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The "End Of Easing" Or "The Start Of Tightening" In 12 Charts
While the market's jarring response to Ben Bernanke's (very much un)surprising Taper pre-announcement has been extensively documented and discussed, and is most comparable to the tantrum unleashed during the summer of 2011 debt ceiling negotiation when the market's ultimatum that US spending must go on or the wealth effect gets it, the key question at the heart of the market's confusion is whether Bernanke has telegraphed the start of tightening or merely the end of easing. Stock bulls, obviously, defend the latter while those who dream for a return to normal, uncentrally-planned markets are hoping for the former. But what do the facts say?
The charts below show the 10 previous Fed cycles with the dates of the last rate cut vs. first rate hike. The average time distance between the last rate cut and the first rate hike has been around 15 months.
As per JPM's compilation, the behavior of the 5 asset prices a year before and after the last Fed policy rate cut is shown below. Yields declined in the year before and rose in the year after the last rate cut. It is worth emphasizing that the moves in yields are not adjusted for carry and that most of the 60bp of the average yield increase after the last Fed policy rate cut would have been offset by carry. The UST curve steepened in the year before and was little changed in the year after the last rate cut. Credit spreads exhibited negative correlation with yields, widening in the period before and tightening in the period after. Equities were in a bull market, rising before and after the last rate cut. The dollar was little changed overall.
The behavior of the 5 asset prices a year before and after the first Fed policy rate hike is shown in the next chart below. Yields started rising 3 months before the first Fed policy rate hike. The cumulative increase in the 10y UST had been around 80bp, starting 3 months before the first hike up until 6 months after the first hike. Again a large chunk of this yield increase would have been offset by carry. The US Treasury market experienced bear flattening post the first rate hike. Credit spreads and the S&P500 had been rising consistently before and after the first rate hike. In contrast, the dollar had been weakening.
JPM's take?
Which period is the most comparable to the current one? Strictly speaking, the QE stock approach suggests that it is the one-year period before the last Fed policy rate cut that is more comparable to the current period, assuming the Fed ceases bond purchases in June 2014. The Fed’s forward guidance complicates the comparison though, as a case can be made that a change in rate guidance is now the same as an outright rate change. This makes it more likely that the market reaction is shifted earlier and will be more similar to the period after the last Fed policy rate cut.
Strategically, JPM sees a perfect goldilocks in either case: rising stocks (good luck with that), slowly rising rates, and improving credit.
By looking at market moves post the zero mark... this would imply a benign environment of modestly higher UST yields, rising equities and tighter credit spreads.
In other words, precisely the opposite of what the market has indicated so far!
Of course, the reason why this time really is different when it comes to the dislocation of the Fed from the market, is that never before has the Fed been so inextricably involved from both through stock (20% of US GDP held hostage by the Fed) and flow (injecting 0.5%+ of GDP into the stock market in the form of low-powered money each month). Add to this the sheer market terror that the flow impact from the BOJ may and likely will fade very soon, and of course the ongoing unwillingness of the PBOC to join its reckless 'developed markets' central bank peers, and it becomes quite clear why both charts above are completely meaningless.
However, the will provide macro tourists countless hours of deeply uninsighful watercooler conversations over the next 7 days, and shallow pundits hours of regurgitation why even a tightening by the Fed is bullish for stocks (was Tepper busy buying shovels to bury the shorts in the past few days?) and why grandma would be an idiot not to BTFD.
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They are just letting out some steam. The QE will continue. The rates go up and everything gets fuckered.
yes, it is the interest rate that will ruin the party for them. it reared its ugly head in china and in 10Ys already.
Who, outside the Fed, would like left holding the bag on Treasuries?
QE N+1 will continue following this brief test of market sentiment.
10 year bond yields are fast aproaching the danger zone which will crush any mortgage lending initiatives. Rising rates will not be allowed to happen.
Housing is the last great hope.
What will happen to US debt if Fed no longer buy treasury? Who will buy? What will the yield be? This alone should send chill down one's spine. US gov spending now props up large portion of economy; without gov spending there will be worse depression, real food lines, chaos, civil unrest.
Fed can talk about tapering all it wants, but logic points to QE infinity and hyperinflation. ONly one solution: all old debts must be wiped out and restart.
Agrred. I think a larger question is what happens to the fed budget when these rates even approach historic norms. The budget would be busted. I would like to see a chart of gov debt % as part of spending if rates go up a couple more points, which is sure to happen when Ben stops printing.
