Measurements April 2009) the term "collateral" is relative and so nebulous that it no longer plays more than a token role in economics. The fact that the Fed is making insolvent banks and countries more insolvent is immaterial, it has not stopped them for ever more QEing.

Lastly, I want to point out that for every poster at ZH that has ever said more QE is inevitable you have said Greece (or Germany, or Spain) will be leaving the eurozone, every other post you have put up at ZH has revolved around this theme, and you might eventually be right, one day I am pretty sure one or members will leave, or maybe all of them at once in a fabulously entertaining break up of the zone, the point being that you tell us that the fact that the next QE announcement has taken longer than expected by some here is proof that it can't happen, shall we apply the same standards to your position on EZ membership?

Shelby Moore III's picture

Twist was not a NET assets purchase, and this is why the global PMI is at the August 2008 moment and we are headed for a massive crash in next months.

QE3 will likely be the last one, because inflation is going to run amok, and the world will lay down in severe stagflation. Thus there will be massive political pressure to not do another QE after QE3.

Fed is constrained from doing QE3 until a crash gives them political cover, because:

1. 5yr - TIPS is rising and near 2%. Fed never acts until it is less than 1.5%.

2. Fed must save this last bullet for the big crash coming (when inflation expectations hopefully dip), where its effectiveness and larger size can be more effective.

3. Not only must the Fed save its last bullet for the coming fiscal cliff, but it must keep the pressure on Congress to act.

4. Fed is trying to use the expectation that it will keep the markets up, as a way to keep the markets up long enough to let deflation accelerate, so they can time it with a massive crash and maximize the size of the last QE3.

5. 90% of the people are expecting the Fed won't let the markets crash, yet the Fed has never done a QE unless the market declined first.


Browse my recent comments for some explanation of the coming blowoff in inflation and the deflationary depression that will follow, as well as links to charts and other details documenting my position:

Quinvarius's picture

Graham can't see QE is still going on.  He wants an official announcement with a number appended to it.  He wants number 3.  Well we had QE, QE2, QE Lite, Twist1, and Twist2.  So the number you are actually looking for is 6.  But, since no one specifically told you QE Lite was QE3, you are too ignorant to accept it happened.

No one is waiting for QE3.  No one that actually understand this market or economics cares what number they add to it.  Stop trying to trade off of semantics.  QE is endless and ongoing. 

You claim Bernanke disappointed?  Who?  You?  He just bailed out JPM a month ago with billions of dollars.  Before that he bailed Europe.  DO you actually think he is going to let this giant turd of a banking system just roll over and die now?

Tell you what Graham.  I will "give up" when the QE actually stops.  Accept the fact the markets are more likely to double than halve.  That is just the way it works when you print too much money.  I don't like it.  But hyperinflation never left the menu.  It has been the main course since 2009.  Nothing has changed except the date is coming closer.  You need to accept that or you will get ripped like every other newsletter troll.  2009 is not going to happen again dude.  They changed the rules. 

Shelby Moore III's picture

Twist did not add new NET assets to Fed's balance sheet. It traded longer maturities for shorter ones.

This is why the global PMI is crashing now, and we are about at the August moment of 2008 on the global PMI chart.

Bernanke has done a good job at getting you hypnotized to the notion that he will never let markets go down, but the fact is that he has not done a QE (net asset purchases) without the market crashing first.

alp's picture

It’s 100% totally and completely pathetic. And the fact so many people buy into it is proof positive that sadly many investment professionals don’t have a clue how to perform critical analysis or even accurately engage with reality.

Graham, I like your analysis but you seem to lack a basic understanding of market psychology and most "investment professionals" and economists are no exception to it. And even if most of them were, the psychology of markets dynamics would find a way to make most of them wrong and catch them by "surprise". That's how it its. As an old trader once said, the market is always likely to move in the direction which is least expected to go or also in the direction which is likely to fool most "investment professionals".

That said, I still would like you to elaborate more on your thesis of FED not being able to drain treasuries from the system. I wonder if the government is also willing to stop issueing more and more treasuries and how public spending through treasuries fit in this thesis. 

