"QE Benefits Mostly The Wealthy" JPMorgan Admits, And Lists 8 Ways ECB's QE Will Hurt Everyone Else

Tyler Durden's picture

Over the past 48 hours, the world has been bombarded with a relentless array of soundbites, originating either at the ECB, or - inexplicably - out of Greece, the place which has been explicitly isolated by Frankfurt, that the European Central Bank's QE will benefit everyone.

Setting the record straight: it won't, and not just in our own words which most are familiar with as we have been repeating them since 2009, but those of JPM's Nikolaos Panigirtzoglou, who just said what has been painfully clear to all but the 99% ever since the start of QE, namely this: "The wealth effects that come with QE are not evenly distributing. The boost in equity and housing wealth is mostly benefiting their major owners, i.e. the wealthy."

Thank you JPM. Now if only the central banks will also admit what we have been saying for 6 years, then there will be one less reason for us to continue existing. 

And of course, even the benefits to those who stand to gain the most from QE are only temporary. Because the same asset prices which rise thanks to money printing are only transitory, and ultimately mean reverting. To wit: "It potentially creates asset bubbles by lowering asset yields by so much relative to historical norms, that an eventual return to normality will be accompanied with sharp price declines."

So enjoy your music while it lasts dear 0.1%. Collateral eligible for monetization is becoming increasingly scarce and by our calculations there is about 2 years worth of runway left for G3 assets before central bank interventions in the private market result in a complete paralysis of virtually every asset class, and the end of capital markets as we know them.

As for everyone else, here is a list of 8 ways that the ECB's QE will hurt, not help, by way of JP Morgan.

* * *

1) Lower bond yields can increase pension fund and insurance company deficits reminding pension funds of the need to match assets and liabilities. We highlighted last week how record low bond yields caused a sharp widening of pension fund deficits, with UK pension fund deficits in particular rising back to May 2012 record highs. In regions where regulatory restrictions are higher, like in Europe, larger deficits induce pension funds and insurance companies to move further away from equities and other high risk assets into fixed income. Because of these regulatory restrictions, we think it is fair to expect that the large wealth effects we saw previously with the Fed’s QE will not be repeated in the euro area with the ECB’s QE.

2) QE is creating a regime of low bond yields but also higher uncertainty. At the least, QE makes central bank exit more difficult and raises the risk of a policy error or of an increase in perceptions about debt monetization. It potentially creates asset bubbles by lowering asset yields by so much relative to historical norms, that an eventual return to normality will be accompanied with sharp price declines. Perceptions about asset bubbles can thus also  increase long term uncertainty. In turn higher uncertainty might prevent economic agents such as businesses from spending.

3) Ultra low credit spreads and corporate bond yields are an intended consequence of QE but not without distortions. By potentially allowing unproductive and inefficient companies to survive, helped by ultra low debt servicing costs, QE can hinder the creative destruction happening during a normal economic cycle. To this extent, QE can make economies less efficient or productive over time.

4) The wealth effects that come with QE are not evenly distributing. The boost in equity and housing wealth is mostly benefiting their major owners, i.e. the wealthy. Savers, who are long cash, are instead suffering an erosion of their income and wealth. In the case of euro area more specifically, given structurally lower allocation to equities by households, any potential boost to equity prices from the ECB’s QE will likely have smaller wealth and confidence effects than the Fed’s QE had in the US.

5) QE can exacerbate so called “currency wars”. From a policy point of view, Denmark’s central bank decision this week to take its deposit rate deeper into negative territory to -0.30%, and the SNB’s decision last week to abandon the defense of its minimum exchange rate vs. the euro and to lower its depo rate to -0.75%, shows how difficult it is becoming for neighboring countries to follow the ECB’s shift towards even easier monetary policy. But the ECB does not pose a challenge only for its closest neighbors. Euro area’s main competitors across EM and DM will feel the pressure from a sharply weaker euro inducing them to ease or tighten by less. In EM, currency wars typically result in FX intervention and accumulation of foreign currency reserves or capital controls in more extreme cases, pushing back DM bond investors back to their own markets.