New home mortgages are in the dumpster as it stands.
"Rising rates will not be allowed to happen."
The bond market will decide where long-term rates go, and the FED has no choice but to follow.
who would be left left holding the bag on Treasuries?
the Trix rabbit...
id love to see the end game as much as everybody else, but the cbs still dictate the markets.......sentiment wont turn until the economic numbers take a clear and obvious nose dive that cannot be refuted or massaged....and when the cbs actions to offset those numbers dont work....that is when faith in the fed is lost.....that is when tshtf.............WE ARE NOT THERE YET.......you are kidding yourselves if you think rates are going to shoot up uncontrollably in the near term......no chance......it takes one coordinated global cb effort and things are back where they want them to be.........and im only talking about the near term.....once the fed can no longer boost the numbers, and people wake up to the mortality of the fed......you do not want to be above ground.....................you are foolish to be shorting the market now....outright foolish..................
CALM YOURSELF!! I can't work out who you are talking to. As far as the doomsday scenario goes, I'm somewhere in between you [the truth is out there] and Ekm [the truth is here]. You're right though, timing is everything.
LOL sloane.......... im trying to calm everybody else!!! THE SKY ISNT FALLING YET!!!!! sreiously though, i dont see an acute crackup in the markets taking out the country...i see the decline of the country, or some geopolitical shock..... tripping the markets wire detonator..........
This is what I find most interesting; there is no one coherent and cogent plan for management of an acute event in the markets. What has happened is that Fed policy in the last five years has been to treat the markets as if they were already in distress. Its tantamount to putting every single person on a walk-around oxygen tank and mask then being shocked that they can no longer breathe on their own. Within five years they would have a severely weakened pulmonary drive, just as the current markets cannot survive a simple event because their ability to tolerate frustration is completely gone.
The sky is not falling, yet. I agree. That sky won't fall until true price discovery is allowed to breathe on its own. You're right again, you don't want to be above ground when that happens.
I will tell you guys this. As of the first week of next month everyone will truly see that they got ripped a new one in their bond funds. If the stock market still looks like a nice juicy steak, you will see a flood of money come out of bonds. If that happens and the 10yr bumps up towards 3% things can get out of hand.
It may not be doomsday but they have to paint the outside corner with a strike otherwise it's bases loaded. I say it's just easier to have a whopper of a week down in stocks and then march everyone out in full to declare the correction over and the bottom is in.
You would still have all indices green for the year at that point and lower yields with a lot of people scurrying back to the safety of their PIMCO fund.
That is how I see it.
Everyone got spanked last week. If you weren't bleeding from one investment you were bleeding from another. I think that is going to continue. The only question is on what scale. We'll know in the next couple of weeks which way the yields are going. If they hit 3% or above then we know the Fed has lost complete control [which I think they have already to varying degrees]. Its great that you mentioned PIMCO because they are supposedly the bond kings. It would be wise to follow their investment patterns if for nothing else but to get a guage of where they think things are headed. I am expecting Gross to assault Bernanke on the basis of the Fed being the only viable game in town. If and when that happens, we be fucked.
there is no doomsday scenario yet. just a decent correction and a free sandwich.
Pardon the analogy but what we have is a Fed, an inflation tinderbox, and a lighter. The Fed is flicking the lighter and fortunely it only sparks. But the market knows that once the flame is lit, it'll be too late to run. So just like fall 2011, everybody is running first and looking over their shoulder for confirmation. Eventually, we'll all remember how painful it is to bet against the Fed and the farse that is "Global CB Manipulated Markets" will return.
I don't know if there will ever be a day when financial statements matter more than Fed policy statements.
IMHO
Yup, kito, as in "Don't fight the Fed."
And yes, the Fed can control/influence all visible interest rates and market activity, with a little help from it's Pentagon and DHS divisions...and maybe the installation of a Stalinesque figurehead on Pennsylvania Ave.
I'm long GNMA here in my modest "return of capital" portfolio! My way of calling BS. At least on this act of the circus.
Not so sure rising interest rates wull ruin the party for them. It's altogether possible that these theives play this like chess, thinking 5 or 6 moves ahead. This isn't the first time in history rates have risen and after they have again the despots will already have their stragedy in place to steal and pillage more wealth and power. It's disgusting what these rascals are getting away with and a wise person should prepare for some horid times ahead.