Shelby Moore III's picture

The following chart shows that most are expecting the Fed to keep the markets up:

So the reality is likely to be opposite of the majority expectation, and this chart shows what to expect within next months:

I have already explained why the Fed is going to wait until a market crash before it does another round of asset purchases (QE3):

The Fed has not done NET asset purchases in the $100s of billions since QE2 ended. The global economy is imploding. I don't understand the fools here who side with the dumb masses who expect an uninterrupted Fed backstop. Perhaps my brain is too miniscule.

alp's picture

I am with you, i.e., I think the FED needs another crash to politically justify a new round of QE program, if that's possible. I am not a specialist in economy like those guys in central banks :) but I guess that even for this kind of action there might be some exponential theoretical limit until the masses start to catch on what's going on.

All in all, markets seem to be functioning perfectally just the way they have been doing since start of civilization. And all our paper money will go bust in the long run for the sake of public spending.

The Bulletproof Patriot's picture

I'm really getting sick of Graham's bullshit.

Pejorative Requiem's picture

i believe that, like others, Frodo has fled and can no longer be found in the Shire.


Ah, what I got was a $37 pop in Gold... So you got it wrong! Right?

q99x2's picture

QE has been cleared to start in an uprecedented way at any time which pretty much makes it fact that QE from today on is ongoing.

Good bye GS you've lost your soothesayer license.

silverserfer's picture

The problem with grahams advice is he is gullible to the FED's lip service. He is displaying his lack of foresight which is critcal for any respectable financial advisor. He is dead set on the deflationary colapse coming. If he had this foresight he would see this deflationary period transitory.

slewie the pi-rat's picture

he may be

but that is his problem, not yours and not mine

i didn't see any deflationary collapse here

i think at this point each person needs to simply state what he or she sees and let others do the same

you seem to see deflation but transitory.  thank you

slewie sees a stable-enuf "system" to keep the checks in the mail till the inaugural;  inflate/deflate/reflate/stagflate i don't care what people see doesn't matter to slewie

we'll have the election, the inaugural, and the can will be booted again

"respectable"?  who cares?  we're not here for advice!  we asked for money! 

oh!   here's my check! 


semperfi's picture

Yo, Graham, QE never stopped - do some critical analysis.  Benny boy lies like a politician - says one thing to the public then behind their back in the shadows does the complete opposite.  He has you fooled big time !  QE never stopped.  QE can't stop.  It will only stop when its ill-effects blows up the entire global system. 

Jim B's picture

Agree, the FED will continue QE in one form or another.  ZIRP is actually a form of QE that screws savers and allows the out of control federal government to keep spending recklessly! 


If the bond market ever wakes up (someday it will), the government will be forced to curtail the spending that is masking a sick economy. 


If it weren’t for the explosion of disability payments, food stamps, and unemployment benefits, this would be recognized as a depression.


The question is where do things go from here……

Radical Marijuana's picture

I tend to believe that comment, although I can not be sure ...

We only found out the astronomical magnitude of the $16 billion beyond TARP several years after it already happened, and only then because of the extraordinary, one time special, partial audit of the FED.

The pyramid scheme has to grow, or collapse into chaos. The more it grows, the longer we can keep on living similarly as to how we used to do, while the worse will be the final collapse into chaos.

Generally speaking, the younger you are, the more you are being lied to, cheated and robbed by the political system you were born into. The younger you are, the less likely that you will die of natural causes before the world you grew up in gets blown to hell. Since everything is happening faster and faster than I ever imagined, I am beginning to think that I am not yet old enough to escape that inter-generational accounting debacle!

slewie the pi-rat's picture

i didn't realize this was G.S. or i wouldn'ta dropped in!

but yes, "twist" IS QE but not the LSAP kind

what the FED said today is:>  we are doing our job and for us to move beyond just trying to keep this working somewhat smoothly and the checks in the mail, any further "economic PLAN" is gonna hafta come from the politicians on the Hill

so, as i've been trying to tell people for MONTHS now:  calm down!  we need to elect the people who will kick the can next!

