This page has been archived and commenting is disabled.

The End Of QE3, Trouble Ahead For The Bulls?

Tyler Durden's picture




 

Submitted by Michael Pollaro via Acting-Man blog,

QE3 Is Coming to an End

The Federal Reserve’s latest asset purchase program, QE3, is coming to an end.  What was once an $85 billion a month program, one in which at its peak had been goosing the financial markets and economy at an annual rate of $1.0 trillion – and over its 27 month life will have pumped $1.7 trillion of money into the economy – is going to zero. Given the outsized impact QE has had on the growth of U.S. money supply and thus the U.S. economy, we say investors take note, especially those furthest out on the risk curve, because what was once your primary tailwind could soon become your greatest headwind.

Here’s why…

Recapping the tenets we presented herehere, and here, once an economy is subjected to a bout of monetary inflation, whether that be via direct central bank money creation or via money (and credit) creation by the fractional reserve banking system, an unsustainable, artificial economic boom is born, whereby malinvestments (bubbles if you like) are created that sooner or later must be liquidated. And whether that bust takes the form of a hyperinflationary bust or a deflationary bust, bust we will get.

The form the bust takes will depend on the course of the inflation. If the central bank/banking system pursues an inflationary course, by throwing continual and importantly ever larger doses of money (and credit) into the economy, the bust will take the form of a hyperinflationary bust – a collapse in the value of the currency and with that a breakdown of the entire economy. If instead the central bank/banking system ends its money creation activities or even moderates that increase in a material way, the bust will take the form of a deflationary bust – a healthy liquidation of the malinvestments made during the boom and with that a commensurate fall in the prices of those same malinvestments.

Austrian Business Cycle Theory (ABCT) in a nutshell.

Thus, when an economy is subjected to a bout of monetary inflation, investors can enhance their performance by correctly positioning their portfolios on the right side of the boom-bust cycle.  Though easier said than done, one should buy claims to the malinvestments of the boom; i.e., when the money supply is surging; then sell those same claims after the growth in the money supply peaks and begins to head down.  Importantly, the bigger the bout of monetary inflation, the more important it is to be positioned on the correct side of the boom-bust cycle.  The reason is simple – lots of monetary inflation means lots of malinvestments in the economy and financial markets.  Indeed, correct positioning is even more important on the downside of the boom-bust cycle.  You see, booms tend to develop slowly.  Busts, complicated by the distortions created during the boom, more often than not do anything but.

Now, as we first presented here and update for you below, we have one heck of a boom-bust cycle in train. Indeed, what we have termed the Bernanke Risk-On Boom – Bust-to-Be is even more grand than the boom-bust cycles that gave us the Tech Boom-Bust and the Housing Boom-Bust turn Credit Bust turn Great Recession.  Defined by how we measure inflation cycles – by the year-over-year rate of change in our broad money supply metric TMS2, cycle trough to trough – here is how the Bernanke Risk-On Boom – Bust-to-Be stacks up through September 2014 …

 

  mp

Chart by Michael Pollaro/Forbes

The remainder of the article can be read at Forbes here:

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 10/24/2014 - 11:51 | 5372520 Osmium
Osmium's picture

End of QE3 just signals the start of QE4.

Fri, 10/24/2014 - 11:58 | 5372531 Boris Alatovkrap
Boris Alatovkrap's picture

In Rushian,

Plus ce change, plus ce meme chose.

Fri, 10/24/2014 - 12:05 | 5372554 Stackers
Stackers's picture

This article is wrong. QE is not going to zero.

The Fed is still "reinvesting" all MBS principal payments, profits and maturing debt of its portfolio into new asset purchases. This amounts to billions per month in never ending "QE"

Fri, 10/24/2014 - 12:07 | 5372569 LawsofPhysics
LawsofPhysics's picture

Yep.  Wait for the government-paid trolls to start junking you.  Officail "QE" is very much bullshit.

