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Three Reasons Why QE 3 Ain’t Coming Anytime Soon

Phoenix Capital Research's picture




 

The primary reason the markets have held up since QE 2 ended was because the bulls believe QE 3 is coming soon. I myself believe this is true (that QE 3 is coming) but it’s going to take a lot more for it to arrive than most expect.

 

The three reasons I believe this are:

 

1)   Internal dissent at the Fed

2)   Bernanke is now a political PR weapon

3)   The UK riots

 

Regarding #1, during the latest Fed FOMC meeting, three Fed Presidents voted against the policy of extending ZIRP through 2013. This was the most dissenting voters since 1992.

 

What this tells us is that the days of easy free money from the Fed are over. Remember, this wasn’t three dissenting votes against QE 3, this was three dissenting votes against keeping interest rates low.

 

Understand, these guys would only vote against loose money if they knew it was problematic. And I can assure you, some of them are thinking about what’s next career-wise (the next Fed Chairman will have to be more hawkish). If I were a Fed President looking to move up the ladder, I’d certainly be building a track record of voting against more money printing.

 

So any move to launch QE 3 is going to be met with fierce resistance. Indeed, the only thing that might permit QE 3 to happen would be for a large bank to fail or a full-scale market crash (S&P 500 sub-1000).

 

Regarding #2, both Rick Perry and Michel Bachman have taken public jabs at Bernanke in the last week. Do you remember any Presidential candidate (other than Ron Paul) taking jabs at the Fed in any of the elections of the two decades? NOPE. The Fed barely even got mentioned during the elections.

 

This tells us point blank that Bernanke and the Fed will be an issue during the 2012 Presidential election. This means that the Fed will be under much greater political scrutiny, which in turn means no QE 3 (or other politically unpopular moves) unless we have a disaster or major bank fail. QE 2 was unpopular enough (a record number of Americans say they’re paying more for food today than ever before). QE 3 will be even more so.

 

And of course, there are the UK riots to consider. While the mainstream media is downplaying that mess, I can assure you the politicians are aware of it and pondering whether it could happen in the US (it can and it will). The Fed may be an alleged “independent” political entity, but that doesn’t do much for you when people are setting buildings and cars on fire out front your office. Bernanke is beholden to the banks. But the banks aren’t going to stop riots.

 

My primary point is this: the political and social environments in the US are growing increasingly anti-loose money from the Fed. The Fed knows this which is why we’re seeing dissent internally (see Dallas Fed President Dick Fisher’s comments from earlier today).

 

So absent some kind of catastrophic event, QE 3 isn’t coming any time soon. Which means the floor has come out from under stocks (it just did). Which means…

 

The next leg down is here.

 

If you thought the first leg down for this market collapse was bad, wait until you see the next one. I fully expect we’ll see the S&P 500 down to 1,000 in short order, or possibly even lower.

 

However, there’s no reason why this can’t be a time of profits for you. Indeed, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.

 

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Good Investing!

 

Graham Summers

 

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Thu, 08/18/2011 - 02:13 | 1571674 Doyle Hargraves
Doyle Hargraves's picture

S&P goes under 1000, BAC fails miserably, que the blank checks from the congress and QE3 to start...it's in the script, what may not be in the script is Ron Paul benefitting from QE3 politically if he plays it right!

Thu, 08/18/2011 - 01:48 | 1571651 electronpaul
electronpaul's picture

"So any move to launch QE 3 is going to be met with fierce resistance. Indeed, the only thing that might permit QE 3 to happen would be for a large bank to fail or a full-scale market crash (S&P 500 sub-1000)."

"So absent some kind of catastrophic event, QE 3 isn’t coming any time soon."

Next paragraph:

"I fully expect we’ll see the S&P 500 down to 1,000 in short order, or possibly even lower."

How did this get posted on ZH?

BTW SPX 1000 is almost guaranteed, it is 50% retracement of the move up.

 

 

Thu, 08/18/2011 - 00:35 | 1571582 mayhem_korner
mayhem_korner's picture

The notion that these guys are holding out or somehow are "deciding" when to do what is misplaced.  They have no grand plan.  Their hands will be forced by the confluence of a deflating Dow and, more importantly, a pullback from Treasuries that threatens yields bubbling up.  I don't buy for minute that they know "when", they just know when the pain point triggers the go.

