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When Exactly Will The Fed Launch QE4?
Submitted by Bill Bonner via Acting-Man blog,
Money From Nowhere
On Friday, the S&P 500 and the Nasdaq closed at record highs. It’s the first time both indexes have done so since December 31, 1999. Why such optimism? High profits, you say. But where do profits come from?
Households have less money to spend than they did 15 years ago. And companies cannot make money just by selling things to each other. The only explanation is that customers – including the US government – continue to borrow and spend.
Corporations borrow money to buy their own shares. Consumers borrow to buy products. Either way, the money comes “out of nowhere” and falls on balance sheets like manna from heaven.
The great money temple, from whence fresh pronouncements shall issue today. How long before it floods us with fresh money again?
Photo credit: Susan Candelario
The Limits of Debt
US households appeared to reach “peak debt” in 2007. Now, the corporate and government sectors – not to mention students and auto buyers – are pulling up to their maximum debt limits, too.
Credit to US households and non-profits stood at $13.384 trillion as of March 18 2015 – still below the 2007 peak and declining in relative terms – click to enlarge.
“Everybody – including every corporation and government – has a capacity limit for debt,” says Swiss money manager Felix Zulauf. “Once they reach capacity, they stop buying. Then the additional sales turn to additional inventories, employees turn to jobless statistics, and profits turn to losses.”
Maybe the cycle will reverse soon. Maybe it won’t. But US corporate profits – already at record highs – can’t go much higher unless: (a) wages rise, (b) consumer borrowing rises or (c) government borrowing rises. None of which looks likely.
And without the hope of higher earnings in the future, why pay so much for stocks today? The S&P 500 is trading at 27 times the average inflation-adjusted earnings of the previous 10 years. Only twice in history have S&P 500 earnings, measured this way, been so pricey: at the peak of the dot-com bubble and right before the 1929 crash.
Ah, you might say, but this doesn’t account for central banks’ ultra-low interest rate policies. Without the supposedly “safe” income that bonds throw off, what’s an investor to do but reach for dividends and capital gains in the stock market?
But stocks are supposed to look ahead. You don’t buy a stock in anticipation of getting back the same thing you paid. You buy hoping to get more. And if prices have gone up because interest rates have gone down, what will they do now that interest rates are already down near all-time lows?
How much lower can interest rates go? (We’ll leave that question for tomorrow – I think you’ll be surprised.) In the meantime, let’s keep our eye on the US stock market. Why are stocks – and assets generally – so richly valued?
As of April 1, the CAPE (a.k.a. PE-10 or Shiller P/E) stood at 26.8 (chart by Doug Short/Advisorperspectives). Only the 1929 and 2000 mania peaks are still topping the levels of today – click to enlarge.
Here Comes QE4
“Nowhere” has provided a lot of money …
No one earned it. No one saved it. But here’s our prediction: Someone will miss it when it is gone! If the US money supply were a deck of cards, Uncle Sam has been slipping in extra aces for the last 44 years.
Between 1980 and 2008 these aces were in the form of current account deficits. The US bought more from overseas than it sold abroad, and financed the difference on credit. Fiat dollars went to overseas suppliers. Their central banks took the cash and sent much of it back to the US, where it was used to buy stocks and bonds.
From roughly 1990 to 2008, the flow of dollars into US financial markets from trade surplus countries (where exports exceeded imports) averaged about $400 billion a year.
According to the author of The New Depression, Richard Duncan, this money was an important source of the Nasdaq bubble at the end of the last century… and the sub-prime mortgage bubble at the start of this one. When those bubbles popped, the Fed came up with another source of liquidity – QE.
Take QE plus the amount of dollars accumulated overseas as foreign exchange reserves, subtract Washington’s borrowing (which drains liquidity), and you have what Duncan calls the “Liquidity Gauge.” Follow the gauge, he says, and you will know how loaded this deck really is.
For example, in 2013, low government borrowing combined with QE led to near record levels of liquidity. The S&P 500 reflected this with a 30% gain. What’s in store in 2015?
It doesn’t look good. Washington’s budget deficits are estimated to stay at about $500 billion a year until 2020. This will absorb a lot of liquidity to pay zombies. Also, the Fed has put its QE program on pause. If it stays that way, some liquidity would seep in from European and Japanese QE programs. But it would be fairly modest.