Say you're living off a monthly USD income. Perhaps we're talking about retirement money.
Here's my quetion. If one decided to leave the US for, say, Asia, would they be in a better position or worse?
QE = weaker dollar, no QE equals stronger dollar, right? So deflation would help expatriates, while inflation would screw over our buying power, correct?
So if you're right, then going abroad to countries with a favorable exchange rate vs. USD won't save you for very long, right?
More easing is on the horizon. There are several trouble spots in today's markets (PIIGS, emerging markets), and the usual cure is cheap money. This time won't be any different with the only question being will it work.
http://dareconomics.wordpress.com/2013/06/21/around-the-globe-06-21-2013/
can what work? everyone needs to get over the idea that there is a "plan" in any of this. obviously the best approach is for the Fed to say "this can't last forever" then shut it's pie hole. Nay, veerily "full on Ghenghis Khan!" welllll alrighty then! the Great Derformation has morphed into the Greta Perturbation with all of us as Guinieu Pigs again. can't say there is way out...mine sure isn't working though obviously I anticipated change coming unlike most....would appear I jumped to an unstable lillypad with an angry and hungry fish underneath. "I ain't movin' bitchez." every other lillypad looks worse to me right now.
Not so sure. With this out in the open cause and effect, people who were in denial now have to face the fact that the Fed is the market. Even the idiots cannot deny this. Do you think the fed with re-up when everyone, and I mean even the people with their heads up their collective asses, know this?
I think Dareeconomics above has it right. They only have one trick - more flow - and they cannot afford to stop the drip or the patient dies. What questions are there beyond these 2?
1.) Will 'more' continue to keep the bubbles inflated? After all, the laws of diminsihing returns seem to be closing fast.
2.) Have TPTB decided that now is the time to pull the plug? If so, who knows how much they will let go down the drain before they plug it again.
And now, how about a little Unicorn sex, Racoon skittles, and Electri Birds. Warm up your black lights.
https://www.youtube.com/watch?feature=player_embedded&v=O0b0bC2WdrM
I think you might be surprised how many blatant, bold-faced, obvious lies people will believe as long as they're repeated, constantly. loudly, and with conviction by the MSM, the financial media, and a collection of 'expert analysts'. This has already been proven an uncountable number of times.
Yup. There will be no great American 'awakening' until we revisit "Dude, where's my house?" or "Dude, where's my job?" which by that time it will be too late.
They couldnt raise rates if they wanted to. If they want to raise rates game over, the interest payments alone would break the camels back.
QE as far as the eye can see folks, you cannot have to much of a good thing, as these clowns have backed us up into a situation where an immoveble object hits an irresistable force.
Catch 22.
We really are fucked, both ways till tuesday.
Help me out here - if the Fed suspends QE could they then take the monies designated for that program and use these to pay the additional interest when rates rise?
Just walking through some scenarios.
Probably Bandgap,
The only problem I see is if the interest rate rises a few percent the money diverted from QE printed out of thin air directed to the increased interest payments may not be enough, they would have to print more thin air money to cover the cost of the rising interest rates so continuining QE could be the cheaper of the two options and if the interest rates jumps to 10% then what?
Print 250 $ Billion a month to cover the cost of the money or carry on printing 85 $ Billion a month to keep the carousel turning?
Fuck knows mate, my brain is on fire thinking about it. All I know is us average blokes are well fucked.
At this point its all bullshit anyhow, hope that helps (I think?).
New bonds have to be issued by Treasury to pay settlement on maturing “off the run’s”. Fed will continue their purchases as no one else will.
The FED owns the Treasury bills. They RECEIVE the income, they don't pay it. Its the government that pays the interest. And the problem for the Government isn't with the money they've already borrowed, its when they have to roll over that money as the debt matures, and have to issue new Treasuries to continue to fund the deficit. So yes, at that point, the FED could just 'use the money they didn't use to buy bonds, to buy more bonds'! This is the heart of the problem - its the government that doesn't have any money, and the FED is trying to hide that by monetizing the debt. And the PDs just go along with the charade because it's in their interest, as long as the FED promises to backstop the whole game.
So if THE GOVERNMENT SPENT LESS, they could use the extra money to pay the interest on the debt. Otherwise, its print away or default.
A lot more simpler than that:
1/3 of US debt is owed to foreigners, china, japan, middle east etc
2/3 is owed to americans and the Fed, which means that US gov will default on this portion by not providing goods and services to americans, otherwise knows as 'austerity'.
