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QE Ad Infinitum

Tyler Durden's picture




 

Via Mark J. Grant, author of Out of the Box,

“Money does not buy you happiness. However it will allow you to be unhappy in nice places.”

                         -The Wizard

In the past, for all other QE announcements, we saw the stock market rally, we saw Treasuries up and the results of a Fed ease were dramatic. Yesterday; not so much. It was a Ho-Hum with equities down slightly, Treasuries off almost a point and a quiet blah response. There are some that mark this up to the “telegraph effect” where everyone expected it and we got exactly what was expected but I am not so sure this is the correct assessment. The “telegraph effect” may be part of the answer but I don’t think it was all of it. In the first place the Fed reneged. I would say that is the correct word because they changed the fundamental postulate from zero short rates until 2015 to zero short rates that are now dependent upon other factors. These are a line in the sand for Inflation and an unemployment figure of more than 6.50%. There is no way around it; the Fed had promised one set of circumstances and in the middle of the game they changed the rules and so any reliance upon what the Fed puts out must be viewed with a skeptical eye. It may be true for a time or until it is less convenient but we just learned that what the Fed states cannot be counted on with any certainty and so much for the credibility of Mr. Bernanke. No one really wants to talk about this, of course, and no one wants to mention that the Fed Chairman has changed the rules of the game in the middle of the game but there you are; a backsliding Federal Reserve Bank whose statements are only crafted for the moment and future moments may be brief; we just don’t know. Apparently we have transitioned to a “whatever is convenient” policy at the Fed and we all should bear that in mind when assessing probable actions.

When money talks, nobody pays any attention to the grammar.

Forever and Ever?

I have never been married, the smart fellow that I am, but I do know that marriage has some “forever and ever” words as part of the ceremony. These, of course, actually do have limits as fifty percent of all marriages end in divorce and fifty percent end in death so that the concept has actual limits regardless of the premise. The world’s economies have been fostered and sustained since 2008 by the central banks of the planet working in tandem to make sure that the entire globe did not slide into the hellhole of Depression. To that extent the concept has worked but we are still on the lifeline to date and no one seems to want to get off of it. It is similar to a person being hooked on heroin with the inability to withdraw and so the habit continues. There are consequences of this behavior of course including irrational behavior, overblown promises and the increase of the risk that when withdrawal comes that the patient slips into convulsions. Those, however, are long term and systemic problems that will continue to haunt us but in the meantime more mundane issues abound.

Here is what the Fed has done to date in the Treasury market:

  • In the 6-8yr. sector they have bought about 50% of the gross issuance
  • In the 9-20yr. sector they have bought about 70% of the 10yr. gross issuance
  • In the 24-30yr. sector they have bought 100% of the gross issuance
  • In the MBS sector they are buying $45 billion a month all across the curve

The Treasury issues, the Fed prints money and buys, the cost of financing for the country is incredibly low and the yields for investors are paltry. The needs of The State overwhelm the needs of the citizens. The game works because this is what every central bank in the world is doing, one way or another, and so with no way to invest off-world, investors are stuck in the confined space that has been provided by the central banks. All of the new money buoys the equity markets, causes massive compression in the other Fixed Income markets besides Treasuries, decreases the yields of Treasuries the trend is set firmly in place. In the risk markets there will now be a demand as instigated by the Fed, that overwhelms the supply of new issuance. Between the coupons paid and the maturities for 2013 the figure is about $1 trillion in excess demand more than estimated forthcoming supply. Given the 36% loss in wealth that took place in America during the 2008/2009 period the odds of an asset allocation shift out of bonds and into equities is de minimis in my opinion and so the “Great Compression” will continue.

“There is no art which one government sooner learns of another than that of draining money from the pockets of the people.”

                     -Adam Smith

Buy as far out and with any credit you can stomach and you will win this game for the time that it exists. Buy anything with a discount and anything that throws off a decent yield and you will be rewarded for your savvy good sense. There will be a moment when the battleships, the star cruisers, the aircraft carriers who are the huge money managers will have to turn on a dime or hedge up their positions in some fashion but we are not there yet; not anywhere close to there yet. Now the money flows, the coupons pay, bonds mature, the supply of new issuance is limited and bought up by the Fed in Treasuries and Mortgages and the balance sheet at the Fed grows to equal the ECB at $4 trillion and the present day artifice prevails.

