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Evidence QE3 is Working, and Other Lies
A mega fixed income deal for GE:
GE raised $2Bn of three-year money at a very cheap 86Bp and $3Bn of ten-year cash at a rate of 2.73%. The financing produces a blended cost of 1.98% (1.6% after tax) for an average life of 6 years. That’s a hell of a deal for the boys at GE. (Note: as part of the deal GE did a $2B slug of 30 year, this was done to push out the average life of the company's liabilities.)
GE is a complex company with big bucks going in and out. Therefore it’s not possible to tie this deal as a Source for a specific Use. I’ll do it anyway.
GE pays a quarterly dividend of 17 cents a share. Over the next year, that will come to $5Bn. At today’s closing price of 22.93, GE’s dividend produces a return for investors of 2.98%. In other words, GE just funded it annual dividend with a positive carry. (After-tax debt cost of 1.6% versus the 2.98% dividend.)
When Bernanke saw the headlines about the GE deal he probably jumped for joy and called his dovey pals at the Fed to share the “good” news. In fact, this is exactly what Ben wants to see. GE is arbing the credit markets. The Fed has made this possible. Ben thinks that GE increasing debt, and returning money to shareholders is evidence of a positive transmission of his monetary policy.
Me? I think Ben’s monetary policies will not have any positive consequences in the near term, and someday will result in a big price tag for the country. In the mean time the folks at GE are talking the money and laughing. After all, they are sitting on $100Bn in cash. GE had this to say:
This issuance is consistent with our strategy to be opportunistic in accessing markets.
“Opportunistic” indeed. Yet Ben is giving High Fives.
++
On Ben’s Words
Bernanke was talking the other day. He was selling the idea that QE is just a normal operation for a central bank. He attempted to convince people that what the Fed is doing is reversible. His words:
At the appropriate time, the Federal Reserve will gradually sell these securities or let them mature, as needed, to return its balance sheet to a more normal size.
Let me first focus on Ben’s last words, “return its balance sheet to a more normal size”. What Ben has admitted is that the current balance sheet of the Fed is “abnormal”. He has also said that he is going to grow the balance sheet further to make it more abnormal (QE3).
I think Ben would be quick to agree that his monetary policies produce abnormal results. He would support his actions by saying we are experiencing abnormal conditions in the economy. This gets back to the questions of, “What is the new normal for unemployment in America?” and “Can abnormal monetary policies like QE move the needle in the economic world of 2012?”
Ben also says that the Fed will, “gradually sell securities or let them mature”. Think of what this statement means.
The Fed has Twisted away most of its holdings of sub 5 year paper, so the issue of normalizing the Fed’s balance sheet by allowing securities to mature would be pushed off for 7-10 years. That’s not monetary policy. That’s a biblical kicking of the can past the horizon.
So Bernanke is telling us the Fed can/will normalize its balance sheet by selling some bonds. This is a joke.
Take Ben on his word; at some point the Fed will normalize its balance sheet, it will do it by selling bonds to the market on a gradual basis. What does that mean? It means that Bernanke would have to sell $60Bn of bonds every month for three years! What would that do for the capital markets? What will the market reaction be to this headline when we get it?
Ben is lying to us when he says that QE can be reversed without tremendous pain. Bernanke will be long gone as head of the Fed when the bill for QE is finally presented. Ben’s successor will be mired in the mess than he created.
The reality is that there is no viable exit strategy from QE. Ben knows this. So do all the other Doves. Shame on them.
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I sure want to know the day when the FED starts shedding its Treasuries ... I think it will be 02/14/2027
I like to think of fraud as a tradable commodity. People talk about the boom in house prices, boom in iron ore prices, etc, but all of that is simply derived from the biggest boom of all, the boom in the fraud market (aka financial innovation).
Fraud creates a disconnect between prices and reality, leading to resource misallocation and great economic harm, so when Bernanke talks about preventing deflation (defending prices), what he's really talking about is defending fraud. The Fed was one of the greatest enablers of fraud and is now the biggest buyer (defender) of fraud via QE meaning that it should be seen by all as an agent of (inter)national harm and treated accordingly. One good thing though is that with all that fraud concentrated in one place, it's much easier to burn it out if the desire is there.
