One Thing That Trumps Hope For More QE

Phoenix Capital Research's picture


The primary market forces remain in play.


The markets are holding up on hopes of additional stimulus from the Central Banks. Some bulls are even calling for QE 4 at the upcoming Fed meeting, despite the fact that QE 3 was launched a mere three months ago and was open-ended (meaning it would not end until the Fed deemed it time).


This is extraordinary and proves point blank my concern that we’d reach the point at which additional monetary stimulus would no longer having a significant impact. This was always the End Game for the Fed’s response to the financial crisis: that by intervening as much as it did, eventually we’d get to the point that even extreme interventions had little if any impact.


Given that the Fed has been the primary driver of stocks for the last four years (even the NY Fed admits the S&P 500 would be at 600 without Fed intervention) this is a major red flag that we could be due for a sharp correction to the downside.


Against this backdrop of hopes for more intervention, the ugly fundamentals continue to worsen. As I indicated in yesterday’s missive, there is little if any political incentive for the Democrats or the GOP to address the fiscal cliff. Consequently we are very likely going over it.


In Europe, the great banking crisis continues to worsen. The EU has definitively lost one of its primary AAA supports when France was downgraded. Moreover, the mega-bailout fund, the ESM, has been downgraded as well.


The implications of this are mainly pertinent to the banks. Sovereign bonds are the primary collateral backstopping hundreds of trillions of Euros worth of trades at the large EU banks. With France no longer AAA and the ESM losing a rating as well, a scramble for AAA collateral is underway. This will be beneficial to Treasuries, bunds, and other high-grade bonds (high grade relative to non-AAA rated collateral). It will be bad for low-grade collateral bonds (Spanish, Greek, Italian, etc.).


Thus, stocks continue to seesaw. The fundamentals want to pull stocks down while the hope of more intervention from Central Banks pushes stocks up.


The one thing that trumps this is the fiscal cliff. Since there is little likelihood of a solution, we are likely to see heavy selling from institutions in the coming weeks (see Apple’s recent action) as they close out positions before the tax increases.


This will put selling pressure on the markets. Combined with the ongoing EU debacle, this makes for a potentially very ugly sell-off into year-end.


After that, we’ll see… but 2013 is shaping up to be an absolutely hellacious year.


Swing by for more market commentary, investment ideas, and special reports outlining specific risks and opportunities in the capital markets.


Graham Summers




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moneybots's picture

"The power to print money is infinite, and TPTB will keep it going as long as printing is all that is required."


Why didn't Germany just keep printing Weimar marks in 1924, if the power to print money is infinite?


It seems the FED should just be printing 10's of trillions of dollars and sending them out to the public, if it was all that simple.

booboo's picture

"Any crystal ball gazers out there? When does this farce implode?"

The Forblatzon of Tubilis, any Maconium from Plugonium transplant knows this.



TraderTimm's picture

After reading many articles in my two+ years here about how the market is unsustainable and will correct "soon", I think it would be better to just stop stating the obvious and start trying to peg some dates.

They may not hit the mark, but at least having something concrete to look at would be a welcome change. I can't be the only one who is tired of waiting for the shoe to drop.

Any crystal ball gazers out there? When does this farce implode?


Jungle Jim's picture

TraderTimm: Yeah, "when" is what I always want to know too.

I am very tired of open-ended words such as "eventually," "ultimately," "finally," "someday" and "soon." The people who always use the word "soon" seem to be measuring time in geological epochs, so that any time in the next half-century seems plenty "soon" to them.

Some of us don't have that kind of time. Some of us are on sinking ships now. Some of us have essentially zero incomes, but we still have rent and bills to pay. We have sick family members to care for, and mounting medical costs of our own.

If all we have left is our PM stack, how long can we hold out before we are forced to start selling it off, just to keep the electricity on, and a roof over our heads, or replace a flat tire, or get an abscessed tooth treated?

We're not even talking anymore about grandiose fantasies of "buying a house with an ounce" or buying the Grand Hotel or a private island, etc. We're just talking about living one more day.

So, when?