6) QE hurts banks. Commercial banks are facing the risk of shrinking interest rate margins and profitability as there is little room to lower deposit rates, which are close to zero, as lending rates collapse. The experience from Denmark, which was the first country to introduce a negative depo rate in July 2012, showed that banks did suffer an erosion of their profit margins as lending rates declined faster than deposit rates. Admittedly lower interest rate margins do not appear to have hurt credit creation in the case of Denmark over the past two years, so the hope is this side effect will be confined to the banking sector and not hinder credit creation in the euro area economy.

7) But it is not only commercial banks that are hurt. Reduced turnover and liquidity has hurt the fixed income trading across investment banks in recent years and the ECB will likely exacerbate recent trends. We argued before how UST collateral shortage has hampered US repo markets “Reverse repos do little to alleviate UST collateral shortage”, July 11th 2014. The ECB looks set to inflict similar damage to European repo markets as government collateral will be withdrawn at a pace of close to €45bn per month from March onwards. We think an argument can be made that the damage to trading turnover and liquidity is likely to be even bigger with the ECB’s QE relative to the Fed’s QE, because the ECB went even further than the Fed by lowering its policy rate to negative territory. Naturally negative yields hamper trading volumes and liquidity as market participants are less willing to trade at negative yields.

The ECB’s deposit rate cut to negative in June brought both secured and unsecured overnight rates to negative territory. In repo markets, overnight general collateral secured rates have exhibited high volatility hovering between -15bp and zero over the past six months, meaning that investors looking to cover short positions have to lend cash at negative rates. Negative nominal rates are also prevalent in short-dated government bonds. But what is becoming more of an issue is that longer-dated euro government debt, i.e. debt with longer than 1-year maturity, is increasingly trading with negative yields. Figure 1 shows an estimate of the amount of Euro area government bonds with longer than 1-year maturity trading at negative yields over time. We use pricing data from our JPM bond indices. On this estimate, around €1.4tr of Euro area government bonds are currently trading with negative nominal yields, almost all of them of core euro governments of up to 5 years maturity. Back in June, before the ECB’s shift to negative depo rate, the amount of euro area government bonds with longer than 1-year maturity trading negative was virtually zero.

8) QE creates political frictions which could escalate in the future once QE becomes a negative carry trade for central banks, i.e. when the interest on excess reserves starts rising above the yield they receive on their bond holdings. These political issues could reduce the coordination between government and central bank policy or even jeopardize central bank independence in the future. Political issues are even bigger in the euro area because of its fragmented status. Within the euro area, political differences between inner core countries such as Germany and the rest intensified as a result of this week’s QE announcement, and this could jeopardize the process of much needed fiscal and political integration in the future. The decision by the ECB to subject only 20% of the new bond purchases to risk sharing across the Eurosystem shows the compromises that the ECB has to make already in light of political differences. This is not to say that that the 20% limit on risk sharing will affect the effectiveness of the QE program. Neither will it protect Germany in the future against a sovereign default by another country, in our view. After all, if markets start doubting the debt sustainability of a country, the Target2 balances will widen, causing an exponential rise in Bundesbank’s exposure to the rest of the euro area, irrespective of the degree of risk sharing in ECB’s QE. It is more about the doubts that this risk sharing decision raises regarding political commitment to the euro project.

* * *

In conclusion, the items on the list are not at all surprising: we have regurgitated all of these at some point in the past, and most are painfully familiar with the various bullet points.

However, that this list comes from JPMorgan - one of the biggest beneficiary banks of quantitative easing- is quite stunning, and begs the question: why turn on the hand that fed you for years, and what next?

Because once you stop lying and start telling the truth, it is nearly impossible to stop.

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Newsboy's picture

But everybody else gets cheap gas, so it's whole-spectrum economic stimulus.

That's fair, right?

What are you doing with that rope, brother?