“Giving money and power to governments is like giving whiskey and car keys to teenage boys.”

                        -P.J. O'Rourke

 

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Thu, 12/13/2012 - 12:02 | 3059541 achmachat
achmachat's picture

in other words:

commodities are on fire-sale!

get your gold and silver while supplies last!

Thu, 12/13/2012 - 12:10 | 3059583 nope-1004
nope-1004's picture

CNBS this morning was rather insightful.  That idiot Liesman asked "if Bonds are so bad, why aren't you selling them?" to one of Santelli's buddies on the floor.

The answer -- "Who's going to buy them?"

LOL.  Fucking hilarioius.  Liesman is such a blubbering fool.

Anyway, made me laugh pretty good.

 

Thu, 12/13/2012 - 12:21 | 3059662 fonzannoon
fonzannoon's picture

@Nope - exactly. I talked about a few articles down. The one about Jobless claims I think. I had a different take on it. But it was funny none the less.

Thu, 12/13/2012 - 12:24 | 3059682 francis_sawyer
francis_sawyer's picture

Anyone who owns bonds these days knows they can't sell & is just hoping that the system stays propped up long enough to convert their coupons into phyzz before it all blows sky high...

Thu, 12/13/2012 - 12:30 | 3059710 Enslavethechild...
EnslavethechildrenforBen's picture

Hyperinflation going to wack you in the face soon.

Got Gold Bitchz?

Thu, 12/13/2012 - 14:28 | 3059962 SafelyGraze
SafelyGraze's picture

New Army Manual Orders Soldiers Not To Criticize Wall Street

The draft leaked to the newspaper offers a list of “taboo conversation topics” that soldiers should avoid, including “making derogatory comments about Wall Street,” “advocating women’s rights,” “any criticism of pedophilia,” “directing any criticism towards bankers,”  or “anything critical of bonuses, beheadings, seizure of assets, rehypothecation, vaporization, high-frequency trading, jawboning, outright lying, fraud, theft, hookers, coke, money laundering, front running, zero-value collateral, and other things." 

 

paywall alert http://online.wsj.com/article/SB1000142412788732402400457817156123064785...

Thu, 12/13/2012 - 20:29 | 3061232 Tommy Gunner
Tommy Gunner's picture

Santelli is an even BIGGER asshole though.   Recall his defining moment saying 'do you want to pay for your neighbours house that he couldn't afford'

Well Rick every goddam tax payer paid to bail out the cocksuckers who kicked off this crisis - namely the banks who were bailed out with trillions.

Who CONTINUE to be bailed out with free money out of YOUR pocket as they line up at the window to get cash at ZIRP.

If you weren't such a fucking toady jackass hypocrite on the CNBullshit network you might actually point out who the real villains are here....

Sure the assholes who bought into 'prices can never fall' and bought mcmansions are assholes.... but its YOUR banking buddies who are the criminals.

Ask the QUESTION Rick - use your BIG fucking mouth and SCREAM the question like you usually do:

 

WHY AREN'T THE FUCKING BANKERS IN JAIL?  WHY ISN'T CORZINE IN JAIL? 

 

Fuck you Santelli you RAT BASTARD!!!! (and btw - if you want proper finanical news go to bloomberg - CNBC is for toss pots)

Thu, 12/13/2012 - 12:45 | 3059786 stocktivity
stocktivity's picture

This is all you need to know...take a step back...clear your head of everything else for a second...and re-read it -

The Treasury issues, the Fed prints money and buys

Thu, 12/13/2012 - 12:03 | 3059543 Temporalist
Temporalist's picture

"It's transitory." -Ben Bernanke

Thu, 12/13/2012 - 12:15 | 3059619 mayhem_korner
mayhem_korner's picture

 

 

Until it isn't.  Those "barbarous relics" just may have "transitory" value in the near future, Benny...

Thu, 12/13/2012 - 12:04 | 3059547 mrktwtch2
mrktwtch2's picture

the germans are secretly dumping gold..they will abandon the euro in late 13...it collapses the dollar soars and gold goes back to 800..nice to to trade when you know what the score is..lol

Thu, 12/13/2012 - 12:09 | 3059578 Temporalist
Temporalist's picture

Like when the Germans bombed Pearl Harbor?