TraderTimm's picture

That's essentially it - we're not all on the good ship Prepper with our hold full of ingots. It isn't that we disagree, merely that in that combinatorial cruelty of chance called "life", some are in better positions than others. I'm in the "hanging on by my teeth" category, myself.

I find ZH to be a font of sanity in an otherwise rigidly conformist world, which is precisely why I come here - but I have to ask, with all of the number crunching financial wizards poring over the facts, can we at least have some inkling of where the end of the road is?

Please, those who haven't commented yet - give us some hard dates. Yes, they may be wrong, but it is better than nothing.

Thank you in advance.


TheFourthStooge-ing's picture

July 5th, 1998, at 7 AM.

Dobbstown, Malaysia.

Please, those who haven't commented yet - give us some hard dates. Yes, they may be wrong, but it is better than nothing.

Well, there you go then.

Thank you in advance.

Just tryin' to help.

akak's picture

TraderTimm, you are asking for the impossible, as not only can nobody can really know the exact timing of "the collapse", but even the very form that such a collapse might take.  Some would argue that we are in "the collapse" today, or have been for the past several years now.

Whiner's picture

When you see the price of physical soar away from the paper gold, then the time has come and the apocalypse is niegh. October 7, 2014. So saith The Oracle.

Ham-bone's picture

It imploded in 2008...this is the new reality.  Japan has been here for 2+ decades.  In historical terms seems these things need time to marinate and for the malignancy to grow...smartest guys know it can't go forever and sometime between now and forever it will "collapse*".  How many "knew" Japan's unsustainable system would "collapse" due to its imbalances...but on and on it goes.  Short answer is we are off the map and the only sure thing is TPTB will bolt on, duct tape, glue, and destroy everything to maintain what ultimately cannot be maintained.

* collapse could be by degrees in a glacial manner or sudden and violent or anywhere inbetween. 

Jungle Jim's picture

Oh, there's my answer: "Sometime between now and forever." This slo-mo "collapse" has been going on in Japan for two decades, and could go on for decades more. And it's just begun here. So, I guess I'd better be "long" on wheelchairs and walkers and adult diapers.

tongue.stan's picture

April 2013, 'cause Max Kieser said so.

Ham-bone's picture

Graham always makes sense if you assume there is ever to be a re-balancing or an equilibrium in the system.  This is a logical assumption and there is logic to our system...but the logic is maintenance of the imbalances, maintenance of the disequilibrium and I see no desire for resolution or equilibrium...I see a glad willingness to bend, warp, and redefine reality...redifine "white" as "black", "bad" as "good", "not growth" as "growth", "unsustainable" as "sustainable", and "not a republic" as a "republic".  Grahams viewpoint is sensible and hopeful of a return to "reality" where time tested laws of the market apply but seems we have crossed the Rubicon and there is no going QEinfinity'er'er'er and (then and only then) beyond.

andrewp111's picture

The power to print money is infinite, and TPTB will keep it going as long as printing is all that is required. Once continuation of the status quo requires real resources that cannot be printed, the end is nigh. So, what could cause that? Extreme oil/fossil fuel depletion, extreme political uphevals,  and/or war. The system will keep going until it can't.

falak pema's picture

Summers see you in the summer for the next great, great, great , great crisis.

This is NOT a nine month pregnancy; in fact we don't know when the stork will finally come!

bank guy in Brussels's picture

Maybe when Italy leaves the euro shortly after the upcoming election in February or March

35 % of the Italian electorate is already euro-sceptic parties, under Silvio Berlusconi and Beppe Grillo - two popular comedians

And they haven't begun their campaigning yet to free Italy from Germanic domination and the yoke of the dysfunctional euro

Italians have the best case for leaving ... without the euro their exports would roar, debt costs would decrease, and they were already near primary budget surplus when the EU-ECB manoeuvred to kick out Berlusconi ... Italian households have less debt, overall more net worth than Germans ... They may well end the euro-farce shortly

Italy leaving the euro-zone means a major 'moment' freezing up the euro-zone bond market and implosion of European banks ... and consquently Spain, Portugal, and Greece - and then perhaps even France - all follow along out of the euro, as their only way to rebuild, the sick 'spell' finally broken.