NoDebt's picture

Biting the hand that feeds them (The Fed)?  I don't think so.  The Fed is about to start raising rates, if you believe them (and I do).  Sounds to me more like they're SUPPORTING the Fed's stated future policy.

Believe me, somehow they're going to make money off of this.

El Vaquero's picture

I neither believe nor disbelieve anything that the Fed says it is going to do in the future.  Central bankers sometimes lie, sometimes not, conditions change, and I really don't think they know what they're doing. 

Headbanger's picture

Nor can the Feral Reserve confirm nor deny it has any fucking clue what to think or do or say next.

NoDebt's picture

Often wrong, but never in doubt.  Even if the Fed decides to backtrack and not raise rates, this article is in suppot of their current stated policy.  If the policy doesn't come to fruition this article will be forgotten and new articles supporting the Fed keeping rates and zero (and doing more QE) will be quickly drafted.

Wait What's picture

Capitulation, bitchez!

Stuck on Zero's picture

If the bankers are now badmouthing QE it can only be because they have moved their assets to a safe place to short the system.

Seasmoke's picture

They better figure out how to get $10,000+ in each taxpayers hands ASAP or I don't see how they make it thru 2015. 

wmbz's picture

I'd love for Uncle Mammy to send us $10,000 dollar checks. I would convert mine into shiny metal post hast.

Headbanger's picture

Oh fuck no!

I'd convert mine into some nice shiny or blued metal with either a nice walnut or laminated wood or possibly composite support..

Damn... So many guns... So little time!

spekulatn's picture

Titty bars for me and a coke party.

/sarc off

NihilistZero's picture

If you're gonna blow 10G, forget the bar and get a private suite. Get the blow and Ho's delivered :-)

Debeachesand Jerseyshores's picture

Almost enough to buy a monster box of Silver Eagles...

N2OJoe's picture

Sure, till we all get our checks too too...

MonetaryApostate's picture


You know that's never going to happen, though, even if it did, you know the derps are just going to spend it on useless BS, bills, and do nothing wise with it.

N2OJoe's picture

I'm pretty sure that's exactly how TPTB would intend for it to be used.

LawsofPhysics's picture

We have been giving free money (QE, ZERO interest rates...) to the bankers and financiers for 6 fucking years (some would argue 30+ years) and while much of it has gone to their political puppets, NONE is making it to main street.  No fucking shit.


When these motherfuckers start getting all "truthy" something wicked this way comes...

Aussie V's picture

Here in Oz it's making its way to Main Street.

Main Street has been sold!! Privatization is one form and the other method is more sinister imo, the shutting out of normal blue collar workers of ever buying a home.

House prices are ridiculously high and have been for a long time. Normal people have no hope of even trying to buy a home.

A friend recently told me that he went to over 15 Auctions over a 2 month period and every house reached it's list price only to be upped by Chinese gentlemen who couldn't even speaka da english. Just kept topping the bid by another $500 until they got the property.

They're paying over $1 milion for fibro shacks in the suburbs. It's madness! and the money has to be free to them!

ThroxxOfVron's picture

"We have been giving free money (QE, ZERO interest rates...) to the bankers and financiers for 6 fucking years (some would argue 30+ years) and while much of it has gone to their political puppets, NONE is making it to main street.  No fucking shit.


When these motherfuckers start getting all "truthy" something wicked this way comes... "

The Banksters have exhausted the potential of dictating policy and front running implementations of political, social, legal, monetary, and fiscal policies.   Now the harvest will be one of capitalizing on the ruin from their policy failures.  Now consolidation from WAR profiteering and engineered crisis intervention is the agenda.

holdbuysell's picture

Yup, LOP. Something wicked this way comes.

In terms of the Hegelian Dialectic of problem-reaction-solution, this sets up the problem being sovereign central bankers that cause a major crash in markets from guaranteed-to-fail-from-the-getgo policies causing everyone to scream desperately for a solution to the pain (reaction) only to usher in the good guy BIS (already publicly excoriating central banks and banksters) and their solution of a global currency.