Bernanke needs to have a good long think about whether or not the harm of deflation exceeds the harm of fraud. If he was in any way interested in helping the real economy (rather than defending his member banks), then he would be doing everything he could to enable targeted deflation of the financial sector (fraud destruction) while defending the real economy. In reality, he does the exact opposite because his position is chair of a union that represents banks, not chair of a union that represents civil society. He dutifully serves the interests of his union members at the expense of the nation.
TL;DR: shrinking the Fed's balance sheet requires a primary focus on eliminating fraud. Not going to happen because Washington and Wall St would have to target themselves.
Chairman Ben RINO, is participating in the biggest religion there is. Leftist Keynesianism, but that is redundant.
I read this morning Wells Fargo and JPMorgan will hand out record high bonuses again this year....
It's almost unbelievable during this severe recession.
Ok, here it is:
"Wells Fargo and JPMorgan both broke profit records in 2011 and are expected to do so again next year, according to analysts' estimates compiled by Bloomberg."
http://finance.yahoo.com/news/no-joy-wall-street-biggest-120540458.html
The Fed will end with a bankruptcy. I see no other way. There will be many fingers to point. All the politicians will be looking at each other to blame. If you don't like what the pyscopath Bernanke is doing it's time to fill their mailbox with letters with one single word.
STOP
This can go on for years and years before people wise up. But when they do. God help the weak. Go long rope.
~"The Fed will end with a bankruptcy. I see no other way."~
Oh, I see another way, and I'm surprised others haven't brought it up before. At $40bn a month of MBS debt, the FED will have the banksters bailed out in a couple of years, (who said it had to limit itself to $40bn a month?), and then they'll get Congress to NATIONALIZE the Fed. Banksters are then in the clear, and every American born for the next two centuries will be born a slave to the debt.
And that is where the law of unintended consequences kicks in. Why would anyone bother working? The whole shell game implodes on itself if we’re asked to work like slaves. Our current system works as well as it does because it is very good at giving people the illusion of free choice and work hard and get ahead.
WHY WORK IF THEY ARE TAKING ALL YOUR WAGES? Then they’ll have to point their guns at us to get us to work, and they’ll have to point guns at everyone, including those who truly are disabled. You can’t force some people to work at gunpoint yet let others mooch on a disability system, those forced to work at gunpoint will figure out how to join the moochers. Thus, 21st century slavery for every man, woman and child, with no illusion as to the role of Big Brother.
This shit is going to end badly one way or another. The only real question is timing.
I'm tired of all the bitching and moaning, and I'm certain I've figured it out. The voters elect these people to represent them because the people like entitlements. The stupid, lazy, uneducated buffoons want a cradle to grave gub'mint baby sitting them. Let some one else worry about the costs. The politicians, recognizing this short sighted thinking, are whores in the purest sense, and they will happily spend funny money until the game is over; and we have what is left of the nation we once knew.
The country has taken a turn toward the lazy, listless moochers. Kids rack up obscene student loan debts on a marginal education, and hope that some asshole like Obama/Reid/Pelosi will magically sprinkle some fairy dust and make the bloated loan disapear.
Guess what? The fucking joke is on all the wannabe socialists and gub'mint tit sucklers. These poor victims are relegated to the category of life time debt slave to an overbearing and invasive government that these same fucking idiots helped create. We are a third world country for the foreseeable future, at the mercy of oil prices, inflation, and pissed off foreign powers wanting to fuck with us.
Go fuck yourselves, moochers, and enjoy your lifetime career working for the Waltons or some fast food burger joint, Asshole!
Ohm......I think the article was about corporate welfare, not social welfare.
Welfare is welfare, whether it is Bernanke spoon feeding the banksters, corporate tax breaks to the cronies, or entitlements for the listless and underperforming masses. Welfare is a pox upon this nation; both parties religiously adhere to this tenet, and it is spreading like a fast growing cancer upon this entire nation. So you want to address corporate. I'm talkiing about the sorry state of this nation.
Nice context, Bruce. The mechanics of bond trading are alien to most of us, but that marginal swing is a bitch.
It's easy to forget that markets typically overshoot, especially large, illiquid, rigged markets.
Ben's exit strategy = Israel
nope that Obammy's call.
Sooner or later.