The only major source of liquidity would be from dollar foreign exchange reserves overseas. But world trade has slowed, greatly reducing those reserves. The result? Negative net liquidity for the next five years.
The bad news begins in the third quarter, says Duncan. Because income tax returns are due in the second quarter, it always brings in tax revenue to the US government. This reduces Washington’s need to borrow… leaving liquidity available to the stock and bond markets.
But in the third quarter, net liquidity is likely to turn negative. And the stock market is likely to correct. What then? The Fed will panic and announce QE4… and other measures. More on those tomorrow …
* * *
Although this chart is slightly dated (it shows foreign central bank monetization of US treasury and agency debt until December 2012), it illustrates that FCBs are an important factor in the liquidity game. The chart depicts a large portion of the recycling of the US current account deficit by mercantilist nations, which are usually blowing up their domestic money supply in the process. In the past two years, this has slowed down considerably though, as the US trade deficit has declined (chart by Michael Pollaro) – click to enlarge.
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Wake me when it happens...
Right after Boris Yellen loses 100 lbs.
I will not be surprised when the Fed raises rates AND starts another round of QE at same time.
"If the US money supply were a deck of cards, Uncle Sam has been slipping in extra aces for the last 44 years."
Incomplete analogy.
Here's the complete one:
"If the US money supply were a deck of cards, Uncle Sam has been slipping in extra aces for the last 44 years and bottom-dealing them to their buddies in the game."
Who is to say that QE4 isn't already here. Since QE3 ended, excess reserves should be steadily going down. Instead, they go down, then come back up. Those digital FRNs are going somewhere, then coming from somewhere. The question is, where?
http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=19Cf
That's no smoking gun, but, again, where are the FRNs going and where are they coming from when the excess reserves go back up? This is something that the Tylers ought to look into.
Fed is committed to maintaining it's current balance sheet size...so as assets mature and roll off they are adding new assets to maintain $4.5 trillion balance sheet
If that is the case, then it is merely QE-lite.
never invest in a dying industry.
If the Fed began to "normalize" it's balance sheet, say over the same 6yr period the Fed ramped it up and picked a balance sheet target double what it started the GFC with...that would mean $1.5 trillion ($500 B in treasury's and $1 trillion in MBS)...selling the other $3 trillion worth or $500 billion annually for the "market" to buy along with new issuance plus rest of the world rollover. Interest rates would go beserk and GDP tumble (unless Belgium and the likes buy it all...wink wink).
detalied here...
http://econimica.blogspot.com/2015/03/brics-blink-or-more-correctly-wink-and.html
I get what you're saying. Basically, QE-lite it probably is. Wobbly ponzi is wobbly. If they're worried about interest rates going berserk, they'll eventually need to start increasing their balance sheet again. Holding it steady is linear thinking, and our monetary system is anything but linear.
Yup - only point I'm making is it's more likely to see Japan and "BLICS" phony off shore indirect shadow QE buying continue ramping up even further over '15...less likely for a direct QE4 for now.
It was obvious that Belgium was a straw purchaser. Start naming who for, and only major financial institutions can make the list of possibilities, with the Fed right up at the top. I suppose it could be the IMF, but I'd bet on the Fed. The only real question is, how deep does this rabbit hole go?
QE4 is launched when APPL breaks $50 per share. Panic will set in because "wrist porno" will be in danger.
I like the butthurt el vaquero crying about how blacks have balls and he is a wimpy keyboardrevolutionary who thinks blacks chimpout when they group, BUT DON'T YOU DARE LUMP HIM IN WITH THE RACIST BUTTHURTS! waaaaaaaa
Interest rate swap derivatives...? I don't know. I pinched it from Jim Willie.
QE continues via the BOJ and ECB who are buying the US bonds in this global shell game.
It will be the FED's turn again soon.
A global zimbabwe financial system. That's what they've given us.
BINGO!
Just a power nap away....
and your chicks for free.
"so as assets mature and roll off they are adding new assets to maintain $4.5 trillion balance sheet"
The Fed is double-talking. They say they stopped QE but really didn't
Probably why they can't have an audit. Dirty dealings.
Screw it...it's not like I'm wagering any Benny Bux......let's shoot for this time next year. Q1 Fed Statement 2016.
Remember boys and girls.....there's an election coming up.
Still Bill explane why will bankers shrink money supply
first robbing with inflation then transffer welth with deflation
https://www.youtube.com/watch?v=iDtBSiI13fE
I'm waiting on -5% so I can refi the hell out of everything that isn't nailed down. Then it'll be, "Fuck you, pay me!"
