This page has been archived and commenting is disabled.

5 Things To Ponder: To QE Or Not To QE

Tyler Durden's picture




 

Submitted by Lance Roberts of STA Wealth Management,

Over the last few weeks, the markets have seen wild vacillations as stocks plunged and then surged on a massive short-squeeze in the most beaten up sectors of energy and small-mid capitalization companies. While "Ebola" fears filled mainstream headlines the other driver behind the sell-off, and then marked recovery, was a variety of rhetoric surrounding the last vestiges of the current quantitative easing program by the Fed. As I have shown many times in the past, there is a high degree of correlation between the Fed's liquidity programs and the advance in the markets.

Fed-Balance-Sheet-SP500-082614

This weekend's reading list is a compilation of views on whether the Fed will end the current QE program at next weeks FOMC meeting or not. In the past, the extraction of their monetary interventions has led to market declines that were halted only once a new program was started. Are the markets, and the economy, finally strong enough to stand on their own? Or, will the end of the current QE program be the start of a bigger correction?

Here is something to consider if you believe that the Fed will end their monetary purchases next week.  The chart below shows the recent sell-off and rebound matched to the Fed's current monetary interventions. 

SP500-QE-102414

What will happen when the Fed is absent altogether with just one round of purchases to go? ($1 billion on Monday)

 

1) Fed Official: End QE On Schedule by Robin Harding via Financial Times

"The comments by Mr Rosengren, an advocate for strong monetary stimulus in recent years, suggest there is limited support for a plan put forward by James Bullard, president of the St Louis Fed, to keep buying assets at a pace of $15bn a month until December.

 

Mr Rosengren said Fed asset purchases have achieved their stated goal, the jobs report for September is already in and his economic forecasts have not changed. 'There has been substantial improvement in labour markets,' he said. 'As a result I would be pretty comfortable [ending purchases] at the end of the month.'”

[Note: I wonder if the 94 million considered "not in labor force," the 34% out of work longer than 6-months, or the 49 million dealing with food insecurity would agree with Mr. Rosengren?]

Also Read: Fed Official Bullard Says Keep QE Alive by Robin Harding via Financial Times

Also Read: Fed Official Fisher: Correction Possible But QE End Needed by Matthew Belvedere via CNBC

 

2) The Fed Shouldn't End Its Stimulus Program Yet by Danny Vinik via New Republic

"Should QE end next Wednesday? That depends. The economy really has improved over the past year, so it makes sense for the Fed to adopt a more normal policy posture. At the same time, the economy is still far from full employment and wage growth is barely keeping up with inflation. Meanwhile, the outlook for the global economy worsened over the past month, with growth slowing in China, Japan and the Eurozone. Investors are worried that policymakers, particularly the European Central Bank, will not act aggressively if the economy slows down. Economists are also unsure how the Ebola outbreak could affect the economy."

Also Read: The Statistical Recovery Continues via Streettalklive

Also Read: Bond Market Braced For End To QE by Colleen Godo via Business Day

 

3) All The Markets Need Is $200 Billion A Quarter From Central Banks by Simon Kennedy via Bloomberg

"By estimating that zero stimulus would be consistent with a 10 percent quarterly drop in equities, they calculate it takes around $200 billion from central banks each quarter to keep markets from selling off.

 

Bank of America Merrill Lynch strategists said in a report today that another 10 percent decline in U.S. stocks might spark speculation of a fourth round of quantitative easing from the Fed. That would mimic how the Fed acted following equity declines of 11 percent in 2010 and 16 percent in 2011.

 

'With central banks much more concerned about a return to recession than about asset-price bubbles, they have little choice but to step back in,' said Citigroup."

SP500-102114-4

 

4) How QE Contributed To The Nations Inequality Problem by William Cohan via NYT

"[Yellen] did a wonderful job highlighting the growing disparity between rich and poor and how it is beginning to impinge upon what it means to be an American, but she ignored the fact that, in many ways, the Fed’s policies have compounded the problem.

 

Quantitative easing adds to the problem of income inequality by making the rich richer and the poor poorer. By intentionally driving down interest rates to low levels, it allows people who can get access to cheap money on a regular basis to benefit in extraordinary ways."

Also Read: Let Them Eat Cake via ECRI

 

5) World Economy So Damaged It May Need Permanent QE by Ambrose Evans-Pritchard via The Telegraph

"We will find out soon whether or not this a replay of 1937 when the authorities drained stimulus too early, and set off the second leg of the Great Depression.