Fri, 10/24/2014 - 12:44 | 5372777 robilla
robilla's picture

In fairness the stock of the printed cash now stays "contant" and the flow isn't of anything new, it's just recycled cash.

So yes QE is still around because they haven't liquidated any of the existing balance sheet, but they also aren't adding anything new. They are replacing what once was with what now is.

I'm split of if that means QE is still here.

Thoughts?

Fri, 10/24/2014 - 12:55 | 5372826 Carpenter1
Carpenter1's picture

BTFD'ers on ZH are about the most pathetic of creatures. Taking part slamming the FED and QE while simultaneously begging for more.

Hypocrite doesn't even come close.

Fri, 10/24/2014 - 12:13 | 5372577 new game
new game's picture

all illusion to distract you from their transfer of wealth.

wealth you earned(you didn't earn that) to the them(enemy).

simple, just like our 2 party scam...

discussing fed policy is like d vs r.

don't fall for it...

100 yrs and counting.

they will take it all.

they are sociopaths that will not be happy til you have nothing.

predictable and tic toc drip by drip b/4 your lying eyes...

Fri, 10/24/2014 - 13:08 | 5372881 therover
therover's picture

You mean one party scam.

Fri, 10/24/2014 - 16:19 | 5373952 hendrik1730
hendrik1730's picture

Translation : plus que ça change, plus que c'est la même chose. English version : the more things change, the more they don't. And by the way, it's French.

Sun, 10/26/2014 - 03:45 | 5378550 Boris Alatovkrap
Boris Alatovkrap's picture

Boris is know french! But is from song by great Canadia band RUSH, thus is calling RUSHian!

Fri, 10/24/2014 - 11:58 | 5372535 Greenskeeper_Carl
Greenskeeper_Carl's picture

First we will go through a deflationary period(stuff you need won't be cheaper, the velocity of money will just slow), and that will render most banks insolvent. Since the fed only cares about goosing asset prices, not the real economy, they will just fire up the printing presses again. In my opinion, it will too 100 bil a month, maybe as much as 150. They will also never raise rates by a meaningful amount, as this would make govt debt unserviceable. Eventually this will lead to hyper inflation. Could be many years away, but it is inevitable. Watch Japan, they will be first.

Fri, 10/24/2014 - 12:07 | 5372565 LawsofPhysics
LawsofPhysics's picture

There are fundamentally only two reasons why velocity slows;

1) reduced economic activity/demand or

2) people stop using that particular type of "money"

Given that there are still 7+ billion people on this rock competing for a better standard of living and all the real resources that make that possible, I still see plenty of demand.  Printing receipts for claims on goods and services does nothing to impact the actually creation of real goods and services if the resources/energy are simply not available.

Same as it ever was...

Fri, 10/24/2014 - 12:22 | 5372632 Quinvarius
Quinvarius's picture

I think the Yen is the USD as long as all Western central banks are cooperating to prop up the USD peg system.  I suspect that if the Yen goes first, everything else will follow within days, if not hours.  There will not be much in the way of time lag.  You probably won't even notice the Yen dropping that hard vs other paper.  You will just see high prices at stores and no inventory everywhere.

Fri, 10/24/2014 - 16:24 | 5373984 hendrik1730
hendrik1730's picture

You might be hitting the nail right on. Got gold?

Fri, 10/24/2014 - 13:32 | 5373020 KnuckleDragger-X
KnuckleDragger-X's picture

It will be the start of the real fun when the banks start calling in loans from things like stock buy-backs. Then we'll see the FED start REALLY throwing money at the disaster they created.

Fri, 10/24/2014 - 15:56 | 5373847 Ghostdog
Ghostdog's picture

I pretty much agree Carl. Whether Hyperinflation happens or not IM not sure but if it does come its probably next decade

Fri, 10/24/2014 - 11:58 | 5372536 SheepDog-One
SheepDog-One's picture

I'm just wondering if the Fed banksters will let markets flail for a week or 2 to make the muppets beg them to be saved, or if they just link up QE4 to QE3 like train cars in line.