Thu, 08/18/2011 - 00:10 | 1571543 zorba THE GREEK
zorba THE GREEK's picture

Our economy is in terrible shape now because of borrowing. Too much borrowing can be a bad thing and

lending can be even worse. For example, 6 months ago I lent someone $10,000 to get plastic surgery. 

Now I don't even know what he looks like.

Thu, 08/18/2011 - 00:07 | 1571538 sellstop
sellstop's picture

" QE 2 was unpopular enough (a record number of Americans say they’re paying more for food today than ever before)."

I seem to recall food prices rising in '07, along with every other price. That would be some time before QE.

I suppose if all Americans stopped eating we could drive the price of food down. For a little while. Food prices are rising because the rest of the world is increasing their standard of living. And that includes eating better. They have decoupled. We don't drive prices at the margin anymore, barring catastrophe.

QE2 causing high food prices is propaganda. Only to the extent that QE2 enabled people to eat a little better than they did before has QE2 influenced food prices.

gh

 

Thu, 08/18/2011 - 00:39 | 1571587 FeralSerf
FeralSerf's picture

Or the conversion of corn to ethanol motor fuel could be stopped.  Much of the increase in food prices are related to the higher prices of corn caused by fuel demand.

Wed, 08/17/2011 - 23:57 | 1571515 instinctiveDrift
instinctiveDrift's picture

There won't be any crisis because Justice will just jail anyone who says a bad word (ie. speaks the truth) about the current state of our economy.

http://www.cnbc.com/id/44184348

instinctiveDrift

 

Wed, 08/17/2011 - 22:53 | 1571365 alexwest
alexwest's picture

first Bruce, then this idiot..

#So absent some kind of catastrophic event, QE 3 isn’t coming any time soon.

hey stupid, asnwer 1 simple question

WHO IS IN RIGHT MIND GOING TO BUY ADDITIONAL 2 TRLN $$ OF FEDERAL BUDGET DEFICIT IN 2012 FIN YEAR ?

no more discussion
alx

Wed, 08/17/2011 - 23:40 | 1571461 sun tzu
sun tzu's picture

I believe they will hold off on QE3 or it will be smaller. They need oil prices to drop seriously or else there will be a full blown depression. The only reason the economy improved slightly in 2009 was because oil prices dropped to $33/brl and gas was at $1.80/gal in March 2009. That put more money into the economy than 0bama's stimulus and it didn't cost the government/taxpayers anything.

Wed, 08/17/2011 - 21:26 | 1571118 Anonymouse
Anonymouse's picture

I still cannot see how the US government's funding needs, >$1T/yr even in their estimate, can be met without the Fed being the purchaser.

Who else has that appetite for US sovereign debt at today's rates?

But if rates rise sufficient to attract a market, the Fed's balance sheet is damaged further, deficits rise dramatically, and the real estate and banking crisis comes back with a vengeance.

That is completely ignoring the politics of the situation.

So what am I missing?

Thu, 08/18/2011 - 06:37 | 1571822 Raymond Reason
Raymond Reason's picture

As stated by a previous poster, the Primary Dealers buy US debt with money borrowed from the Fed and pocket the carry trade.  ZIRP is in fact QE3. 

Wed, 08/17/2011 - 22:58 | 1571378 alexwest
alexwest's picture

you dont miss anthing

all those pundits always forget that this ponzi pyramid is still alive because

of depression level of 10% of federal budget deficit  ..

alx

Wed, 08/17/2011 - 20:58 | 1571050 Everybodys All ...
Everybodys All American's picture

4. PPI number today was rather hot. QE3 would ignite serious inflation concerns.

Wed, 08/17/2011 - 21:27 | 1571120 Imminent Crucible
Imminent Crucible's picture

#5. Graham grossly overestimates the American people. Yes, they know they're paying more for food and energy, but 94% of them have no idea that it has anything to do with QE2--WHICH IT DOESN'T.