 

Crashes are another story. They signal global stress, doubly dangerous today because the whole industrial world is one shock away from a deflation trap, a psychological threshold where we batten down the hatches and wait for cheaper prices. That is the Ninth Circle of Hell in economics. Lasciate Ogni Speranza."

Also Read: "Plunge Protection Team" Behind Market's Sudden Recovery by John Crudele via NY Post


Bonus Read: The Fed's Bubble: "Overtrading" and "Discredit" Always End In Revulsion by Van Hoisington/Lacy Hunt via ZeroHedge

"In their 2014 book House of Debt. Chapter 8, entitled 'Debt and Bubbles,' Mian and Sufi demonstrate that increasing the flow of credit is extremely counterproductive when the fundamental problem is too much debt, and excessive debt can fuel asset bubbles.

 

Based on our reading of these two books we would define an asset bubble as a rise in prices that is caused by excess central bank liquidity rather than economic fundamentals. As Kindleberger clearly stated, the process of excess liquidity fueling higher prices in the face of faltering fundamentals can run for a long time, a phase Kindleberger called 'overtrading.' But eventually, this gives way to 'discredit', when the discerning few see the discrepancy between prices and fundamentals. Eventually, discredit yields to 'revulsion', when the crowd understands the imbalance, and markets correct."


“You will know that the financial markets have reached peak instability and volatility when Britney Spears rings the opening bell.”

Have a great weekend.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 10/24/2014 - 16:38 | 5374037 limacon
limacon's picture

More QE ?

By all means .

Nobody knows what they are doing . 

Might as well do something .

Who knows ? The horse might learn to sing .

 

but if you are small , remember

 

https://www.academia.edu/8942403/The_Hysterical_Focus_is_your_friend_

 

 

Fri, 10/24/2014 - 16:38 | 5374041 BobPaulson
BobPaulson's picture

It sounds more like the original if you say "QE or not QE?"

Fri, 10/24/2014 - 16:41 | 5374061 Say What Again
Say What Again's picture

Its Friday.   Can you just please show us more of the VS models

Fri, 10/24/2014 - 16:56 | 5374105 max2205
max2205's picture

They will do what they have to do to keep the MSM and FSA HAPPY!

Fri, 10/24/2014 - 18:10 | 5374359 knukles
knukles's picture

Brittany should ring the opening bell.  She's a ding-a-ling

Fri, 10/24/2014 - 19:18 | 5374590 hairball48
hairball48's picture

Ding a ling for sure, but a really hot one imo---got a real "woman's body"....and very toned, in shape.

No skinny bag-o-bones is Brittany!

She can "ring my bell'' any time she wants! :)

Fri, 10/24/2014 - 18:01 | 5374253 ZH Snob
ZH Snob's picture

what a farce!  they have no choice except how much. all this blah, blah, blah is to offer the illusion of consternation over the matter.

the paper market is a desperate junkie of their own creation, and they are bound and tied to its fate.

Fri, 10/24/2014 - 18:04 | 5374349 logicalman
logicalman's picture

The banksters know they are riding a tiger.

That's why they keep doing the same thing over and over.

They know, the moment they fall off they will be devoured.

Desperate people do desperate things.

Hedge accordingly.

Sat, 10/25/2014 - 04:00 | 5375716 CASTBOUND
CASTBOUND's picture

my co-worker's sister makes $72 /hr on the computer . She has been unemployed for eight months but last month her check was $12806 just working on the computer for a few hours. check this... www.yelptrade.com

Fri, 10/24/2014 - 16:37 | 5374039 stant
stant's picture

Can't qe ,the bond vigilantes are drooling now at that big bubble

Fri, 10/24/2014 - 16:56 | 5374113 Bell's 2 hearted
Bell's 2 hearted's picture

they're gonna get their faces ripped off

 