this isn't about the FED it is about the pols

none of whom are willing to address it, of course; hasn't been about the FED for about a year, btw...  or didya miss that ceiling debate almost 13 monts ago, now?  the one where rPaul and the T-partee went right along with everything that has led here today

and the chickenLittles are tireless bots, never shutting up, even thru today

maybe after another few (?) more sky-is-falling years, we can get to "the boy who cried wolf"  and the consequences?

and then another "re-set" to "theEmperorHasNoClothes" and maybe "cinder-ella" and hansel and gretel and littleJackHorner and rub-a-dub-dub and...

see ya!

ghenny's picture

The problem with Graham is he's been crying wolf so long nobody believes him anymore.  Europe is not about to implode as he's been saying for years, the US prints money but not so much that it has caused any real threat of inflation.  Yes capital is being allocated ineffiently but we are on the mend.  All in all Ben has done pretty well at keeping the lid on while the politicians work through their neuroses and come up with some solutions.  Draghi is doing the same across the pond.  In fact we are surviving what could have been another great depression quite well and may have beaten the every three generational or Kondratieff odds. Ben will get the medal of freedom at some point and Draghi a papal knighthood no doubt.  The main worry I have is that we and Europe catch the Japanese disease.  I don't think we will because we have a very big Western Hemisphere
common or near common market with lots of young strivers.  Europe, well thats another story.   

Meesohaawnee's picture

you are right Operation Twist was QE in another name. At least from the equity pumping standpoint. Thats really all its about. Creating an illusion......

semperfi's picture

I'm referring to all of the unannounced in the dark of the night stealth stuff Benny & the Ink Jet$ are doing. 

Shelby Moore III's picture


Fed doesn't want a market crash to provide political cover for its next big asset purchase program?

QE2 was the end of significant NET asset purchases, and the global economy is imploding now.


spinone's picture

As long as OPEC only takes dollars for oil, no worries.

falak pema's picture

read this : it says Ben prepared to do "more",  what it takes, especially if growth stays weak,  to support the US economy. He is on the same page as Draghi.

Etats-Unis: Bernanke confirme la disposition de la Fed à agir davantage

I'm sure Graham can read froggy language! 

Meesohaawnee's picture

bubble vision wont give it up. im sure they are already pumping the next one. They are the feds paid dispicable mouthpiece. We are all so sick and fucking tired of this. Its rigged and everyone knows it. Theres no human in their right might that would have gone long today. Its a complete joke. Ben most of all needs to restore a "market" .. the long they wait they harder it will be to get anyone back. Lights out!!

Element's picture

aaaannnnddd ... ... its gone!

Summer that is

And Europe has not collapsed

Wrong yet again graham

Tango in the Blight's picture

I bet Summers isn't gone. Not for a long time.

alfred b.'s picture


     ....must be a clint eastwood idea!


   And thanks for buying physical gold and silver!



mt paul's picture

buy some gold

lets get this cow 

to 1700. $ for the weekend

giovanni_f's picture

"QE_n not going to happen"

"Europe to disintegrate by 2010 2011 2012 2013

"Subscribe now&here for unbeleivable  profits"

Graham "the cracker" Summers definitely knows what he's talking about.

falak pema's picture

Qe is what Draghi desires and Merkel prays for. If no QE, Euro contagion hits USA before election.

As Merkel says NEIN to Draghi without QE! 

Big bad that! So how do you QE when you say there will be no QE?

Its easy! You just do it and don't say it. 

All will be made clear in September...wait for it! 

slewie the pi-rat's picture

so, if the euro contagion DOESN'T "hit the US before the election" that will mean that it is because "you/they" :> just do it and don't say it.

and if we wait till september, it will "all be made clear"

tyler may not be the only one drinking today!

falak pema's picture

I'm betting that both FED and ECB will keep the hype up that "we will print n print front ways, back ways, side ways, anyways; to keep the banks from "running wild"  and contagion from gunning down WS assets before election". 

Whatever Graham may think. Its Plan A. Plan B depends on Israel. Plan C depends on Merkel and Supreme COurt Karlsruhe. 