Detroit being one shiny example.
In reality, the real US debt is only the foreign owed debt
But if the gov spends less, the economy will take a pretty big big hit. No getting around this dilemma as I see it. We live in interesting times.
It's the opposite.
We live in uninteresting times? (Just kidding...)
Reduction of gov spending = default on US citizens = people forced to work = lower wages = booming economy
Nothing philosophical, simply laws of economics
You can minus ekm a thousand times, still he/she will be correct. An unavoidable consequence of a deterministic universe... :) LOL. It's fun to see how people minus what they don't like and choose to disbelieve it, without going through the paces of studying the subject in detail. There is a lot I don't like, but it is as it is anyway.... For instance what we see in the markets today THANKS to the POMO operations of the FOMC are completely normal behaviors expected of a feedback loop system that is non-linear and highly interconnected and close to its stability border. As the CBs keep on printing they push the system closer to the border and towards the point of no return. I have fun seeing the way people here try to rationalize how the market moves from one point to another. Guys/Gals, what you are doing is equivalent to releasing an inflatable ball in a pool with a cascade and try to argue why the ball follows one path or another one to the cascade, the cascade is the new attractor and the pay is infinitely dependent on the initial conditions thus unpredictable and continuously variant. The technicians at the FOMC know this and I am positive they are telling this to their superiors, what we see is their way of managing the situation that THEY "THINK" is the best way to manage the sheeple, meaning US. They can keep on printing, but they can't avoid the instability that they are causing in the system. Bernanke's announcements, as I pointed out like a month ago are nothing but a trial balloon to see how the market reacts to them tapering. Well they have their answer, they know now that their technicians are telling them the truth and that they can't keep on printing, but they also know that they can't safely stop. A conundrum, and B. Bernanke is absolutely guilty because his PhD Thesis was wrong! He tried it in real life and was proven wrong. I am superpist off because all this was predictable and nobody listened!
Until next time,
Engineer
Have fun tyring to explain the unexplainable!
male
thank you
They will raised rates, otherwise nobody will use the dollar as reserve.
They'll pay high rate interest to foreigners and default on americans holding USTs, otherwise known as 'austerity,
I think they'll default on everybody by continuing to monetize, and when push comes to shove, letting the dollar collapse. It still winds up being austerity, but it's 'act-of-God' style austerity, rather than directly politically forced and enacted austerity, so the consequences to the politicians are less pronounced. Never expect a politician to do something that will negatively impact their chance of staying on the gravy train.
Detroit's actually a perfect example - they never got their finances in order, just let everything gradually go to shit. Now they default on their debt, well, too bad and too late for the bondholders who lent them money.
Congress cannot default on foreigners because the world will stop using dollar as reserve
It's only a matter of time until the world finally realizes the insanity of using the dollar, a debt based currency that doubles in quantity in just a few years, as a reserve and stops.
They're doing that already anyway.
Correct, currency swaps
That's why I've switched from QE unwinding as unlikely to QE unwinding as obligatory
We are beyond QE tapering or full halt. Those are currently in process.
Bond selling by the Fed is imminent
Really, ekm? Just can't wrap my id around that...I mean, the Fed taking the sacrifice-now-as-opposed-to-later path.
My take, no more than 3:7 this is the Reset.
Since all have grown comfortable with QE as "having their back," and complacency has taken root, this is most likely a churn of expectations to induce some velocity. A turning over of the compost pile, as it were?
A reset occurs when everybody cooperates, like bretton woods.
Chinese and probably russians are not cooperating.
A friend who thinks about this stuff all the time advises:
- No significant stop in the interest rate climb until the 10 year is at 5%.
- There will likely be occasional short-term reversals, strong counter trend up moves in the stock market and bond market, but they will just be sideline money getting sucked in.
- Expecting a lack of money supply growth until the 10 year hits 5%...the primary trend will be lower in the stock market and bond market, with all the usual potential time bombs causing panic in any sector at any time.
- Like the recent action taken by State Street halting cash redemptions in its muni bond ETF.
- Stagflation inbound.
Agree
Best case scenario IMO.
I appreciate your reply. I've made a few bux paying attention to him.
Confirmation bias aside, glad to hear another agrees.
Question is what happens to trillions of interest rate swaps when rates go higher
They become quadrillions?
Massive counter party default...just spitballing there, I'm smart enough to listen and sometimes to even learn but when it comes to (seemingly) infinite derivatives, I'm lost.