I freelance over th? internet and earn about 80-85$ an hour. I was without a job for 7 months but last month my paycheck with big fat bonus was $15000 just working on my computer from my home for 5-6 hours. Here's what i have been doing... www.globe-report.com
"Not patient" and "hawkish" FED has QE4 ready for when the head fake 0.25% rate increase crashes equities.
dollar dies first. notice how you don't hear anyone talking about velocity anymore? QE does no good if your trade partners want something else in exchange. Especially true if they are already choking on excess dollar reserves or dollar-denominated assets.
Yep....Dollar dies, no more QE....no one to lend to our ponzi and everyone wants out of the sandbox with us...they want their own ponzies to thrive.
The oligarchs have lost control and are scrambling to loot and pillage the system before it goes tits up. Chaos is coming, Entropy will have her way.
No hedges, no safety in Au and Ag....I know that breaks alot of Hedges hearts, but the beast will not accept alternatives or competition to its evil supremacy.
Only security in the coming days to be had is Pb coated in a thin layer of Cu and self sustainability along with a tight knit group of like minded if they can be found.
The crash is not going to be a preppers fantasy world, it is going to be long, painful and torturous.... even for the prepared mind body and spirit.
There will be weeping wailing and gnashing of teeth and begging to be buried under rubble to hide from oppression.
The next leg down in this shit storm will be Biblical...it will be global, and a Great Calamity with no visible reprieve will saturate the global scene once the death throws of
QE and last ditch stick saves are all exhausted across continents. The rulers of earth will all stand distrustfully staring into the eyes of each other realizing the irreparable
nature of their grand experiment and when all hope has been lost and the entire world is beating down their doors in high places, a temporary "savior" shall emerge.
I think the Euro dies before the Dollar. The Yen should already be dead, and would be if it wasn't for that patient and obedient Japanese culture. The West is neither patient or obedient. The sociopaths will start feeding on each other, and the Euro will be consumed first. That's when you will know the Dollar death throws are beginning. It will be the mother of all currency wars then, because something will have to replace the Euro. That's when the fight to the death, probably between East vs West, Fiat vs Real takes place. That's when it will really start to get ugly for everyone because Ponzis never collapse gently.
Lend? You haven't heard of mid-year tax refunds and such things eh?
By deleting all dates,, they just did
I thought they did? Let me try this Math thing... QE1 in 2009, QE2 in 2010, opertion twist 2011, 40 billion inMortgage back securties a month, 40 billion in MBS + 40 billion in bonds... Don't you mean QE6?
Everyone here knows the endgame is economic collapse in order to bring in their new system, so why then do you assume the FED will perpetually prop up the markets and economy?
Believe we're headed for orchestrated collapse or believe the FED is desperate to prop up the economy, but you can't have both.
LOL!!! It is impossible for a "collapse" to be "orchestrated". Never go full retard dude.
Don't know about that LOP....maybe not being orchestrated by man, but a higher/lower power perhapse.
Centuries of orchestrated enslavement by the "TPTB" seem to be pretty well executed...too perfectly executed for the impatience of mankind.
Something more sinister is at work if you ask me.
didn't junk you
Of course, but enough with bullshit semantics/theatrics, chaos is chaos, period, and the majority of american son't know chaos. More importantly, it's a distraction. For what exactly is the important bit.
So 2008 was an accident?
Bernanke could've bailed out Lehman without breaking a sweat, and he could've injected whatever was required once he saw it getting out of hand.
But he didn't.
They believe they can orchestrate a collapse, whether I believe they can or can't doesn't matter. They do, and they'll try.
2001, 2008 were defaults bankrupcies that provided cover for more fraud. Get a fucking grip people, chaos is Afghanistan or trying to make your way as a white person through a Braziliam favela. Americans really need a reality check.
Sociopaths absolutely believe they can control anything and everything. That's what makes them sociopaths. But believing and achieving are different things, and history has shown them failing over and over in achieving their goals. But that doesn't stop them. Failure never stops a sociopath. They have infinite appetite, but really are not any more competent or effective then normal people, they just think they are. So they dig harder and harder after more control and will sacrifice anything and everything for a losing cause that in their twisted mind is perfect. The bottom line is, this will not end well for anyone.