All plans lead to same end. That is in the hands of FED. But Germany can really hurt the contagion if it goes rogue on ECB. So it won't. 

Plan D is unknowns of US economy going sour in Fall....munis, bank runs, MF type collapses; its all tinder box dry and ready to ignite without FED fiat hose. 

slewie the pi-rat's picture

in the US the FED just said:>  it doesn't matter

we're just gonna do our "systemic stability" thing and keep the Treasury financed anything beyond that, is up to the political leadership

and there is no "hose" unless the POLITICIANS say there is!  which they will not, b/c they cannot not and "may" <cough cough> next year

so since there is no monetary plan beyond twist & zirp and no fiscal "plan" (like last august's 'ceiling crisis' which wasn't really a crisis, apparently any more than the EU crises have been ACTUAL crises)  nothing is gonna be done except "buy time and hope the economy recovers"

and, as i have been trying to tell people through the din, that is the PLAN for the US.  happy;  sad; "beats"; "misses";  do twist;  do ZIRP and see what happens! 

and i think the EU is into something pretty similar:>  there isn't much they can do except try to keep the checks in the maill  again and again i have pointed out that incrementally whatever "works" is politically superior to a solution which "doesn't  work"

this is the economic FACT which people don't "get"l  but that is just my opinion, i guess

it doesn't matter what is "best" or "will work in the longer run", falak:>  as long as the incremental cost of can-kicking is less than the costs of "liquidation" or however one conceives of "the alternative", the can will be kicked

if and when the incremental costs become greater than "whatever" the can will NOT be kicked

we don't know the details of what the banksters and pols are looking at, but that is the economic "principle" which is guiding them in this incremental "muddling" no matter what those details might  be

the political situ on both sides of the pond is also about the same:>  the pols want to keep the checks in the mail;  if they can do that, they are safe; if not, they are fuked


  1. muddling through is by definition:  disjointed incrementalism
  2. the incrementalism is based upon the incremental costs of can-kicking V the incremental costs of "other"
  3. politically, the primary issue is getting those checks out every month
  4. that is what we are seeing;  there is no reason to postulate anything more complex to explain what we are seeing:> occam's razor
  5. the "details" will change as these questions are addressed, incrementally, every quarter or so and different "players" have different power or roles in the inrementalism, but we are just going to 2 & 3 over and over;  nothing else is "happening" except in the minutia
  6. The End

so on both sides, when #2 changes, everything changes except (hopefully for the pols & the check-receivers) #3

in my book, exactly what anybody does next month or next quarter or next year exactly how it will work or why is pretty hard to "know" and from this perspective, irrelevant

besides, as long as the costs of can-kicking are manageable, they will do nothing else

so they figure how to do it from time to time and who will "pay" and how and move on

rinse, repeat

there are mountains of complexities and boilerplate to deal with every few months, but the overall rubric or paradigm is actually quite simple

whether one feels good, bad, happy, sad, green, blue, nail or screw or pretends to, or pretends others do, doesn't matter

angeala sez:  we can't get thru #2 and #3 unless greece does X and spain does Y

spain:  fuk you!  don't then!

greece:  fuk you in the ass!  don't then!

angela:  allll-riighty, then!  maybe we can work something out if you just sign this and this and this and this...  And YOU just...

...and so on...

no doubt doctors keynes, mises, zhivago, freud, jung, salk, and strangelove agree on the great dangers of contagion, fibrillation, yeast infection, thrombosis, halitosis,  meosis, mitosis,  hematoma, melanoma and coma when in roma, they are ALL just "details" @ #2

but if the Pope or tylerDurden hasn't approved these ideas, i can't imagine anyone thinking they might be valid

can you?

falak pema's picture


...if and when the incremental costs become greater than "whatever" the can will NOT be kicked...

Amen to that!

But when does the CB/political world KNOW that the asymptote has been hit?

For sure we don't, as we are looking from out into the black boxed matrix. But they have the fingers on the global pulse...So they should know and plan accordingly. Destruction of capital has always been an option when we hit the asymptote.