How's that? Steve Saville charted every single Fed accomodation over the years AND the resultant rise in CPI inflation. He found that the lag is NOT the supposed 6 to 12 months, but rather 18 to 24 months. It takes a lot longer than people suppose for easy Fed credit grants to make their way from the Fed through the Primary Dealers, through the regionals and locals into the consumer economy.

So we're seeing the inflationary results of 2008-9 "liquidity facilities" and of QE1, and maybe QE Lite. The damages from QE2, which began just last November, haven't even appeared yet.

Thu, 08/18/2011 - 00:33 | 1571579 mayhem_korner
mayhem_korner's picture

Good insight.  Do you have a link?

Wed, 08/17/2011 - 20:53 | 1571038 Downtoolong
Downtoolong's picture

Bernanke's biggest public commitment right now is to  keep interest rates low through mid 2013 (behind the curtain there may privately be other intentions, but, who knows?). As long as market conditions keep driving many investors (aka lunatic fools) to Treasuries Bernanke doesn't  need to do anything. It's all playing right into his hand. But, for how long? This is one curious development that I really don't think he has control over. IHowever, if it starts to turn on him he will have no choice but to QE3...n to keep his commitment.  

Wed, 08/17/2011 - 21:32 | 1571128 Imminent Crucible
Imminent Crucible's picture

I submit that guaranteeing ZIRP for two more years is a form of quantitative easing. Think about it: The banks know they can borrow money for nothing and the rates will stay near nothing for AT LEAST two more years. That guarantees that the primary dealers have every incentive to borrow free money from the Fed, buy "risk-free" Treasury paper with it and pocket the carry. The game continues, and the monetary base keeps heading off the charts.

http://research.stlouisfed.org/fred2/series/BASENS

Thu, 08/18/2011 - 06:31 | 1571819 Raymond Reason
Raymond Reason's picture

Ed Zachary. 

Wed, 08/17/2011 - 20:11 | 1570973 Bring the Gold
Bring the Gold's picture

For the folks who think the rioting was context-less I suggest you watch this Episode of the Keiser report. The economist predicted all of this in 2009 and it's gonna get worse...

http://youtu.be/kUyutryL_SY

Wed, 08/17/2011 - 19:02 | 1570861 The Onion Of Tw...
The Onion Of Twickenham's picture

Your point #3 strikes me as utterly specious.

 

The looters in the UK were completely unconcerned about domestic economic policy. What happened in London and elsewhere was neatly summarized by one social commentator as "shopping with violence".

 

There have been post hoc analyses from the usual suspects that would seek to attribute the looting to "government cuts". However as has been widely noted, the cuts have not yet been implemented.  

 

I don't deny the possibility that there will be riots in the USA - after all they have happened in recent memory - but the events in England are due to local cultural factors that don't translate to the USA.

Wed, 08/17/2011 - 20:08 | 1570967 Bring the Gold
Bring the Gold's picture

Your naivety is breathtaking. Care to consider why there was no "shopping with violence" during the late 1990's? Perhaps it was due to the rising tide appearing to lift all boats. Once the bankers pulled the plug on that poor people came crashing down hard.

At the same time we all watched the bankers steal TRILLIONS worldwide. The common man is dumb, but not that dumb. They are poor and angry at seeing inflation destroy what little they DO have. When theft is done in broad daylight by the bankers at the top of the pyrmaid the proles want their piece of the action as well.

The truly stunning part about the riots is that people like you see it as causeless and in a vacuum rather than a harbinger of things to come. The middle class and lower tier rich more than anyone else should be scrambling to stop the madness of the elite for it is THEY who the poor will come for first in their anger at the rich.

The poor make no distinction between the middle aged man in a late model mercedes and to David Rockefeller and fellow elites flying about in a helicopter. The only difference is ease of access.

The pitchforks are glinting from the light of the torches. Protect the status quo of banker theft at your peril! Yes, I am quite serious. You have seen nothing yet. When the poor get crunched more this series of riots will look like a summerday stroll in the park. The government will get more repressive and the proles will get angrier and then things will get really, really bad.

Thu, 08/18/2011 - 00:14 | 1571554 StychoKiller
StychoKiller's picture

So, why no burning of Govt buildings or looting of Banks?