The setup looks better and better everyday.

LawsofPhysics's picture

We certainly won't be screaming, all the bankers and financiers can fuck right off, life really would not change much around here.   As a farmer with a lot of "tier 1" assets in my possession, I look forward to them starving and then buying up all their sweet assets on the cheap.  The already overpay me for "organic" nuts and such.

MonetaryApostate's picture


In the Informational Age, the wealthy seek to profit more while doing less for less, and since most of their factories are in utterly poor 3rd world countries, they really only have to handle shipping, which they have a solid handle on, but nevertheless, I suspect they will want to turn all commerce & banking online only in the near future, after the collapse of the markets & the banks.  Call me a Conspiracy Theorist or whatever, but these wealthy thieves cannot be trusted period, and if you do trust them, you obviously don't know enough history.

"The fall enslaves us all" - Total Recall (2012 Movie)

spinone's picture

Maybe the negatives of QE for JPM are starting to outweigh the positives?

Stuck on Zero's picture

And just what are the positives?

LawsofPhysics's picture

trillions more free money?

Like I said, bullshit, something is up.

spinone's picture

Yeah, I'm struggling for a reason why JPM would say this.

El Vaquero's picture

Maybe it has something to do with the avaliability of "quality" collateral and shadow banking?  I don't know, really, but I can always speculate here.  The nice thing about speculating here is that I am not doing so with other peoples' money;)

Wait What's picture

"meaning that investors looking to cover short positions have to lend cash at negative rates"

this seems to be a key phrase in the post.

debtor of last resort's picture

Something is up indeed.

Failing Abenomics. "We're just going to kill the dollar". Merkel didn't commit suicide after ECB qe. Greek elections. Peak cheap oil.

My guess: SDR and debt jubilee for the west, commodity backed currencies for the BRICS. Followed by poverty in the 'west'.

Pre planned of course.

LawsofPhysics's picture

For some reason, I think our farming co-op will be just fine.

falak pema's picture

Its becoming more and more difficult for the Oligarchs to keep a straight face as they KNOW their model HITS the asymptote.

If you can't make the future rhyme with the legend fall back SLOWLY towards reality; but little by little...

After all, remember : Little knowledge is the hall mark of the sheeple. When you are bushy tailed you say : little knowledge is a dangerous thing TRUST US we, the bankers, are the MOST regulated profession in the world !

When you are on the defensive (like today)  you say : little knowledge is our concession to you sheeple! 

There, thats how the Oligarchy works.

A difficult time for the Kings of Versailles, 'cos they are AFRAID the "sans culottes" will come and ask for their hides once they realise the books are cooked! 

When Versailles was emptied of its king... is the nightmare of the Oligarchs. As what follows was NOT days of wine n roses! 

And now  : Athens calls bitchezz ! 

vote_libertarian_party's picture

So is JPM saying they have their large short positions ready?

Bunga Bunga's picture

Buffet, you crony capitalist, enjoy your blood money. House foreclosed, Buffet bought it for 455k in 2012, now on sale for 799k.


Lolitsa's picture

Good 'ol fashioned, American as apple pie Warren Buffett literally disowned a grand daughter who chose to live on her own and fled the 'coop.' Such a nice man. Empathetic to a fault, that Warren is.

Headbanger's picture

No shit.

Didn't know that.

Is she hot and into older men??

Wait What's picture

crazy coincidence, i was in SC just last week. you think 799k is bad, check the price appreciation on the cliffs (east/west).

just by chance i overheard a couple of guys on the street talking about investment properties in Thailand, which spoke volumes to me about how the US has already jumped the shark.

these were just average dudes fixing up a house in the oceanview neighborhood.

Bunga Bunga's picture

This house mentioned above is not an ocean front or view property, it's just in a normal residential neighborhood.

If Buffet is really that smart, it's the peak and the best time to sell a house.