Fri, 10/24/2014 - 12:12 | 5372537 Boris Alatovkrap
Boris Alatovkrap's picture

Boris is more blush when ease out small fart than central bankster is bat eye when print $4T US petro dollar. Only commonality is colonic smell.

Fri, 10/24/2014 - 12:29 | 5372691 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

Inhaling bankster colonic smell will test you positive for Ebola.

Fri, 10/24/2014 - 12:10 | 5372552 LawsofPhysics
LawsofPhysics's picture

Please, wake the fuck up, "QE" is fucking irrelevant when certain people/corporations have access to FREE MONEY (ZIRP).

Such limited access is by definition a Let the majority eat cake monetary policy (just look at the growing wealth inequility).

We have seen such monetary experiments before, this time will be no different.

Same as it ever was...

(good to see the .gov trolls are "working" today, junk away you useless fucks)

Fri, 10/24/2014 - 12:10 | 5372584 Theta_Burn
Theta_Burn's picture

Well I have never seen one..

These days, all you need is any one of an assortment of monetary dipshits to just say something the market likes for a 200-300-400 $billion swing

By Decree.....its whats for dinner these days.. for some anyway.

As Ian Hunter said. Violence is the only thing that will make then see sence

Sustainable? no, working? yes.....

Fri, 10/24/2014 - 12:35 | 5372721 LawsofPhysics
LawsofPhysics's picture

yes very much working to maintain the status quo and enrich the real owners...

Fri, 10/24/2014 - 12:38 | 5372742 alangreedspank
alangreedspank's picture

Indeed. QE itself is not the punchbowl. The central bank put and ZIRP is.

Fri, 10/24/2014 - 12:11 | 5372580 Mr Pink
Mr Pink's picture

I think we have all learned by now that there is NO trouble ahead. Nothing will kill this "market"

Fri, 10/24/2014 - 12:37 | 5372730 LawsofPhysics
LawsofPhysics's picture

Yep, good luck to Americans when the EBT cards fail.

Fri, 10/24/2014 - 12:56 | 5372837 Carpenter1
Carpenter1's picture

Yep.

This will go on FOREVER.

Famous last words of every fool.

Fri, 10/24/2014 - 13:19 | 5372955 Kirk2NCC1701
Kirk2NCC1701's picture

Q4 will be the Great Bull Run.  Lotsa Bull.  Sustenance in, Crap out. 

Got Hopium?  1. Perception is 95% of Reality.  2. There's a Sucker born every minute.

Fri, 10/24/2014 - 11:54 | 5372522 Boris Alatovkrap
Boris Alatovkrap's picture

You are prepare for severe castration!

Fri, 10/24/2014 - 12:40 | 5372748 alangreedspank
alangreedspank's picture

Maybe that's a language barrier, but how can castration not be 'severe', Boris ?

Fri, 10/24/2014 - 13:01 | 5372848 RockyRacoon
RockyRacoon's picture

Kinda like the only adjective approved for MSM use for Ebola is "deadly".  No other is allowed.

Fri, 10/24/2014 - 11:53 | 5372524 Kaiser Sousa
Kaiser Sousa's picture

SINGAPORE: "How would you like to be paid your worth in gold? Singapore-based precious metals dealer BullionStar is doing just that, by rewarding staff with the commodity as salary, and it says it is the first in the country to do so. Here is how it works: If, for example, you earn S$3,200 a month, you can choose to be paid in two gold bars each worth S$1,600. Theoretically, if you are a high earner drawing a pay of S$51,000 a month, you can choose to be paid with a one-kilogram gold bar.

Sales manager Vincent Tie is one of six employees at BullionStar who has opted to receive his salary in bullion. About 20 to 40 per cent of the 38-year-old's basic pay is given in gold. "If I save in a paper currency in a bank, the interest paid to me cannot beat the rate of inflation, so essentially I am losing purchasing power. That means that I am buying less with my wealth," said Mr Tie on why he went for the heavy metal option. BullionStar said it expects more employers to take up this practice, which harks back to the old days when gold and silver were indeed currency, and used to reward labour.