So the FED is not only crushing savers, but creating cheap ass rates for crappy companies that don't pay taxes and corrupt CONgress.
Of course we know, but it is nice to see someone articulate so clearly what I have been banging on the table about for the last year or so. It would be nice to see this being discussed more by the big media.
I don't believe they have any plan to exit, ever.
Of course they know this. It's plain and simple disinformation to cover their single mandate of fattening the bankster elite. Period!
Come on Bruce, tell us somthing we didn't know. The Fed has destroyed the pricing mechanism for capital itself and the primary dealers continue to use "mark to fantasy" accounting.
The treasury has been looted and those close to the "free money" stream continue to benefit 100 fold while everyone else continues to lose purchasing power, see their wages stagnate, and watch paper promises burn.
Build real wealth in your family, employees, and neighbors, we are going to need each other soon.
Nothing changes until the moral hazard is addressed. Start executing a few paper-pushers for any fraud conviction involving more than a millon dollars and just watch how fast market confidence returns.
A little fucking late on the "shame on you" horseshit. Come on Bruce, weak fucking post.
LOP:
For ZHers, you are correct that this post is not the normal intellectual post. BUT, a BIG BUT, it is just what the average USA citizen with 5-grade comprehension needs to read.
I repeat, what the average joe can read and understand. THESE types of posts get sent to my friends and colleagues and often they resend to others. (I am on their lists, so I know when) Education is slow, but requires comprehension!
BRUCE, it is perfect for the sheeple of the world IF we could get more of THEM to READ IT!!!
They can read ?
Gotta go DWTS is on my tivo.
Maybe the US has simply gone full-Soviet and we just cannot admit it to ourselves?
Bruce, it's not that Ben doesn't "know"...he just doesn't care.
+55
He must have Choomboi's pardon in his back pocket.
The part that cracked me up most was when Ben said it wasn't "monetization" because they were buying on the secondary market rather than direct from Timmay. Yea, Ben, you butthead, you are paying a vig to the PDs thus paying more than if you did buy direct, dumbass, with no effective difference.
"thus paying more than if you did buy direct, dumbass, with no effective difference."
The "difference" is that it is less transparent, more opaque than simple (3rd-world, banana republic) money printing. This fiction (that there is a difference between what Ben's doing and having Timmay run the presses 24/7 cranking out Benjamins) is all that is holding the Infinite Ponzi scheme together: it APPEARS like there's someone buying US treasuries besides the Fed. Once this fiction is abused sufficiently for worldwide exposure and understanding, the jig is up.
How much longer can the lies continue? The MSM is not asking any difficult questions of anybody, Ron Paul isn't in the headlines now, and Gary Johnson can't get any exposure, so it may run a while longer. At least, until the price of bread hits $10 / loaf and milk $10 / gallon, at which point the search for scapegoats will begin in earnest.....
Somehow, I doubt Dimon, Blankfein, Geithner, Bernanke and the other real villains will be on the short list for scapegoats, as listed by the MSM.
Going the Japan route. Forget any exit strategy. Europe and the USA are repeating the predictable mistakes of rich countries in decline- heavily indebted and betting big on a return to previous levels of productivity or asset values such as housing.
The US has a powerful military. Japan does not. Big difference.
Two of our larger creditors are Japan and the Arab states. Do we have military bases in these countries? Yup.
A powerful military requires oil. If no-one accepts usd for oil your fuckd. You could go start another war but that will cost you oil and makes the currency even more worthless.
The military is out there gathering up "Oil States" and enforcing the use of the USD. If the US nuked Iran or subverted Iran, how much oil would be used?
Bingo. Any oil state that is currently in our USD sphere that suddenly stops accepting USD will find that new leaders are on their way into power before they blink.
Plus, they need our military to keep their poor huddled masses from turning on them anyway.
Hell of a system we have to keep our oil flowing to keep our military strong to keep our oil flowing. Plus, if the shit really hits the fan, do you think what oil/gas/diesel we have will be going to John Q. Public or the military?
That is, guns AND butter will be over quick and it'll be rations - but I'm sure they'll unveil an APP for that - the iRation App.
"the iRation App"
Good one. I'm sure the kids will line up to pay for it.
Which brings me to what I am sure will be my most controversial post today - Look at how Nature has evolved, regarding that "powerful" military - use it or lose it.