Some think it is all about bringing a collapse to usher in a new global monetary system. Others think it is about creating the strongest vacuum ever seen to hoover up 100% of ALL assets so they can own everything.
Hmm, new monetary system or total domination? If they haven't crashed it yet it is because they aren't ready for either scenario. Expect more QE.
July 17, 2015
Who told you?
I mean, "Shut Up! We ain't supposed to tell 'em.. yet!"
Doesn't Venus go retrograde right around then ?
Indeed, http://worldemojiday.com/
7/29 is a fed meeting announcement day. To be enacted after the kids are back in school. wash rinse repeat
Ok, smarty pants... Gimme a value or a range for XAG and XAU spotprices.
Will QE4 drive these back up, anywhere close to where they used to be? Highly doubtful. You're better off speculationg on hard alcohol prices. If you're gonna "stack", stack some boxes of hard Alcohol. Their redemption into cash will be more... liquid.
Gold and silver will cost 55 grains of lead per owner from whom it is to be taken.
I'm not sure we will see a per se QE, but they will have to do something when bonds start collapsing and liquidity disappears. Of course we all know where the money will really go, no matter what......
MyRA
putting a numeral after QE was a distraction, there's never been a lapse in printing, ever
US: Tag ur it
Japan: Tag ur it
EU: Crap
Let me explain this market, there is a $430 stock with a $200,000,000,000
market capitalization that loses $.50/share.
If they cannot find a way to create artificial demand.
They will be forced into increasing QE.
Because there is no demand, Neo.
No spoons either.
So, a planet of 7+ billion people don't need anything at all (no demand)?
I call bullshit on that.
No one needs another $18 trillion of shit.
Exactly, no demand for financial bullshit, fraud, or paper promises. Plenty of demand for real resources and energy.
tick tock motherfuckers...
If we could just talk the proles into going even deeper in debt........
7+ billion? Temporary situation.
They got an App for that.
Silver wasn't allowed to go up today on the rising oil, bad GDP & weak dollar news. Instead, the FED opened its mouth and it got its repeated bitchslap smackdown.
Mathematicians should not be allowed to tinker with Economics. It is the province of psychologists.
Did you know that Copernicus and Galileo were Astrologers, and did Astronomy as a hobby?
Even back then smart people knew (and these guys were VERY smart), that the real money and resulting lifestyle is in Astrology. Today's equivalent is Financial Planning. BTW, look where* Galileo ended up for trying to show up TPTB with his Spherical Earth and Solar-centric model?
* House arrest and 300 years in Purgatory, per the Catholic Church.
Hedge, Plan and Proselytize accordingly. ;-)
Never fear when the Squid is near.........GS has alums in place to keep the prop desk rolling in $$$$$$$$$$ whatever the Fed might announce. It's too easy.
This question is too easy. It'll be the day I go short the S&P.
QE4 ... next quarter?
what will FR purchase?
sitting on Fail/Safe as is on owning the US bond market
not saying no QE4 ...just have to wait till deep into recession and trillion dollar deficits back in style
<<<<<<QE4
<<<<<<FED HIKES
both. they'll do a face save 25 bps....that's it.
but they'll flood the zone in some other way.....politically, perhaps, via student loan suspended payments (temporary, of course) or some other giveaway. combined with Amnesty, it'll really draw the votes to mrs clinton.
I have a great idea for an article.
List as many ways to artificially create demand for something no one really wants.
I'll start with the top two:
1. Threat of invasion
2. Derivatives
Bring back the clothing and hair styles of the early 90s.
Liquidity will go down in Q3? On what planet?
The end is nigh and its crystal clear. Janet (as well as other worldwide central bank vermin) will NEVER be able to raise interest rates in a meaningful way without yanking the stock market crash lever. On the contrary. The cash choppers are warming up. Central banks are all up the same creek and the paddles are wedged solidly up their asses. Its debt forgiveness time. Load up the cards boys. It starts with the morons that attended the diploma mills and eventually comes down to the rest of us. Negative interest subsidies to buy a new house at a new inflated price and two for one autos from gubmint motors. Just pay a small additional S&H "speakers fee" to the Clinton Foundation. The end is nigh.
Fate the Magnificent
"Push the Button, Max"
+1 for the entertainment
The net benefits of 3 rounds of QE to Americans and the American economy were very modest and that's being generous.
Debt can be written off but everyone better have a lot of cash at their immediate disposal for that event.