Thu, 12/13/2012 - 12:33 | 3059728 Enslavethechild...
EnslavethechildrenforBen's picture

The only ones abandoning Gold are the sheeple. To the benefit of those that are accumulating it at the current reduced price.

Thu, 12/13/2012 - 12:12 | 3059602 fonzannoon
fonzannoon's picture

If Germany leaves the Euro the dollar and the euro collapses against the DM.

Thu, 12/13/2012 - 12:29 | 3059701 Rip van Wrinkle
Rip van Wrinkle's picture

The Germans haven't got any gold. The Fed, BoE and bank of France 'own' it.

Thu, 12/13/2012 - 13:29 | 3059958 kliguy38
kliguy38's picture

The only gold the Germans are dumping is are the gold out of their dental crowns.....their gold has been leased out for years now by their masters...just as ours has.....shove it up your ass disinfoboy......

Thu, 12/13/2012 - 12:06 | 3059556 Cognitive Dissonance
Cognitive Dissonance's picture

"......and the balance sheet at the Fed grows to equal the ECB at $4 trillion and the present day artifice prevails."

That $4 trillion will look like chump change in a few years.

<Remember back a few years ago when the Fed's balance sheet was only $4 trillion? Those were the days my friend, we thought they'd never end.>

Thu, 12/13/2012 - 12:06 | 3059562 Turd Ferguson
Turd Ferguson's picture

This is bullshit and NOT what Bernanke said, written by a guy who incorrectly predicted that the announcement yesterday would be for less than the full $85B.

The Bernank clearly stated that the change of wording was for "transparency". Yes, QE may be slowed or halted IF unemployment dips below 6.5% but The Fed's forecasts don't predict that level until 2015. Same shit, different wording.

THERE IS NO CHANGE and who amonh you actually thinks that unemployment is headed to 6.5% anyway? What a joke and a farce all of this is. 

Buy gold and take delivery. It is your only financial protection against the madness.

Thu, 12/13/2012 - 12:11 | 3059588 Quinvarius
Quinvarius's picture

Actually what Bernanke said was there was no threshold to stop at all. The 6.5% number would be ignored, he said, if the economy was still a mess or if it was due to discouraged workers leaving the count.

I agree with Grant.  Load the F up while there are still fools trying to outsmart the market.

Thu, 12/13/2012 - 12:11 | 3059593 nope-1004
nope-1004's picture

Buy with both hands.  They will manipulate price until the end.  You have to understand that going in, or don't go in.

 

Thu, 12/13/2012 - 12:15 | 3059617 yogibear
yogibear's picture

Yes it is madness. By getting locking itself in buying US debt and unemployment it sealed it's future.

It's a run-away train without brakes. Watch what it does to the US dollar.

It will not watch CPI and instead watch it's limited core index.

 

Thu, 12/13/2012 - 12:09 | 3059579 Inthemix96
Inthemix96's picture

And a very good contact I have right in the centre of the square mile has informed me of the mood of the place in the runup to the christmas well deserved break.  Right here in the middle of Londonistan.

He asked me pass this message on for the attention of one B.Bernank.

"Go fuck yourself you cock sucking cunt", is what he said like.

Oh, he also said "Dwarf twat".

Thu, 12/13/2012 - 12:10 | 3059581 yogibear
yogibear's picture

Bubble Bernanke and the Fed. Destroyer of the US dollar.

He said he will let the Fed's balance sheet expand. One trillion dollars next year, another trillion the following year.

He also said he will measure inflation based on some Fed core measures and ignore CPI.

So he will keep buying US treasury debt while the CPI increases are ignored.

This guy is trying to trigger massive inflation. And when it happens he can't stop buying US debt because it will tank the economy. It's easy to figure out the results. 

 

 

Thu, 12/13/2012 - 12:12 | 3059585 NoDebt
NoDebt's picture

I think I liked The Fed when they were LESS transparent in their communications.

Better to keep quiet and leave people guessing whether you're smart or not than to start talking and remove all doubt.

This is going to hurt SOOOOO bad when it turns, it's going to be like a root canal while wide-awake and unsedated.