But...I'm betting it will come down to us regular folk having to foot the bill...as you mentioned earlier, CONgress will break it off in our backsides while the counter parties to US debt will be paid...interest, if nothing else.
"Question is what happens to trillions of interest rate swaps when rates go higher"
Every 1% move in the 10 year = $200 billion move in the IR swaps market. The losers are everyone on the "float" side of the equation. This primarily breaks down to:
1. A couple of whales that are presently being "rogue trader'ed"
2. State and municipal governments (think Jeff County, applied to California)
So, if the 10y rate goes from 2.5 to 5.0...
Oops...that's gonna leave a nasty mark..
Thx, PAF.
Thx for the reply
Primary dealers are on the float side, IMO
Seriously Ekm?
How will they pay the interest on the money if they stop QE and pay out larger premiums on said interest? By rights they would pay a higher premium on rates if they go to say 5% than they would continuing QE. It makes no sense?? This by default ends the game no?
And here, lets not get technical but these fucks print the fucker out of thin air as they see fit so I could be way out here mind.
After all them with the keys to the house do as they see fit.
My main point still stands mate. We really are fucked.
QE is the only thing that a central bank does.
All they do is buy/sell bonds, nothing else.
The current QE is the LSAT=large scale asset purchase, which means it's bigger than usual QE that the Fed did since its inception.
It's congress that will pay the interest, not the Fed
It's congress which will default on americans, not the Fed
Got it.
And with that through the congress, it gets laid on the backs of the grafters and producers while paying back interest to the fuckers who loan it out for nothing plus interest.
Whats it take to get folk angry mate? And by the way I wasnt criticising you there, just still getting around the problems we face, thanks mate, much appreciated.
96
The problem for the FED with more QE is that even if they continued the current pace, to maintain control, they would have to increase its rate or monetization and as time advanced they'd need to increase the acceleration, then the 3rd derivative and so on so forth until the system collapses due to timing problems. Their technicians and mathematicians must know this and they know they need to taper and unwind, as you well point out somebody has to now pay the price of the failure of this Bernanke experiment. Who else is left out there than the American taxpayer? Congress will be in the middle, damned if you do and damned if you don't. Congress paying means, higher taxes and lower services (social security, medicaid, medicare, etc.)
Until next time,
Engineer
How will Congress pay the interest if the Fed doesn't buy the bonds that provide the money to do so? The economy can't generate enough cash to pay enough taxes to do that and pay for the military too if interest rates are a percent or so more than the REAL inflation rate.
Congress is a paper tiger. They are nothing but a bought and continuously paid for bunch of rubber stamping embezzlers.
Fed+ Primary dealers are obligated to buy those bonds.
Enough to pay interest to foreigners will be purchased.
The rest will come from the american economy after big banks collapse
Fed+ Primary dealers are obligated to buy those bonds.
Hard for me to see the Fed/Financiers "obligated" to adhere to any Rule of Law at this juncture. Moral Hazard and all.
Bottom line:
The real screwed portion of the population will be baby boomers because they will default on themselves and come back to work
ekm, did you see the generational job numbers? Most of the jobs "recovered" since 2008/2009 have been recovered by the baby boomers, Generation X and generation Ys have lost rather than gained jobs since the crisis started. Quite shocking. So Yes, baby boomers will have a double wammy, supporting the currently retired people, supporting the Gen X and Gen Y that can't find jobs and will have to keep on working for much longer than the current average retirement age.
Until next time,
Engineer
Wild card here in the demographic argument is, voter numbers and turnouts.
I am just wondering how high the pm's will surge once people figure out that Ben just lied, yet, once again....
Those that survive this cash starvation period will go to the moon.
Yes, I think so, but only the real ones, in personal possession. We're getting a pretty good indication of what's going to happen to the paper versions.
If you are not concerned enough about the Zombie Apocalypse to get prepared now, check out the articles and videos about street and prison gangs in the U.S. Remember that this "vibrant diversity" will be loosed when the governments stop delivering paychecks, and probably even joined by some former cops and soldiers. Feeling "enriched" yet?
Can't see the checks stopping cold turkey. Just slow erosion of their value through debasement, trickling their recipients slowly back into the realm of low end work. Even if in the State factories, if it comes to that.
Debasement is the only choice of these Corporatists. Otherwise, they evaporate, and take their con-gress with them.