Interesting point #1 -
http://research.stlouisfed.org/fred2/graph/?g=19Cg
Intersting point #2 -
http://research.stlouisfed.org/fred2/graph/?g=19Ck
Think about it.
QE4 will consist of them buying stocks, bonds, commodities, dollars, and real estate ... if they're gonna go in again, may as well go big ...
... oh, and give themselves a "well-diversified" portfolio mixx
The stock market used to:
A. be a market
B. be a discounting mechanism that would react 6 to 9 months ahead of the actual news, due to accumulated risk.
Now, the is no market and there is no risk because price is controlled by the banks/algos and laws that make theft and fraud legal and free markets anathema.
... since there is no risk, there is no discounting mechanism... and no REAL participants.
With forward guidance geting more obscure, the next move will be QE1. Qualitative Easing.
relative or real? real is still easing, but marginally less so.
The Economic Motor
Complimentary marriage is the economic motor, which operates beyond the empire, in privacy. Contract marriage is the CEMF, or gravitational inertia keeping the motor from running away, which the empire employs to replace nature, poorly. At threshold, Nature re-engages. Whether you care to think so or not, the earth is a motor-generator, and time is a dc construct in your mind, only going one way, which can only blow up.
If you look at contract marriage, from beyond it, you will see that the critters stay together so long as they acquire more stuff, which is why you see divorce at max potential, when the assets get recycled back into empire. The Clintons are just doing their job, fulfilling the contract, which is worth no more than 10% of your time, and upon which empire media spends 90% of its time, as the counterweight.
NASA is just as pointless. If your idea of space exploration is finding another earth or taking a round trip to Mars, you are wasting/creating your time, with busy work. The empire is like a case study in artificial adaptation, training wheels. You will learn much more, more quickly, adapting to Nature, which varies with spacetime, which the empire busies itself eliminating.
As you contemplate new infrastructure, you may want to think about the space you really want to explore. Only your children can take you to the future, regardless of feudal mythology, which can’t do anything, but talk, print and go to war, History, written of, by and for feudalists, who must have your children to exist.
You may want to re-think commercial lending, looking within deep subprime, which the feudalists are combing through now, expecting to grow green shoots with usurious interest rates, consuming accordingly. If you want to find needles in haystacks, be the needle. The critters scale up the past, locking the rotor into the stator every time. Those elevator doors are a double-sided mirror.
The majority scans the environment for what it expects to see, with an increasingly myopic dc filter, which is why democracy degrades to communism. We would all be better off with economic circulation, mobility, but most seek the benefits of capital and labor with none of the costs, something for nothing, arguing equal rights, as needed, giving nothing. Capital employs the middle class accordingly, to systematically identify the 1% and place it in back, to maintain float, real estate control and inflation to maximize tax. That is what the Bell Curve, public education under the law, is all about.
The empire isn’t a conspiracy of evil. It’s stupid breeding stupid, as the counterweight. Defining new classes does not add windings, as presumed to get the motor running again. So long as RE inflation exceeds wage gain, working, in the empire, merely bankrupts work. DC has simply consumed Baltimore with its gravity, urban sprawl to feed global cities. Have you been by Cal Ripken Park?
What do you see in the mirror, other than the reaction to what you have been programmed to see since birth?
Goliath doesn’t realize that he is at the edge of the cliff until his head is imploding at the base of the ravine, for obvious reasons, which History attests. You can always cut the line to the aggregate counterweight, if you prepare accordingly. The market simply shifts the illusion of weight, the baseline, toward capital, with technology, blowing itself up every time.
Somebody has to walk up that hill with weight, to install the elevator. Of course the critters are going to employ your children for the purpose of extortion, to feed entitlement, from above and below.
< Au price to drop prior to QE 4
< Au prices won't fall any further.
I don't think QE-4 by itself today is necessarily a trigger anymore. I don't think the fate of gold pricing has long to be in the hands of the West. Soon it won't matter what the Fed does or doesn't do.
When's the next time CONfidence trips and stumbles...That's when....
Tylers are going for the jugular here...
There won't be QE4 but it sure makes for good fantasy scripts.
Qinifinty
Just after Elon Musk gets his soft landings to work.
To get all the details on Richard Duncan's Liquidity Gauge and QE 4, visit richardduncaneconomics.com at:
http://www.richardduncaneconomics.com/liquidity-gauge-warning-after-mid-...