Thu, 12/13/2012 - 12:14 | 3059613 moneybots
moneybots's picture

"This guy is trying to trigger massive inflation."

 

Then why hasn't he done so already?

Thu, 12/13/2012 - 12:44 | 3059782 Dr. Engali
Dr. Engali's picture

That's the advantadge of having the reserve currency status. Everybody else feels it before we do. It works it's way up the food chain just like this debt bomb is.

Thu, 12/13/2012 - 12:20 | 3059659 yogibear
yogibear's picture

"Then why hasn't he done so already?"

He's been exporting it to other countries. Others have been buying US debt to prop up exports. It's about the end of that.

Thu, 12/13/2012 - 12:23 | 3059672 theorist
theorist's picture

I can't get over all of this. Indeed the Bernank, yesterday, said that the criterion has been changed in order to provide more trnsparency. Rather than have a date that is changed as circumstances change, one has a pair of criteria to work with. He will print until unemployment is below 6.5% as long as inflation does not exceed 2.5%. This leaves me rather confused:

1.) The definition of inflation has already been changed to PCE. In case inflation starts to come in higher per this measure will they stick to this or will the Fed decide on some new lower measure.

2.) There is an assumption in the statement that bond purchases reduce unemployment. What if they don't, and there is little or no correlation as people now suspect. This is like a witch doctor prescribing leaches to suck the blood out of a patient until theor anemia is cured!!!

 

Thu, 12/13/2012 - 12:24 | 3059679 azzhatter
azzhatter's picture

Fuck You Bernanke

Thu, 12/13/2012 - 12:35 | 3059734 forwardho
forwardho's picture

In the 24-30yr. sector they have bought 100% of the gross issuance

This is the backstop to the long term "value" of the dollar.

It has just been publicly admited that the Fed is now the buyer of last resort.

They are being purchased with imaginary money.

If there is no "real" demand, [no one willing to buy] can we infer they have no real intrisic value?

 

Thu, 12/13/2012 - 12:34 | 3059735 WhiteNight123129
WhiteNight123129's picture

There is no line in the sand for inflation. They will have almost no power to stop inflation, when you start it, it is extremely difficult to get out of the system. The future inflation levels are not born from the future actions of hte Fed but from teh actions up to now.

As far as the ability to jaw bone the bond market, cat and mouse with Bernanke, when he is not watching you wack the bond, take profit, he comes back, does not watch, you short again, take profits he come back.

Best trade is? SHORT TREASURIES. Watch Europe or Japan implosion, those are the distractions that can hurt the Short treasuries bugs.

 

 

Thu, 12/13/2012 - 12:49 | 3059798 Water Is Wet
Water Is Wet's picture

The best trade is never a short, because the most you can make on a short is 100%.  If you are talking derivatives, GTFO.  Go to where the money will flow to, not where it will flow from.

Thu, 12/13/2012 - 12:35 | 3059743 btb2010
btb2010's picture

QE    QE2         OT            QE3                  Qetc   =  QE til collapse

Thu, 12/13/2012 - 12:39 | 3059761 A. Magnus
A. Magnus's picture

Greetings Zero Hedgers! A. Magnus here, independent recording artist by night, wage slave by day, longtime stacker and general pain in the ass! I trust I should fit in well in these parts. I'd like to add to this conversation by proposing a theme song for this site, composed by your friend and humble narrator...I present to you "Gold, Bitch!"

http://www.youtube.com/watch?v=x7i4pByuOUo

Enjoy, bitchez!

Thu, 12/13/2012 - 14:16 | 3060115 A. Magnus
A. Magnus's picture

To the fucktard who junked me on my virgin post here - show yourself, you little bitch and get your problem out in the open. If you're gonna junk me, have a set of balls and give me a reason...

Thu, 12/13/2012 - 14:50 | 3060246 LFMayor
LFMayor's picture

I hope spandau ballet sues your self absorbed ass just like Robbie Van Winkle got it by wild cherry.

Thu, 12/13/2012 - 15:00 | 3060296 A. Magnus
A. Magnus's picture

You might want to extricate those penises from your ear so you can hear straight; there is as much in common with Spandau Ballet in my music as there is with fiscal responsibilty and gubbermint.

Thu, 12/13/2012 - 15:59 | 3060566 LFMayor
LFMayor's picture

much in common? 