yields going DOWN once QE over

Fri, 10/24/2014 - 17:24 | 5374206 SDShack
SDShack's picture

The whole purpose of QE was to neutralize the bond vigilantes. The Fed controls at least 1/3 of the bond market now, and with their CB lackies around the globe (ie. Belgium), probably have defacto control of the magicall 51% they need to effectively neutralize the bond vigilantes. The Fed learned from the near disintegration of the EU caused by bond vigilantes targeting Greece, and then Cyprus. The only way to stop it was MOAR. Every austerity measure was compromised to extend and pretend the printing and buying of more and more soveriegn bonds. Every time the bond vigilantes tried to rise up, they were neutralized. Now with the Fed essentially controlling 51% of the bond market, it is game over. Majority control of the bond market PLUS the printing press means the Ponzi is self-sustaining. This has been the goal of the Fed from the beginning. QE must continue in some form to maintain the 51% control of the bond market. Of course, they just won't call it QE, and since the Fed is never audited, no one will ever know that they are still doing it, but it will continue because the bond vigilantes have to be destroyed for the total banking cartel new world order to be established.

Fri, 10/24/2014 - 17:49 | 5374298 Escrava Isaura
Escrava Isaura's picture

SDShack

Very good post.

Now, would you please tell us what will happen:

a) When Central banks fails

b) To the bond vigilantes (plutocracy)

c) To the globe liquidity

 

Thanks.

 

Fri, 10/24/2014 - 16:42 | 5374060 headhunt
headhunt's picture

The fat lady is singing 'I'm not Fat'.

Don't believe the bitch.

Fri, 10/24/2014 - 16:45 | 5374076 disabledvet
disabledvet's picture

If you wanna hang out you gotta take her out...

 

If you wanna get down, down on the ground...

 

She don't lie, she don't lie, she don't lie..

Fri, 10/24/2014 - 16:59 | 5374123 Stoploss
Stoploss's picture

She rolls?

Fri, 10/24/2014 - 17:00 | 5374127 ebworthen
ebworthen's picture

Britney!  Ring that damn opening bell already!

Fri, 10/24/2014 - 17:02 | 5374133 Bell's 2 hearted
Bell's 2 hearted's picture

QE over ... for now

 

Done deal ... lack of supply/liquidity

 

the problem for FR if they want to embark on QE4 (assuming in response to deep sell off) in near term... last go round (pre taper) $85 billion/month ... probably need $100 billion/month with no expiration to satisfy Mr Market (recall in earlier variations of QE a fixed amount and time not well greeted) ... just not enough product to buy ... until we enter another recession and deficit zips back to $trillion

Fri, 10/24/2014 - 17:03 | 5374138 red1chief
red1chief's picture

"You can't taper a Ponzi Scheme"

Fri, 10/24/2014 - 17:16 | 5374177 Duffy Duck
Duffy Duck's picture

and if you suggest it as to social security, or even just suggest they stop spending it as general revenue, because they are cunts, someone, inevitably, will call you a Nazi.

Fri, 10/24/2014 - 17:04 | 5374143 Jugdish787
Jugdish787's picture

who fucking cares...its friday!  College football tomorrow, then all day sunday NFL!!  Starting at 0900 with the game in england.  where are the britney pics??  

Fri, 10/24/2014 - 17:12 | 5374162 Bell's 2 hearted
Bell's 2 hearted's picture

finally, someone with a plan that makes sense

 

 

Fri, 10/24/2014 - 18:10 | 5374368 logicalman
logicalman's picture

My plan for tomorrow makes perfect sense.

Put a serving on my recently made bow string.

Put said string on my latest longbow.

Go out into the woods and ping off some arrows to test both.

I usually get home around beer o'clock - the icing on the cake, so to speak.

Fri, 10/24/2014 - 19:48 | 5374687 Jugdish787
Jugdish787's picture

I was kinda being sarcastic. I don't watch football anymore unless it is my kids team. Outside of kids sporting events all day tomorrow, may go out Sunday and try to shoot a deer or to. The govt said I could start hunting with firearms on oct 18th...

Fri, 10/24/2014 - 17:05 | 5374144 Bell's 2 hearted
Bell's 2 hearted's picture

sell out rosenberg (got bullish once he got his $2 or $3 million/yr guaranteed) says no recession till 2016 earliest.

 

can't wait for him TO EAT IT

 

http://www.marketwatch.com/story/why-one-economist-says-no-recession-unt...

Fri, 10/24/2014 - 17:14 | 5374154 Duffy Duck
Duffy Duck's picture

wait holy shit that pic was britney spears?

ugh.

 

She seems to have developed whatever Kathleen Turner caught.

Fri, 10/24/2014 - 17:17 | 5374178 In.Sip.ient
In.Sip.ient's picture

Whatever its called the PTBs will keep it going.