"Precious metals have served as money throughout most of history for some 6,000 years. So, staying true to this belief that we have that precious metals might once again return in some form or shape as money, it is quite natural for us to also offer our employees salary payments in gold and silver," said BullionStar CEO Torgny Persson.”
http://www.channelnewsasia.com/news/singapore/paying-people-their-worth/...

Fri, 10/24/2014 - 12:02 | 5372542 lasvegaspersona
lasvegaspersona's picture

The nice thing about gold is that it does not require government sanction to have value. I can use gold to get what I want even if the government says it is not part of the money system.

In fact when ever the government tells us the price of gold they ALWAYS under value gold to over value the currency. We are better off if the government stays out of the gold business. They will never declare it to be it's true value.

Fri, 10/24/2014 - 12:10 | 5372576 LawsofPhysics
LawsofPhysics's picture

Correct, and when the .gov demands confiscation, then you know you are dealing with fucking criminals.

Fri, 10/24/2014 - 11:55 | 5372526 Tsar Pointless
Tsar Pointless's picture

Bustin' makes me feel good!

Sorry. I have nothing else to offer. It's all been said before.

Well, other than for one word: Bullish!

Fri, 10/24/2014 - 11:54 | 5372528 Kaiser Sousa
Kaiser Sousa's picture

SINGAPORE: "How would you like to be paid your worth in gold? Singapore-based precious metals dealer BullionStar is doing just that, by rewarding staff with the commodity as salary, and it says it is the first in the country to do so. Here is how it works: If, for example, you earn S$3,200 a month, you can choose to be paid in two gold bars each worth S$1,600. Theoretically, if you are a high earner drawing a pay of S$51,000 a month, you can choose to be paid with a one-kilogram gold bar.

Sales manager Vincent Tie is one of six employees at BullionStar who has opted to receive his salary in bullion. About 20 to 40 per cent of the 38-year-old's basic pay is given in gold. "If I save in a paper currency in a bank, the interest paid to me cannot beat the rate of inflation, so essentially I am losing purchasing power. That means that I am buying less with my wealth," said Mr Tie on why he went for the heavy metal option. BullionStar said it expects more employers to take up this practice, which harks back to the old days when gold and silver were indeed currency, and used to reward labour.

"Precious metals have served as money throughout most of history for some 6,000 years. So, staying true to this belief that we have that precious metals might once again return in some form or shape as money, it is quite natural for us to also offer our employees salary payments in gold and silver," said BullionStar CEO Torgny Persson.”
http://www.channelnewsasia.com/news/singapore/paying-people-their-worth/...

Fri, 10/24/2014 - 12:20 | 5372628 Kaiser Sousa
Kaiser Sousa's picture

sorry for the double post....
the site was trippin.

Fri, 10/24/2014 - 13:02 | 5372862 RockyRacoon
RockyRacoon's picture

Whew.  Thanks for the heads-up on that.   I thought my old-timers was kickin' in....

Fri, 10/24/2014 - 11:57 | 5372532 Bill of Rights
Bill of Rights's picture

Federal Tax Revenue Surpasses $3 Trillion for First Time Ever

This is no fucken Democracy this is a chop house and the sheeple are being slaughtered...Hence the reason for the open boarders. Come one come all to the land of free everything..

Fri, 10/24/2014 - 12:00 | 5372539 buzzsaw99
buzzsaw99's picture

QE's just another word for nothing left to lose,

Nothing, that's all that Bernanke left me...

Fri, 10/24/2014 - 12:02 | 5372551 SickDollar
SickDollar's picture

QE4 will be done in the backround

 

Fri, 10/24/2014 - 12:10 | 5372578 SheepDog-One
SheepDog-One's picture

The Fed was taking some heat from some insolent folks, so they trotted out some BS about how QE would soon be ending and rates rising just to remove themselves from the spotlight....so now they can just say they tried to end it but hands are tied now its not their fault the markets became wobbly blah blah blah.

