Sorry Folks, QE 3 Ain't Coming...

Phoenix Capital Research's picture

 

… Unless we get a major bank going under or a 2008-type event.

I’ve been reading that several pundits believe QE 3 is just around the corner. I’m sorry to say that this view is both misguided and has proven to be extremely dangerous to investors’ portfolios over the six months.

Indeed, we’ve heard this argument virtually non-stop since last June. Every time the Fed had another FOMC coming up, the argument was made that QE 3 would be announced. Every single time the Fed disappointed and the markets cratered (only to then be ramped higher by the PPT).

The madness would then start all over again a few weeks later. Whether it was some Dovish Fed President hinting the Fed was ready to act… or some economic data point missing expectations… EVERY TIME the pundits spun this to argue that QE 3 was just around the corner.

However, for those who actually read what Bernanke was saying, it was clear as day that QE 3 was NOT coming… at least not without some kind of Crisis hitting first: such as a major bank collapsing or another 2008 episode.

Take a look at the following:

Q. Since both housing and unemployment have not recovered sufficiently, why are you not instantly embarking on QE3? — Michael A. Kamperman, Waco, Tex.

Mr. Bernanke: “Going forward, we’ll have to continue to make judgments about whether additional steps are warranted, but as we do so, we have to keep in mind that we do have a dual mandate, that we do have to worry about both the rate of growth but also the inflation rate…

The trade-offs are getting — are getting less attractive at this point. Inflation has gotten higher. Inflation expectations are a bit higher. It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk. And in my view, if we’re going to have success in creating a long-run, sustainable recovery with lots of job growth, we’ve got to keep inflation under control. So we’ve got to look at both of those — both parts of the mandate as we — as we choose policy”

http://economix.blogs.nytimes.com/2011/04/28/how-bernanke-answered-your-questions/

Pessimistic Bernanke Fed Admits QE Has Failed In FOMC Statement

In its latest FOMC statement, the Bernanke Fed has admitted the economy continues to remain depressed, essentially admitting that both programs of long-term asset purchases, or quantitative easing, have failed to prop up output after what has been the worst recession since the Great Depression.

http://www.forbes.com/sites/afontevecchia/2011/08/09/pessimistic-bernanke-and-fomc-practically-admit-qe-has-failed/

“Monetary policy can do a lot, but monetary policy is not a panacea.” -- Ben Bernanke 9/29/11

U.S. "close to faltering," Fed ready to act: Bernanke

Asked whether another round of bond purchases, known as quantitative easing, was in store, Bernanke was noncommittal.

"We never take anything off the table because we don't know where the economy is going to go. We have no immediate plans to do anything like that," he said.

http://www.reuters.com/article/2011/10/04/us-usa-fed-bernanke-idUSTRE79337C20111004

Central banks may need to burst bubbles: Bernanke

Federal Reserve Chairman Ben Bernanke said on Tuesday that central banks may need to resort to monetary policy to combat asset bubbles, although regulation should be a first line of defense.

http://www.reuters.com/article/2011/10/18/us-usa-fed-bernanke-idUSTRE79H5IR20111018

 

Look at the progression there. As far back as May 2011, Bernanke admitted the benefits of QE were less attractive. He’s since not only admitted that asset bubbles exist (something Greenspan never admitted) but that Central Banks may even need to “burst” them!?!?

In what way do ANY of these indicate QE 3 is coming any time soon… if at all.

Which brings us to today. Once again the economy is weakening and once again the markets are under duress. And the pundits are out in full force saying QE 3 is coming in early 2012.

My question is: How exactly is the Fed going to sell that one?

The Fed can’t possibly claim it’s trying to lower interest rates with the short end of the curve essentially offering 0% and Operation Twist 2 focusing on getting the long-end even lower (at a time when the 30-year is already under 3% and the 10-year under 2%)?

Also how is Bernanke, who is now so politically toxic that he’s complaining to Congress that the media is treating him unfairly (and having his leaks at the Wall Street Journal write “Bernanke’s just like the rest of us… with a kindle and everything” articles) going to be able to unveil QE 3 without major consequences to his career?

Folks, this is the same man who used to lie openly to Congress about his intentions… who acted however he saw fit and was beholden to no one… NOW WRITING TO CONGRESS DEFENDING HIS ACTIONS AND COMPLAINING THAT HE’S BEING UNFAIRLY TREATED.

Do you really think Bernanke can launch another MAJOR monetary policy in this environment? Heck, EVERY GOP candidate is talking about firing him or calls his actions borderline treasonous. And with Obama’s rating at new lows… do you really think he’s going to be defending Bernanke when it’s already obvious that both the GOP and the general populace are outraged at the Fed?

Not. A. Chance.

The simple fact is that QE 3 is not coming… at least not without a 2008-type event or one of the TBTFs going under first. And even then, Bernanke may find that the political environment won’t tolerate it (after all, the simple argument to counter the need for QE 3 would be: “We’re in a Crisis again… so QE 1, QE Lite, QE 2, and Operation Twist 2 failed to solve the problem… so why should you launch QE 3?”).

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