Two ways to convert a semi-market system into a totalitarian one. One is through attrition and incrementalism, thereby maintaining power. The other by blunt force, risking revolution and loss of command and control of outcome. We're on the former path.
I have said 50 freaking times in a dozen different ways. They will never stop sniffing. They may try, they may say they will but they will NOT> They are trapped and we here all know it. You want to see DOW 10,000 in a month. Then stop QE 5 thru 55. BUT, when the bond market revolts for real, (and I think this was just a primer for now), then the printing press will be taken away and then they will be forced to stop...Then, and only then, is it game, set, match.
Tired of hearing about absurd "taper". What the hell do you think is holding up this entire house of cards, "growth and sustainability". Ha, that is a good one. You believe that I got a real good profitable casino here in Nevada that you will want to buy, along with a house that you can flip in a month.
Stop QE. Ridiculous.
I understand perfectly well why you think like this, QE to infinity. And I fully agree with you that they will keep on doing QE while the (the economy) responds as they expect it. But they will stop it as soon as they start getting indications that the system stops responding to their controls. For them it is like a volume control in a radio, you turn it right to increase the volume, and if you want it louder you keep on doing it, but you stop as soon a further rotating the knob gives you a lower volume and even go back to the point of maximum volume.
So now the problem has been reduced to a problem not of more QE or not, but to a problem of how far can they push QE and still get the effect the want. OK, my contention is that they are already at the limit of financial system stability and that further QE will make them superfluous and that if they try they will soon loose all control over the system, if they loose control, it is game over for the Bankster mob. Therefore, my assumption is that their own technicians have told them so and that they are testing some of the things they heard about the true stability of the system (talk of taper) and finding out that the technicians are correct. But of course, I base my thesis in that these guys are predictable and rational, which if your thesis is that they are not, that they are lunatic and suicidal, then just more QE is what they will do. I do hope that I am the right one...
Until next time,
Engineer
I'll go with that, engineer. This is most likely a tweak in strategy. A somewhat predictable action on the part of bureaucrats who must always have a SOP at which to point, to buy plausible deniability. They are not stupid, or they would lose their positions.
They are apparatchiks. They march shoulder to shoulder, keeping an eye left and right to see that each doesn't step too far ahead of the others, into the realm of assumed responsibility ie; culpability.
Like with the military, this condition eventually reaches a point where it can no longer win a war at any cost. Bureaucratic Paralysis?
While the precious ``liberals`` are hard at work to start a war...
http://news.antiwar.com/2013/06/19/pentagon-spurned-kerry-efforts-to-att...
Pentagon Spurned Kerry Efforts to Attack SyriaTalks had been ongoing before that, but apparently an immediate war against Syria was narrowly averted on June 12, the day before, when Secretary of State John Kerry started pushing a plan for “immediate” US air strikes against government targets.
Even then, Dempsey noted, neither Kerry nor anyone else in the State Department seemed to have any sort of post-strike plan, and that he seemed to just want to start bombing Syria without any idea what comes after the bombs are dropped. Though Kerry continued to push the idea, it was apparently not immediately accepted, and while there seems to be a lot of hawkish intention within the administration’s leadership, the bombing at the very least won’t start immediately.
https://www.shtfplan.com/headline-news/russiasyria-will-be-armed-with-we...
S-300s, S-400s, TOS-1A rocket launchers, cruise missiles and anti-ship missiles.
http://www.globaltimes.cn/content/790746.shtml#.UcXQaZyYF8E
Its all a lie.
Only the crooks write the history books.
So what are the mark to market losses on the Fed's bond holdings over the past couple of weeks?
And then my eyes started glazing over.
Lets forget all these charts based on data maintained by special interest groups...
What is required here is the willing suspension of disbelief:
If you believe that we are in recovery, then you can believe that the Fed will taper.
It's pretty simple really - the game goes on until the Fed holds about 75% of all outstanding Treasury debt. For argument's sake, let's say the outstanding debt is $US20T at that stage. The Treasury then mints a $US15T platinum coin and deposits it with the Fed cancelling out 75% of the debt. The 25% still owned by the Japs et al continues to collect its interest payments (where the yield can now rise due to the diminished debt load) and the government debt burden has been relieved.
Too easy.
/sarc
Gotta speculate this. The tightening officially begins when the Fed Funds rate goes up. Not before. All else is market sentiment noise.