Wed, 08/17/2011 - 18:58 | 1570850 SwingForce
SwingForce's picture

QE3 is here already you moron, have you seen TLT lately???? Its pathetic that you get paid to write the shit that you do... http://www.xtranormal.com/watch/12373724/q-and-a-w-slash-with-larry

Wed, 08/17/2011 - 18:57 | 1570848 LookingWithAmazement
LookingWithAmazement's picture

"QE3" is coming, but in a different way: (ab)using the non-borrowed reserves.

http://www.financeandeconomics.org/Articles%20archive/2011.08.17%20Bank%20Credit%20Repo.htm

Wed, 08/17/2011 - 18:53 | 1570832 anony
anony's picture

Depends on your definition of, "any time soon".

Wed, 08/17/2011 - 17:22 | 1570576 bid the soldier...
bid the soldiers shoot's picture

"both Rick Perry and Michel Bachman have taken public jabs at Bernanke in the last week. Do you remember any Presidential candidate (other than Ron Paul) taking jabs at the Fed in any of the elections of the two decades?"

These zombies are not Presidential candidates. They are just the most ambulatory of the living dead known as members of the Tea Party.

Is it not also a possibility that there was an immediate segue from QE2 to QE3? With all the bad publicity that the 2 QE events had, perhaps the Fed has decided not to announce future 'printings'. I just asked here the other day whether there was a a rule that the Fed had to announce future QEs. No one had any idea. They probably don't. They do make up their own rules, after all.

In so far as QEs down the line are concerned, I think we all ought to be prepared for a classic example of "diminishing returns." Just saying.

Wed, 08/17/2011 - 17:19 | 1570573 HpDeskjet
HpDeskjet's picture

In the conditions for more QE, mr Summers comes back to a good reason => a possible bank failure, but he forgets to put this as the most important reason 4: The lack incentives for more QE.

QE1/2 were needed to get MBS of the bank balance sheet for ridiculous prices and to finance the governement stimulus.  At this moment the government is in a catch 22 because of the rating agencies/bond vigilantes. Deficits have to be reduced. If they dont do it, US will be downgraded further (also by Fitch/Moodys) causing interest rates to rise sharly sooner or later. The FED/Government have to choose between the bond market (long term solvability/liquidity) and the stock market (short term growth). There is no way they will prefer saving stocks over bonds. Besides, more QE will have only a very limited effect, there is enough cash/liquidity, people/companies just have no incentive to lever up....

Wed, 08/17/2011 - 16:54 | 1570454 Calmyourself
Calmyourself's picture

Thats all well and good as no QE3 no re-election, three however makes Ben more likely to implement..

Wed, 08/17/2011 - 16:29 | 1570325 Big Ben
Big Ben's picture

I tend to agree with the first two arguments against QE3. The Fed is taking heat for QE1 and QE2 and I don't think they will do QE3 until something fairly bad happens.

I don't see how the UK riots have any relation to QE3. The rioters seem to have been upset about government spending cuts (or perhaps they were just bored). They weren't protesting loose monetary policy.

Wed, 08/17/2011 - 19:58 | 1570954 Bring the Gold
Bring the Gold's picture

Inflation is similar in its detrimental effects to austerity for the poor. Couple that with a rampant ethos of plundering by those in the City of London and you have a tinderbox waiting to go up. Throw the spark from police brutality and voila you have riots due to social inequality. I don't condone the riots, but I am not surprised they happen when society allows such intolerable lawless looting...BY THE BANKERS! Trickle down ethos, of course when one steals 10 billion, one gets a bonus, when one steals ten quid, one gets a sentence.

Wed, 08/17/2011 - 16:19 | 1570263 brokenspoke
brokenspoke's picture

Riots? I don't think so. Ok maybe in the liberal anti-2nd amendment cities and States. Here in Texas we have the Castle Doctrine which allows a person to protect their property and lives.Among other things the 2nd amendment is also a protection for the 1st amendment but looting,burning, and rioting isn't an expression of free speech! 

Wed, 08/17/2011 - 17:38 | 1570626 mrdenis
mrdenis's picture

my friend lives in Texas ....riots ,your kiddikg right ....http://i.imgur.com/7oDhF.jpg

Wed, 08/17/2011 - 19:30 | 1570907 brokenspoke
brokenspoke's picture

Yes Sir! I see you understand "no problem".