Fri, 10/24/2014 - 12:16 | 5372604 Karlus
Karlus's picture

>>QE4 will be done in the backround

 

No, it will need to be done in a public way to assure markets.

 

Where is the QE4 "afterparty" happening? At LeBron's?

Fri, 10/24/2014 - 12:06 | 5372559 starman
starman's picture

Maybe the Fed  gotta try printing off shore like Ireland, Belgium , Bahamas? 

 

Fri, 10/24/2014 - 12:09 | 5372575 Bill of Rights
Bill of Rights's picture

Federal Tax Revenue Surpasses $3 Trillion for First Time Ever

This is no fucken Democracy this is a chop house and the sheeple are being slaughtered...Hence the reason for the open boarders. Come one come all to the land of free everything..

Fri, 10/24/2014 - 12:12 | 5372585 SheepDog-One
SheepDog-One's picture

Probably just another made up gubmint lie anyway.

Fri, 10/24/2014 - 12:10 | 5372581 The Phallic Crusader
The Phallic Crusader's picture

you mean toxic asset purchase program.

QE3 will just change names.

 

The Fed doesn't "buy" anything and wish people would meticulously avoid the word.  Buying suggests a bargained for exchange of labor or tokens of value.  The Fed literally just issues pieces of paper, electronic pieces of paper, at that, and exchanges them for overvalued shit, which it will later sell, below fair value, to the same fucking banks.

 

The issuing power should be taken from the banks and restored to The People, to whom it properly belongs.

 

Everything else is commentary.

 

Fri, 10/24/2014 - 12:12 | 5372590 Son of Captain Nemo
Son of Captain Nemo's picture

To QE3

Bon Appetit!

Fri, 10/24/2014 - 12:14 | 5372597 Seasmoke
Seasmoke's picture

$$$$$LOWING DOWN. 

Fri, 10/24/2014 - 12:13 | 5372598 Bell's 2 hearted
Bell's 2 hearted's picture

"Given the outsized impact QE has had on the growth of U.S. money supply and thus the U.S. economy,"

 

again, with this crap

 

QE HAS NOT HELPED THE ECONOMY

 

saying it enough does not make it true

Fri, 10/24/2014 - 12:20 | 5372629 Lady Jessica
Lady Jessica's picture

Amen

Fri, 10/24/2014 - 12:17 | 5372609 Keltner Channel Surf
Keltner Channel Surf's picture

At an upcoming Fed Halloween party, one pictures Yellen sitting at Ray Manzarek's keyboard, boosted by a well-placed pillow to achieve a proper arm angle, playing a dirge-like drone, while Bernanke, enveloped in Robby Krieger's spidery guitar mantra, begins to croon:

"This is The End, beautiful friend."

Fri, 10/24/2014 - 14:54 | 5373521 L G Butz PhD
L G Butz PhD's picture

damn you!

WAS one of my fave Doors songs

Fri, 10/24/2014 - 22:06 | 5375118 Keltner Channel Surf
Keltner Channel Surf's picture

Henceforth, each time you hear it the Beard will haunt you ...

Fri, 10/24/2014 - 12:15 | 5372610 wmbz
wmbz's picture

QE3 will end no doubt, but that has nothing to do with QE ever stopping!

Fri, 10/24/2014 - 12:19 | 5372627 ebworthen
ebworthen's picture

Anyone else nodding off waiting for De Blasio to finally come out and say "Do not worry"?

FED or ECB or BOJ will do QE of some kind, especially if the casino revenue goes down.

Fri, 10/24/2014 - 12:20 | 5372633 jubber
jubber's picture

and the Dow is up 200 points again from the overnight low yet again

Fri, 10/24/2014 - 12:22 | 5372645 Dr. Engali
Dr. Engali's picture

History tells me that when all the "experts" are looking for the same thing, the exact opposite tends to happen.