Hate to be this way, but again, look at successful examples of systems that evolve. As the band suicidal tendencies say - "the weak are ripped and torn away"
Want a better system? Let bad business models, bad companies, and bad management FAIL.
Couldn't really follow most of your post. I think the "powerful military" is being "used" all over the place. Some questions: What are their goals? Are they reaching them? If there is "success", will I share in it?
If you believe that the inability of a country to defend it's resources is a bad business model, then there has been plenty of failure. Saddam and Quadaffi got lessons in "personal responsibilty" as well. I wonder who learned the lesson.
I noticed that the US Navy's most recent ad uses the slogan, " a global force for good".
My point is simple. Nature has evolved because the strong survived, period.
I am in agriculture, but have many classmates that went into the health related professions. I often ask them, "tell me, what good will all these medications and cures will be when we don't have enough food or fresh water for everyone?"
Don't get invited to many dinner-parties these days. Fine by me, it's a bit of drive into the city anyway.
The other simple message is that a system works only so long as there are real consequences for bad behavior at all levels of society.
Where the fuck is John Corzine?
My point is simple. Nature has evolved because the strong survived, period.
But what does "strong" mean?
I am in agriculture, but have many classmates that went into the health related professions. I often ask them, "tell me, what good will all these medications and cures will be when we don't have enough food or fresh water for everyone?"
Even in the midst of war, the health care system rolls on.
The other simple message is that a system works only so long as there are real consequences for bad behavior at all levels of society.
I see the system working for bad people. Maybe because they are strong?
Where the fuck is John Corzine?
Case in point.
No, they are connected. It's called facism. History is pretty clear on how it works out.
So fascists always lose? Well that's comforting.
The Federal Reserve does not need an exit strategy. They can hold everything to maturity. They can keep rolling it over until the Sun becomes a red giant 5 billion years from now, or until the USA itself dies, whichever comes first. Or Congress can simply cancel bonds held by the Fed (a government agency) to reduce its interest expenses - this would be "monetizing" the debt.
Yes. In all likelyhood the Fed will never reduce its balance sheet. So it will stay "abnormal" for ever.
This does mean that Bernanke is lying when he says its just a tempory measure.
Shock. Bruce caught a politician in a lie.
Double shock - Bernanke is a politician.
forever growing abnormailty.
The best future financial derivatives scam if you can get people to bet on it : Environmental degradation CD swaps. After Fuku there should be a market for it. Now with fracking...it should just explode like a champagne cork!
Quote of the day from the Wyoming frack EPA find : What is their water doing in our gas?
Read more: http://www.businessinsider.com/oil-gas-industry-fracking-pavillion-wyoming-2012-10#ixzz28FTzcvw3
BRUCE, it is perfect for the sheeple of the world IF we could get more of THEM to READ IT!!!
For ZHers, LoP is correct that this post is not the normal intellectual post. BUT, a BIG BUT, it is just what the average USA citizen with 5-grade comprehension needs to read.
I repeat, what the average joe can read and understand. THESE types of posts get sent to my friends and colleagues and often they resend to others. (I am on their lists, so I know when) Education is slow, but requires comprehension!
I am betting that it can't stay "abnormal" forever. The "tell" for the next real crisis will be when contracts to deliver real commodities start defaulting or are contested.
Make yourself useful and research this a bit so we can fornt-run some of this.
Agree 100%
It's another way to think of "hyperinflation" (I hate that term anyway) - failure to find a seller at any price.
I think it might start in the gold/silver market as physical holders no longer want paper. But there could be an actual shortage that prevents delivery because the commodity is simply not there and thus can't be delivered regardless of price or demand.
Would a decade of 5%-8% annual inflation reduce the FED's balance sheet. In real, not nominal, terms?
Look around the globe, only in America and a few other countries does the average person have income that can be spent on things other than food and housing. Real inflation has been running 5-8% already.
what would the consequences of that be? If it was that easy why would they not have done this many times before?
It's a little late for the shame on them stuff. The only good news is, there seems to still be some time left on the clock for whoever wakes the fuck up to tend to their own situation before things really get out of hand.
"Cuts are Necessary"
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2012/09-2/20121002_cuts.png