Wait What's picture

yeah, i know the neighborhood, right next to ucsc...

but the peak was about a year and a half ago, or at least before QE was over. I know a couple of ppl who as sellers failed to even get bids at their asking prices... and they put houses on the market twice in 2014. expectations are running a little high already...

then again it's no coincidence that Buffett has 'Berkshire Hathaway Real Estate' offices popping up all over the coast. so maybe he knows california better than I do.

Lolitsa's picture

"The man with the briefcase can steal more money than any man wiith a gun."


-Don Henley

scuttlebutt's picture

Go Tylers.

What you report (constantly) won't change the outcome, but at least we Zhr's are being made aware. And that just might mean something in the end. 

Money Boo Boo's picture

yes, it'll mean the branding process for the FEMA camp will hurt extra good!

Ghordius's picture

Truth? Meh. Truth is too hard to swallow. Truth is that it's a war among currencies

the ECB has unveiled a grand plan of over one trillion QE until September 2016 - the truth the stock market bulls want to hear

the ECB has been shrinking it's balance sheet by one trillion since the last two years - the truth nobody wants to hear

the ECB will be buying up 60 billion of sovereign bonds per month - the truth the stock market bulls want to hear

the ECB will only be buying 20% of it, and so only max 200 billion, i.e. it will not go back to it's 2012 levels - the truth nobody wants to hear

megabanks complained until this QE was announced and are still complaining. why? because they did get what they asked for... but it isn't what they really asked for, not necessarily, not for sure

as for the balance sheet argument that magically stops being an argument whenever it's not useful anymore, here the Target 2 argument is trotted out again, but not for the present, no, for the future

the truth is that Draghi pulled what might look afterwards a fast one, megabank analysts understand they've been possibly been had, and so their talking points are... confused, but firm

this is the truth, but it's an unpalatable one. Remind me, how do you win a currency war?


17 national banks buying up a total of 800 billion of their own national debt. come on, you lazy bastards megabank analysts, that's 17 different strategies, capabilities, political setups and balance sheets you have to study now and write firm megabank articles about. your part of this financial war has just become a bit more complicated, eh? I'll give you a hint: concentrate on the French and the Italian ones, then the Austrian, Polish and Spanish ones will give you just headaches and the sneaky Dutch and Belgians are above most of you. have fun

El Vaquero's picture

"Remind me, how do you win a currency war?"


By declaring a real war, crushing your enemies, seeing them driven before you, and listening to the lamentations of their women. 



IMO, you win by being the only currency to NOT hyperinflate.  Unfortunatly, we tend to not make it that far before something else breaks first.

Ghordius's picture

two extreme views, imho

most currency wars ended with a bargained truce. a currency peace

another unwelcome truth, I guess

El Vaquero's picture

Ah, but a bargained truce isn't exactly winning.  It is just ending the war, preferably before the whole "other stuff breaks" part happens.  There is another factor in play here, and that is that we are approaching the point where, currency war or not, there won't be enough goods for everybody to live how they want, no matter what currency or industrial reforms are declared.  We will see resource scarcity in our lifetimes, and that tends to cause nations to look across the borders of other nations to see what they might be able to control.  Placing the sanctions on Russia was stepping the currency war up to a trade war.  I cannot emphasize enough that the neocons in the US are completely insane in light of everything that is going in the world.


Just remember, sometimes those extreme views are what dominate the day, especially when you have powerful entities losing a grip on that power.  Currency peace may be preferable, but when it isn't the course taken, we get nasty things, like we did with WWII. 

LawsofPhysics's picture

Come on Ghordius, the fucking truth on this planet has never changed.  There are predators and prey and there never has been nor will there ever be a monetary, fiscal, eCONomic, or political solution to resource scarcity.


falak pema's picture

you have a point Ghordius.

The splintered glass, as in a car front wind sheet, is safer when it fractures into small pieces. As long as the driver drives for all the components not just for the MAIN components; aka German and French banks and its owners.

Lets see if the windsheet strategy is more efficient than the monolithic one in currency wars...