Fri, 10/24/2014 - 12:26 | 5372667 csmith
csmith's picture

"The reason is simple – lots of monetary inflation means lots of malinvestments in the economy and financial markets."

 

Where is the evidence of all these malinvestments? If anything, business has been decapitalizing (buybacks, debt refi, minimal capex) instead of investing throughout this upcycle, which is one main reason it has been so awful for the average worker. Just don't see it.

Fed efforts have prevented collapse more than anything. If you want to characterize support of crappy investments from the LAST CYCLE as malinvestment, OK. But not like there's been a boom of obviously bad lending or investment. 

Fri, 10/24/2014 - 12:30 | 5372698 Lady Jessica
Lady Jessica's picture

So our future holds the prospect of recapitalisation during a down cycle?  Is that possible?

Fri, 10/24/2014 - 13:30 | 5373007 LawsofPhysics
LawsofPhysics's picture

So, bailouts (printed money with debt attached going to save poorly run companies/bussiness models and bad management and bad actors) was a "good investment"?

You stupid motherfucker.

Fri, 10/24/2014 - 12:26 | 5372670 yogibear
yogibear's picture

Onward to QE4, QE5, QE6, QE7, QE8, QE9.... QE100.

- The Federal Reserve banksters.

Fri, 10/24/2014 - 13:04 | 5372864 Carpenter1
Carpenter1's picture

You guys seem to think the market has discounted the end of QE. Wrong. Like you, the market is assuming QE4, thus your assertions that the FED will surprise are faulty. Surprise would be to actually end QE.

You guys are no better than any Wall Street QE junkie when all is said and done. Maybe worse, they at least aren't slamming it while secretly begging for more.

Fri, 10/24/2014 - 13:48 | 5373125 yogibear
yogibear's picture

Surprise would be to actually end QE.

 

Exactly. It won't end. QE to infinity or until the currency dies.

Fri, 10/24/2014 - 12:28 | 5372680 thismarketisrigged
thismarketisrigged's picture

like many ppl on here have stated, as well as guys lke peter schiff,  they can not end qe. they just cant.

 

so what they will do is, come the next meeting, they will trot out some jackasses from the fed to tell us how the economy is improving dramatically and they see signs of hope, but at the same time, they are worried about other problems, more globally, and that is the reason why they will continue with qe.

 

that will be the reason given, so they can continue to have the stupid sheeple believe that everything is awesome in the u.s

Fri, 10/24/2014 - 12:30 | 5372700 viator
viator's picture

And don't forget, cold weather is coming. Can't have QE end during inclement weather.

Fri, 10/24/2014 - 12:58 | 5372839 Bemused Observer
Bemused Observer's picture

The Fed tried a drug that made it feel better, so they kept taking it. Then they discovered a pleasant side-effect...the drug greatly enlarged their breasts. So they upped the dosage.

A few years later, they found out that the drug caused cancer, and that they were now riddled with internal tumors...but, damn! Those titties looked GOOD! So they figured maybe they'd decrease the dose a bit, but when those wonderful breasts started shrinking, they panicked. No WAY were they going to give those up!

So they decided to change doctors, because obviously the one they had was an idiot...And this new guy DOUBLED their dosage! Whoo-hoo!

If only they weren't so TIRED all the time...but they've been losing weight, so that's good, right? (turns and admires self in mirror...) Although they're gonna have to do something about that rectal bleeding, and switch to long sleeves to cover the ulcers developing on their arms...but as long as they stick to plunging necklines...(pushes breasts together, admires cleavage...)

Fri, 10/24/2014 - 14:33 | 5373396 SillySalesmanQu...
SillySalesmanQuestion's picture

As the last mainline injection of heroin is injected into the comatose junkie, he suddenly jumps up, starts walking, talking and behaving normally...if only for a little while.

Fri, 10/24/2014 - 15:51 | 5373823 limacon
Do NOT follow this link or you will be banned from the site!