 

It's all they know.

Problem is, that this extracts wealth from the system, while

there is wealth to extract.  Then you get what happened

in 2007-08 and the WS bailouts.  And its happening

again right now with a lot of industry no longer able to

operate because of debt overburden.  As they go down

the PTBs will try another bailout... 'natch...

But at this point, the effects of monetary "policy"

have forced the market into something akin to

barter and asset only trades to avoid the intrinsic

monetary "policy" rip off... on Main Street!!! ( never

mind Moscow, Peking, Brasilia, New Delhi, etc... )

Which means the next round of bailouts will be

entirely on thin air...

 

Y'all know what THAT means.

 

Fri, 10/24/2014 - 17:16 | 5374179 BullyBearish
BullyBearish's picture

QE/STIMULUS is for only ONE REASON...to keep the .001% from losing any money but more importantly, to keep them in power...paid for by the blood, sweat and tears of their economic slaves...US

Fri, 10/24/2014 - 17:27 | 5374217 gwar5
gwar5's picture

"Leave Britney and the Bard alone!"  If Britney Spears and William Shakespeare got married their kids would be very articulate retards. 

 

Private Central Banks need to steal back Trillions. They can confiscate or devalue, or both. I think they'll have to do both. But confiscation is such an in-your-face, riot inducing event, I think they'll do that first just to piss everybody off. 

 

 

 

 

 

 

Fri, 10/24/2014 - 18:20 | 5374397 FeralSerf
FeralSerf's picture

ZIRP and money printing IS confiscation.

Fri, 10/24/2014 - 19:37 | 5374651 the grateful un...
the grateful unemployed's picture

if only there was a reserve value to the wages you negotiated, such as an oz of gold or some such thing. the problem with a social covenant begins when people at the top surreptiously change the rules

Fri, 10/24/2014 - 19:32 | 5374635 the grateful un...
the grateful unemployed's picture

i think a trillion was stolen during Bush2, (went missing) and bernanke thought he had to replace it or risk deflation. the problem was they didn't give it back to the people who were robbed, they gave it another bunch of robbers. their policy of trickle down devaluation is working fine, just too slow, like a slow motion crash. now real asset prices are taking a dive and the fed better pull the nose up a little, everyone in the back of the airplane knows something is wrong, shit man, who's driving this plane, I spilled my drink!! but it all began as you noticed when somebody heisted a trillion or so and obama said lets move forward, wonder what his cut was

Fri, 10/24/2014 - 17:46 | 5374293 Sick
Sick's picture

Question, has the Federal Reserve Bank (a private company) ever filed a US corporate tax return?

Fri, 10/24/2014 - 18:04 | 5374347 Grams Gold
Grams Gold's picture

#2 says that Economists aren't sure how the Ebola outbreak is going to affect the economy. Well, keep the airlines open and let people come in without quarantine, and the economy will go to hell: http://www.gramsgold.com/news/ebola-could-devastate-the-american-economy

But at least New York and New Jersey are going to quarantine. Where are they going to keep these people for 21 days? At their own homes? At a quarantine facility? At a FEMA camp? Who will watch them? Who will feed them?  Who pays for all that?

Fri, 10/24/2014 - 18:40 | 5374467 BobRocket
BobRocket's picture

At your house.

You will.

You will.

You already are.

(and when you catch it you will be on your own as that is how TPTB roll these days)

 

Fri, 10/24/2014 - 18:58 | 5374533 willwork4food
willwork4food's picture

I don't see them stopping QE right away, they can just say the market needs liquidity because of Ebola. Just the rest of the year folks.

 Let Ebola fester for a few months , THEN take the punchbowl away ubruptly. Massive hyper deflation, massive termoil, starvation, riots, deaths and people vomiting black death on the streets.

 Then we'll have a perfect Hegelian Dialectic looking for a solution.