Wed, 08/17/2011 - 16:17 | 1570254 Panafrican Funk...
Panafrican Funktron Robot's picture

The "appearance" of dissent at the Fed is just that, appearance.  Bernake as a political weapon, you're correct, he is, but why not weaponize him more greatly in order to create the critical mass necessary to elect the RINO's they need to ensure the illusion of change.  As has been previously discussed, there truly is no other option to QE 3.  It's the only card, and that card is a mandatory play.  The rest is just obfuscation.

Wed, 08/17/2011 - 16:06 | 1570198 Fuh Querada
Fuh Querada's picture

Define "soon".

Wed, 08/17/2011 - 15:43 | 1570081 Sudden Debt
Sudden Debt's picture

UK riots?....

that where just british kids who got bored and where looking for some old school fun.

 

Wed, 08/17/2011 - 15:44 | 1570032 AlaricBalth
AlaricBalth's picture

Yes but the banks are still getting "easy free money" from the Fed via their .25% interest on Excess Reserves. With $1.62Trillion in reserves, the banks are collecting $4.0 Billion in risk free money. This rate is higher than the banks could earn by lending money to the Treasury on short-term bills.

http://research.stlouisfed.org/fred2/series/EXCRESNS

Wed, 08/17/2011 - 15:36 | 1570024 PaperBear
PaperBear's picture

The Federal Reserve is in a box and in a mindset in which another round of QE is inevitable.

Wed, 08/17/2011 - 18:29 | 1570764 Hi Ho Silver
Hi Ho Silver's picture

To a dark place this line of thought will carry us. Great care must we take.

 

It's treason, then.

http://youtu.be/mIx2EJLUgkE

Wed, 08/17/2011 - 15:49 | 1570116 mt paul
mt paul's picture

if the fed 

"is in a box"

tape it shut 

mail to tinbukto...

with no return address...

 

bill me for postage...

Wed, 08/17/2011 - 15:33 | 1569994 zorba THE GREEK
zorba THE GREEK's picture

This article contradicts itself in saying QE3 is not coming soon and that it would take a bank

failure or S&P crash to below 1000 for it to happen. Yet they fully expect to see the S&P to

go down to 1000 or possibly lower in short order. So in effect, the fact that no QE3 will be

coming soon removes the floor from the market and ushers in a decline in the S&P which

could bring on QE3. Hmmmmmm..... So because no QE3 is coming soon, then QE3 is coming soon.

Wed, 08/17/2011 - 17:50 | 1570633 vast-dom
vast-dom's picture

Nice catch Zorba. Graham is too busy peddling $350/oz gold to subscribers to notice his erronious logic flaw.

#3 UK Riots is so tenuous that it essentially strips all credibility. 

I keep thinking Dow below 10k right around Aug26 = most convenient timing. But WTF do I know?

 

 

Wed, 08/17/2011 - 16:13 | 1570235 SeverinSlade
SeverinSlade's picture

You summed it up well.

QE3 will come because it has to.  But we all know the conditions that have to be met that will allow it.  The S&P at 1200 is still too high.

Wed, 08/17/2011 - 20:54 | 1571043 centerline
centerline's picture

The other condition is that politicians - maybe even public - ask for it, one way or another.  The FED tipped thier hand to this quite some time ago saying that further stimulus would not be done unless the Fed was forced.

Theoretical path is...  financial crisis = soveriegn crisis = political crisis = currency crisis.  Stage 3 is warming up nicely and playing right into the trap. 

Wed, 08/17/2011 - 15:41 | 1570054 JohnG
JohnG's picture

Catch-22

Wed, 08/17/2011 - 15:45 | 1570088 SokPOTUS
SokPOTUS's picture

...or Catch-"44", as the case may be...

Wed, 08/17/2011 - 22:24 | 1571290 mkkby
mkkby's picture

QE is coming back, and maybe it never stopped.  They learned not to play it up so much.  Seriously, without QE every bank goes bk -- do you think TPTB will allow that?  Oh, but a minor fed mouth piece is out sounding off.  Yeah, right -- I believe! 

Bad call phoenix research.

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