Sucks == Sucks.  That there's a balanced equation if I ever saw one.

Welcome to Fight Club.  Quit whining about the bruises, they're complimentary.

Thu, 12/13/2012 - 16:07 | 3060591 A. Magnus
A. Magnus's picture

Nigguh puh-leeze! You call that a bruise? Felt more like your tongue circling my sphincter.

ANY statement of artistic quality coming from a non-producing parasite gets filed in the same directory as ass-crack lint...

Thu, 12/13/2012 - 16:34 | 3060705 LFMayor
LFMayor's picture

Zamphir:  Master of the Pan Flute

Magnus:  Master of the man-flute.  Maestro of the bearded bagpipes.  Skin flutes. meat-whistles.  virtuosso!

Thu, 12/13/2012 - 16:43 | 3060736 A. Magnus
A. Magnus's picture

There's a REASON I told you to take those penises out of your ear; apparently you had 'em jammed in WAY too deep and now that's all you've got on the brain. I'm sure your weekly appointment giving 'stress relief' to Barney Frank will fix your wagon for you...

Thu, 12/13/2012 - 12:55 | 3059817 Mercury
Mercury's picture

 Apparently we have transitioned to a “whatever is convenient” policy at the Fed and we all should bear that in mind when assessing probable actions. When money talks, nobody pays any attention to the grammar.

Well, you can see the temptation to move in that direction. After all, the constitution has now been effectively if not officially modified in much the same way. 

 

 Maybe they will call it “living, breathing” Fed policy.

 

Thu, 12/13/2012 - 13:27 | 3059950 OldE_Ant
OldE_Ant's picture

lol.  We've transitioned to the 'talking FED' policy. 

If we say it the markets will move first and ask questions later. 

At some point more and more will wake up and simply take the luke warm air coming out of the talking head orifices as 'nothing at all' or at best mouth farts that only stink up the room.

Thu, 12/13/2012 - 12:50 | 3059818 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

I appeal to the ZH brain trust to explain to poor Ali just how the Federal Reserve is "charged" with managing the unemployment number. If I get laid off what does Ben have to do with me finding working an mamking a living for myself (family) to survive?

how can this be????? what am I missing???

 

 

many thanks to ZH and all

Thu, 12/13/2012 - 12:55 | 3059829 TruthInSunshine
TruthInSunshine's picture

I don't think anyone said The Bernank is directly hiring or firing your ass.

I think many have stated that Bernankified (aka Bernankadonk, aka FUBAR'd, aka Bernak'd-Broken-Markets) monetary policy directly impact the (lack of) demand for employees.

Keep trollin' along now, fuck head troll.

Thu, 12/13/2012 - 14:13 | 3060101 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

Yes, thank you for your response,

I was hoping for a more intelligent response as to why the Federal Reserve is responsible for the unemployment number.

 

Ref. Hostess CEO raiding the pension fund and other CEO pay that is out of wack compared to regular employee wages, tax policy etc. But the Fed is responsible for unemployment?

then why don't they publish the unemployment report and offer various programs/ incentives for companies to hire....

 

Thu, 12/13/2012 - 12:58 | 3059848 Mad Mohel
Mad Mohel's picture

If the Bernank makes nice and gives the overlords enough scrilla, then you will get the scraps that fall off the table. That's the thinking anyway. The reality is that vultures don't let scraps fall off of anything.

Thu, 12/13/2012 - 12:54 | 3059828 Quinvarius
Quinvarius's picture

Bernanke is playing the game that is on the table.  The only mistake is making in this game is trying to crap on gold instead of letting it rise naturally to provide the backstop he needs.  He should just call in all the chips on the remains of the gold lease/carry trade implosion and stop trying to protect the people who got buried in it.  Gold is a strong ally and a bitch of an enemy.  If Bernanke doesn't befriend gold, he will find it on the other side of the game board in the end.  And, gold is undefeated.   

Thu, 12/13/2012 - 13:12 | 3059890 pupton
pupton's picture

I'm not sure I understand the point of this article?  Was there a conclusion presented?  I give him 2 stars...(I reserve the dreaded "1 star" for Graham Summers and his ilk.)