War is, was, will be, a financial solution when all other bullets run out. It just means that certain oligarchs, part of the club today, become the enemy. History could repeat, like in 1914. 

I don't see these guys running up the white flag. 


slewie the pi-rat's picture


didn't realize this was GS's blog.  L0L!!!

FreedomCostsaBuck-o-Five's picture

Uh, I thinks there's one thing that's been
"bogus for over a year now" -- that's this guys market calls. I'm going to subscribe to his strategy smack so I can fade it and bank some coin.

hyper-critical's picture

This guy is such a joke. Still bleeding theta out the ass, douchebag? Rant somewhere else...

Meesohaawnee's picture

im not understanding whats so vile about him. Really. everyone is so fucking sick of the qe bullshit. everyone is so sick of a "non market" pinball machine. everyone is so sick of the fraud. I can understand any rant about this. Funny thing is. US equity markets can MAKE europe get movin. Just crash the market blame it on them and the lets see what kinda political  pressure cooker goes on over there. Then again im sure Ben's 100 crude should get em pretty pissed there. Nothing like that to get you out of a recession huh Europe?

NewWorldOrange's picture

All the attacks on Graham...hahahaha

Graham, I liked your post. Spot on. What I think you failed to take into consideration is that when you wrote it as you did, and aimed it at "you", most of the Ikea Boyz who sit in their basements playing Warcraft, jacking off to pictures of Kim Kardashian, and fantasizing about being The One (to bring down the credit union buildings with ANFO), assumed you were directing it at THEM, rather than at the idjuts in the main stream financial media and their willing dupes.

Remember: This is the bunch that has to ammend any post written in sarcasm with "/sarc" so as not to confuse each other. Capiche?

spinone's picture

Two issues with your post:

First, Tyler Durden also took down the financials with improvised explosives

and B, what's wrong with jacking off to pics of Kim Kardashian?

NewWorldOrange's picture

"First, Tyler Durden also took down the financials with improvised explosives"

Exactly! Tyler DID it.

"You see, there are two kinds of people in this world my friend. Those with loaded guns. And those who dig. YOU dig."

(again, the "you" is not directed at "YOU" -- ring a bell?)

Snakeeyes's picture

There is no reason to do QE3, but at this point failure to deliver after so many "hints" would be a disaster in the equity markets.

I HOPE they don't do it, but Bernanke is very political and there is an election in November.

Aquaman's picture

The Fed is going to ease at some point unfortunately.  I wonder what this jackass will say then. 

Lucius Cornelius Sulla's picture

Compared to the amount of distressed debt in the economy, any FED action will be too little too late.  Using mark to market, most banks are already insolvent, not to mention FNM, FRE and the FHA.  There is no way it can all be saved while defending the USG's ability to borrow at low rates.

SilverIsKing's picture

How he can say everyone thought QE was coming today when the market was selling off in the days leading up to J-Hole proves the author is an A-Hole.

Gideon Gono's picture

This is a really stupid post, but I'll be sure to swing by more gainspainscapital for more of the same!

Is anyone REALLY shocked that the Bernanck didn't announce QE today?  Do you really think he wants to shoot his last wad if he doesn't have to?  Last wad, in that after the next round of QE even grade schoolers will be mocking the fed.

If Draghi "defends the Euro at all cost" it will strengthen the dollar and THAT the Bernack can't have.  The other thing is that it's in the water that another big bank is going down, again, then the Bernanck will be throwing money from helicopters.

Stay tuned, its coming.  Whether one can remain solvent and fully stacked until that time is a different matter.

SilverIsKing's picture

When that big bank goes down (Morgan Stanley?), the Dow will be down 1,000 points, Maria Barfaroma and Steve Lies-man will be preaching the end of times, and Señor Benana Benankoid will step up to the mic and announce emergency measures to protect the system and keep the "recovery" on track.

You are correct in that it is coming and coming soon.

Papasmurf's picture

The price of gold today kind of negates the remarks of this author.  That's gotta leave a mark on reputation.

oddjob's picture

QE never stopped. Any asshole that posts otherwise GIVE UP!

JamesB's picture

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