When the shot is fired across the bow, it will be a FF rate increase that will mark the turn. This talk of QE fine tuning is firing for effect. Nothing more.
QE is baked in now. It is, in a way, the new "means of production," and it has been seized by the State. Bad money has driven out good.
Just as entitlement spending has made work obsolete, the State is now becoming a more lucrative means of obtaining money, for commercial entities, than is productive endeavor. This feeds on itself until most all productive activity is rendered moot. Then all is locked down for generations. AKA, Soviet?
Looking around, one is not hard pressed to find evidence of this process in motion, no?!
I respectfully disagree, the game is a game of cash flow, not of capital, capital is only notional in value, what matters in real economic terms is cash flow, everything else is a white lie!
The FOMC has boxed itself in by creating a fake cash flow into the market of 85 billion monthly, with NO forecasted end, therefore a perpetuity. Taking it out will create an 85.000.000.000 /0.03 notional value impact (just the value of an equivalente perpetuity or Britiish Consol) discounting it at a 3% rate. Who will pick that impact? When it was started the notional value of that capital was added to the market instantaneously, such are the laws of economics. Tapering or stopping it will create the removal of that capital. The problem is who will loose it? Funny isn't it? The top economists (by their own recollection) trapped in their own game.
Until next time,
Engineer
I enjoy your comments but I think I've seen you use loose and looser when you meant lose and loser today. Just one little touch up on some very bright and well thought posts that deserve it!
OT:
Obama called a "war criminal & Hypocrite" in Irish Parliament
http://www.youtube.com/watch?v=QIMucHfUMyg&feature=youtu.be
At the risk of being pedantic, you should have said that Obama was "correctly (and bravely) identified as being..."
The primary trend of the stock market turned bearish on June 21. While maybe more QE will follow, right know, the primary trend is bearish, and thus the odds favor lower prices ahead, as explained here:
http://www.dowtheoryinvestment.com/2013/06/dow-theory-update-for-june-21...
Now is a moment to be very cautious with stocks.
It is better not to fight the trend. If more QE follows, the market will give us warning by means of a new primary bull market signal. In the meantime, we calmly observe.
"Now is a moment to be very cautious with stocks."
ya think?
When did housing ever recover before the job market?
Your observation is very wise! Indeed!
And not only the job market hasn't recovered, but most of the recovered jobs have been lower wage and part time jobs, not breadwinner jobs. Furthermore, most of the jobs went to the baby boomer generation and the Gen X and Gen Y folks have lost jobs since the crisis began. Therefore, adding more fuel to the fire that the household formation numbers will be way below average and that fewer people will have the means/desire to commit to purchase a home.
Until next time,
Engineer
When credit analyst experts like Doug Noland are suddenly startled and worried, some abnormal major trouble has already begun; hard to plow thru his details, but worth it to see how far and deep excess credit expansion has spread worldwide, and how the bailouts/ins may be about to fail:
http://www.prudentbear.com/2013/06/latent-market-bubble-risks.html
Thanks for the link, very good article! His conclussions are the same as mine and we both come from completely different frames of reference regarding models for analysis. I come from chaos theory and control of complex non-linear feedback loop systems. He comes from econometrics. But we both identified the same risks 4 years ago: "Financial instability". Sadly CBs decided that the risks were not big enough and went ahead. Lets still hope that we were wrong and they were correct, otherwise we are in for the hell of a time...
Warm regards,
Engineer
Why do people accept a system where a few bankers decide the fate of billions of people, while the few bankers who have total control become wealthy beyond one's imagination? Investors and analysts write articles trying to figure out when the Jews are going to drop the bomb and wipe everybody out. The fact that people would even make decisions of when to buy and sell based on what the Jews may, or may not do, is total insanity.
I notice lately the Gold and Silver articles promoting their eventual ascension have tapered off. That can't be a good sign for all those people who have been massively buying them.
So what does the fed plan to do with all these bonds they now own?
Are they just putting them in the safe forever, never to be cashed in?
If the fed owns $2 trillion in bonds (I made that number up for arguement's sake), that will never be redeemed, then the national debt is really $14 trillion not $16 trillion. How long can they keep that up before people realize bonds are funny money too?
How about the gov't stealing (our) 401k's, IRA's, etc. and replacing them with a gov't "annuity" backed by-wait for it-GOV'T BONDS! Estimated value of said IRA's etc. is 2 trillion.
Don't laugh-the gov't "geniuses" have been kicking this around for a while.