Berlusconi, bank holiday, short term super-intense European crisis and then re-start and re-birth ... 2013 in Europe

falak pema's picture

Monti is making a desperate last stand to outflank Berlu via a snap election before he can gather momentum. Thus to win legitimacy for his own status as elected head.

It will be the make or break play of 2013 EU game...feb/march 13.

disabledvet's picture

this would be a big deal if it happened. i will follow events closely to see how it compares to your thesis presented here. why would a poor or bankrupt country leave the euro? it would make more sense for a "country of means" to leave would it not? and Italy certainly fits that bill. they would have powerful friends in England, Sweden, Switzerland, possibly in the Arab world. one interesting aspect in all this "bank guy from Brussels" is how the USA might be fully invested in the "euro project" more than anyone. cheap funding currency anyone?

new game's picture

Hey Gram, it is all about WHO GETS THE MONEY.

problem from my perspective, is am not in the the club

and Gram, sounds like you are not in da club either.

we know they dont give a shit about you or i; so what the fuck are we gonna do; buy gold-ha fucking ha-they will make illegal to own.  oh, buy some guns- another ha fucking ha-make illegal like, say australlia or  canada.

oh next subscribe to your newsletter- i got a news letter for you-read this:as follows, angry white male to

stop paying taxes and starve the beast. oh yea i'm the sacrficial lamb; NOT, but until the masses get really pissed and decide they want their freedom back ...(and it may well be too late)  well it seems kinda hopeless....cause TPTB are the powers to beat!

sorry, but that is reality. high nails get hammered,as in jailed or beat the fuck out of-get it Gram? What are you really doing?

Your almighty pen against what?; fuck your pen, it wont work in the time of real need.

back to most sheeples reality as follows:

oh it is sunday, football. monday-da voice and so on.

spend, spend and more spending and put it on the visa-electronic money created just like da fed-eh.

XitSam's picture

Says the guy that swore up and down that there would never be QE3.

verum quod lies's picture

Two quotes:

“The primary market forces remain in play.”

“Given that the Fed has been the primary driver of stocks for the last four years (even the NY Fed admits the S&P 500 would be at 600 without Fed intervention) this is a major red flag that we could be due for a sharp correction to the downside.”

So which is it, are “primary market forces” in play” or is the Fed the “primary driver of stocks”?

One simple piece of advice for the advice, when handing out advice don’t contradict yourself on such a basic level. Therefore, no, I won’t be swinging “by for more market commentary, investment ideas, and special reports outlining specific risks and opportunities in the capital markets.”

DavosSherman's picture

Gold has doubled 3 times.

It totally fascinates me how so many incredibly smart people allocate so much brainpower and capital to the paper market.  Good read though.  Like the points made.

stormsailor's picture

yeah, it topped more than a year ago. and if you chased it you lost your nuts the next month.  if you will look at a chart,  the biggest down months in gold are when there are huge market up-heavals.  that would be the time to buy.

disabledvet's picture

well there is a question as to how dear you can price EVERYTHING...and not just "mere gold" dare i say. the question before us is as ever "not how cheaply something can be had for" but "how expensive...and then sold for said amount." that's what all the bailouts, QE'ing, Government warring, political posturing, etc..etc...actually means. NO ONE is arguing for falling prices...even though that would actually be a "good" ironically enough. since we all know the rule ("all bubbles are to be re-inflated") the question therefore isn't "where the price of gold?" but more appropriately "where the price of everything?" that is why i believe in plain old fashioned index funds. "the smart man knows that there are many smart men." gold obviously is an alternative..."money itself." but has the system been broken? M&A, IPO's, securitization...CDS's, CDO's...they're all back up and running are they not? certainly the market has fully recovered and appears to poised to hit new highs. answer me this: "what penalty has the Government paid for all its sins and indiscretions?" if you answer "none at all"...that it has in fact been can anyone argue with this truth? tis not a good thing of course. since when is good rewarded though?