Fri, 10/24/2014 - 19:22 | 5374600 the grateful un...
the grateful unemployed's picture

six) even if QE ends there is enough excess liquidity sloshing around to keep the market going higher (albiet on narrow leadership) money comes out of junk and goes into apple. the fed still has the older tools, repo and pomo and reverse repo in the MMs. the fed has so many toys they arent sure what to play with next. the fed needs to get in a place where they are fighting inflation, deflation is their nightmare. in simple terms if home prices and gasoline prices begin to fall people must have some money to buy these things and help stage a real recovery, or the fed is screwed. (so they talk about Q-e (unum) pluribis, the one serving the many - direct stimulus to consumers.)  if the fed drops QE without something else to replace it, that would be a tactical mistake, they need to bridge their policy with stock market junkies.

seven) bernanke should be in prison along with hank paulson. either way the fed has done a bad bad thing, they have distorted free markets, globalized risk and facilitated the building of political firewalls between foreign interests, many of whom we are now locked into a death embrace of interdependent trade, and hot money risk on risk off volatility in highly illiquid situations. they have too many tools, weak leadership, a crybaby president, and the public spotlight is suddenly on them. seven trumps six

Sat, 10/25/2014 - 09:53 | 5375972 Escrava Isaura
Escrava Isaura's picture

the grateful un...

 

 

8) You should be the one that should have written the article above

 

9) The Coming Collapse of the International Monetary System -- James Rickards

 

http://www.amazon.com/The-Death-Money-Collapse-International/dp/1591846706/ref=pd_ybh_2

 

 

 

Fri, 10/24/2014 - 19:47 | 5374665 Chuck Knoblauch
Chuck Knoblauch's picture

I'm waiting for former Enron CEO Jeff Skilling to ring the opening bell when he gets out of prison in 2017!

Maybe Bernie Ebbers will get his sentence reduced like old Jeff.

Sat, 10/25/2014 - 13:47 | 5376551 bid the soldier...
bid the soldiers shoot's picture

 

Maybe Ken Lay will return from Skull Island where he's been hiding out these 8 years.

Fri, 10/24/2014 - 20:37 | 5374814 Infnordz
Infnordz's picture

The problem as described in the book "Code Red" is that this extreme QE is only useful/viable for short periods before it becomes toxic waste; the USA FED has gone far beyond that, is effectively massively leveraged on toxic waste 'assets', so it is doubtful it can try to climb out of the hole it has dug itself without causing at least some of: major Bank failures, stock market collapses, mass debt bankrupties, fatally undercaptalised institutional investors (e.g. insurers and pension funds), USA FED bankruptcy, a USA Government forced to go on a crash diet or default, Depression and hyper inflation.  These horrid events could cause a chain reaction of various horrid events until enough effective defaults have occured; what comes after that, I don't know, maybe war.

Hyper inflation could happen very suddenly, especially if the zombie USA Government seizes a bankrupt USA FED network.

 

If central banks were not run by negligent f'tards:

1. They would stop doing continuous QE like Greenspan and successors have, causing excessive investing in bubble shares and other over priced junk, with the inevitable bust later for the market and spoilt governments.

2. They'd stop sending QE to the stinking rich for nonsense like trickle down economics, rather give goverments huge sums conditional on it being pay out directly to people who are not rich, so that the extra currency gets the economy moving now, so as not to store up a huge currency inflation bomb for when interest rates finally rise.

 

The best solution would be to make all fractional reserve banking and interest capital crimes, with any business share earning requiring either part ownership or part ownership of a holding company for one or more businesses; service fees could be charged for provided services, but no interest!

Sat, 10/25/2014 - 04:45 | 5375736 orangegeek
orangegeek's picture

last POMO on the 28th

 

bond interest is the next "hidden POMO" courtesy of  the Fed

 

Barry gets his shellacking on November 5  - after the 5th, the downturn should be more permanent

 

140 points up on SPX in 8 days - neat trick yellen you asshead

Sat, 10/25/2014 - 05:49 | 5375761 CHX
CHX's picture

<<< More stealth QE

<<< More open QE

 

That's the ONLY question IMHO.

Sat, 10/25/2014 - 13:55 | 5376583 bid the soldier...
bid the soldiers shoot's picture

chx

That's the ONLY question

What about a little bit of both?

Sat, 10/25/2014 - 14:07 | 5376619 bid the soldier...
bid the soldiers shoot's picture

 

If ending QE means a 40 or 50% correction in the markets, QE will not end. QE can only be eliminated when the US economy is palpably better than it has been since 2007.  Which is to say 'never'.

Ergo, QE will end with a 'black swan' event.  Your guess is as good as mine what that event will be.  And when that event will occur.

SO STAY LONG.  BY THEN, YOU MAY BE ABLE TO TAKE IT WITH YOU WHEN YOU GO.

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