 

Thu, 12/13/2012 - 13:23 | 3059943 OldE_Ant
OldE_Ant's picture

QE foreveah will soon become QE whateveah. 

In time it will become QE pleasenevah

While I was in 'hyper' inflation camp I'm beginning to be convinced that the increase money supply is being consumed by debt expansion.  Also ZIRP itself leads to lack of interest income (again deflationary).   Add in a tapped out jobless (or at best wage constrained) consumer and you've got the perfect recipe for zero or negative growth.

The stone has been squeezed dry.  There is nothing left but blood and soon we may end up letting that as well.   The piper can't be paid.  end of story.

Time for a new bag.

Thu, 12/13/2012 - 13:44 | 3060011 sbenard
sbenard's picture

To me, yesterday's Fed announcement only creates and amplifies the air of uncertainty that is collapsing the US economy, driving us over a debt cliff, and destroying our Constitution.

Thu, 12/13/2012 - 13:53 | 3060044 sbenard
sbenard's picture

We're killing the goose that laid the golden eggs, and most Americans can think only, "Where's MY gold going to come from?" Those who think thusly neither deserve, not will they receive, gold nor preserve their freedom. Fools!

Thu, 12/13/2012 - 14:28 | 3060145 hannah
hannah's picture

when you get married, you dont have the words 'i will never murder you' in the wedding because it would be stupid to think that would be needed.....same with the fiat banks. we will never print to the moon....but they did and now it cant be reveresed.

why do people think that the central banks are rational or moral...?

Thu, 12/13/2012 - 14:51 | 3060241 falak pema
falak pema's picture

the Oligarchy does not want QE ad infinitum.

It wants QE to allow can-kicking UNTIL the first world debt has been washed out by monetary dilution, massive transfers of assets from creditor nations to debtor nations via IMF contributons and direct investments. If necessary under the barrel of the gun as in Libya, Irak and now Syria and after that, maybe Iran.

All the while the first world masses are pauperised for a generation or more, making the global oligarchy wealth stashed off shore, ready to be reinvested where ever the social, productivity and labour rate climates are appropriate to further maximising that very Oligarchy wealth mountain. 

The Oligarchy being the world's movers and shakers, innovators and equity holders, that control the governments of the world; now totally devoted to debt liquidation and sheeple pacification. We are the world...is now their song.

One big happy world of feudalista capitalist age. The happy few.

Now...this levelling of global playing field will take the time it takes; meanwhile CBs will control and throttle monetary fluxes and investment arbitration.

So...what's the problem people? Your grandchildren may have a future; if global warming has not occured. 

This shit will have been digested by the powers that be at the expense of the Power that WAS; the "we the people" meme of first world. 

And, remember the killer argument of the Oligarchy : we protect PEACE in first world, as also amongst global players,  our most precious heritage since WW2..."we are the peace lovers of tomorrows age, we won the NOBEL!"

You can't beat that; as they find out in Syria today, as in Greece, in another form of more silent violence; the silence of the lambs.

Thu, 12/13/2012 - 18:59 | 3061091 Joshua Falken
Joshua Falken's picture

Oligarchs only wants to survive and thrive and will screw over anybody to make it happen.

 

There is no grand plan or conspiracy as all of this has never happened on this scale before.

Thu, 12/13/2012 - 18:53 | 3061077 Joshua Falken
Joshua Falken's picture

In the UK we have official government debt of £1 trillion, Private Finance Initiative debt of £350 billion, Bank Bailout costs of £850 billion and unfunded state and public servant pension liabilities of £5 trillion (see page 4 of http://www.ons.gov.uk/ons/dcp171766_263808.pdf).

That is a total of £7 trillion or US$11 trillion which is £238k or US$380k for evry one of the 30 million tax payers in the UK.

This will never be paid back, so we are destined to an endless round of devaluation. just like Japan has over the past 23 years since the January 1990 collapse.

Property, land, energy, reliable recurring revenue streams or any kind of hard to replicate physical asset like gold, diamonds, Picasso's, Bugatti's or Margaux are the only defence.

Thu, 12/13/2012 - 20:10 | 3061278 ramacers
ramacers's picture

the only real ad infinitum on the horizon is unimaginable coast-to-coast deprivation. no foolin'.

Do NOT follow this link or you will be banned from the site!