65% Of QE3 Is Already Priced In

Tyler Durden's picture


The major problem with daily jawboning by central bankers, such as Draghi today, and the Fed via Hilsenrath on Tuesday, is that it "achieves" to price in QE without QE actually being implemented: in essence the various central banks try to run up assets on the rumor, knowing well that with every incremental "news" event, the news will be sold ever faster, and ever more forcefully. Which then begs the question: how much QE is currently priced in, in order to determine how much more "rumor" there is to buy. According to Bank of America: not much, as a full 65% of QE 3, or the NEW QE, to use the proper iNomenclature, is by now priced in.

Here is BofA's take:

There are a few key differences between now and the past two balance sheet expansions: 1) Fiscal policy is likely to be tightening rather than loosening. 2) Global growth is much weaker. 3) The dollar is unlikely to weaken as much as it did during QE2 given the escalation of the euro zone debt crisis. 4) The realization that previous rounds of QE have not been able to stoke a stronger and more sustained economic recovery.


The market implications of QE3 will likely be a function of what is priced in by the time it is announced. Currently our model (see here for description) estimates that 65% of QE3 is priced in (Chart 8). This is much lower than before QE2 was announced. Therefore as the Fed sends stronger signals of QE3 in the near term we expect more downward pressure on yields. However, we believe that by the time QE3 is announced, the market will likely have priced it in.

Needless to say, when the Fed itself become the ultimate "sell the news" event, and the credibility of the only remaining real backstopper in town is gone, one does wonder: what then? But at least it explains why both Ben and Mario will do everything in their power to extend the period of simple jawboning without actually hitting CTRL-P. Could we hit a point when over 100% of the NEW QE is priced in then? Why of course.

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Thu, 07/26/2012 - 09:37 | 2652824 BaBaBouy
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QE3 Da GOLD, Bitchies...

Thu, 07/26/2012 - 09:37 | 2652836 GetZeeGold
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65% Of QE3 Is Already Priced In


We're the 35%......sorry you have to go cause it's ours.


Thu, 07/26/2012 - 09:42 | 2652852 RationalPrepper
RationalPrepper's picture

Yes, I'm fairly confident QE3 is not priced into gold or silver (not to mention food and fuel).

Thu, 07/26/2012 - 09:44 | 2652863 flacon
flacon's picture

Central Bankers = The Boy who cried "WOLF!".

Thu, 07/26/2012 - 09:46 | 2652873 covert
covert's picture

sell the hype has always been the market policy.


Thu, 07/26/2012 - 09:36 | 2652828 SmoothCoolSmoke
SmoothCoolSmoke's picture

SP up 30.....30!,  on NOTHING.  What a crock o' shit.

Thu, 07/26/2012 - 09:39 | 2652839 GetZeeGold
GetZeeGold's picture



It's not nothing......it's hope AND change.


Thu, 07/26/2012 - 10:23 | 2653040 crawldaddy
crawldaddy's picture

its like seinfeld



its a market about..Nothing

Thu, 07/26/2012 - 09:48 | 2652847 spastic_colon
spastic_colon's picture

a well coordinated bowl of crap to save us from AAPL and all the other poor earnings, if AAPL earnings were good, we would have never heard from Drahgi et. Al.  Funny how we trickle down to support, but RAM through resistance.

Thu, 07/26/2012 - 09:55 | 2652929 Quinvarius
Quinvarius's picture

Nothing you know about anyway.

Thu, 07/26/2012 - 09:36 | 2652829 falak pema
falak pema's picture

its the last 2% which is the most expensive; when you go from 98% to 100% you cross the Rubicon. 

Pity we cannot have a 98% pregnant girl who never makes it to 100%. It would save no end of trouble. 

Thu, 07/26/2012 - 09:36 | 2652830 Meesohaawnee
Meesohaawnee's picture

just utterly mindboggling. and im suppose to get bent out of shape about libor manipulation?

Thu, 07/26/2012 - 09:37 | 2652831 TheCanadianAustrian
TheCanadianAustrian's picture

Maybe the broader stock market, but definitely not the miners.

Thu, 07/26/2012 - 09:37 | 2652833 SwingForce
SwingForce's picture

How many times are the US people going to fall for this trick? QE, baby! Yeah, let's give more money to the banks so they won't lend it out. Come on, fire Bernanke already. Only one getting fat is Mama Cass.

Thu, 07/26/2012 - 09:38 | 2652837 RobotTrader
RobotTrader's picture

Wow, the market has gotten so easy.


All TPTB has to do is "talk" and ES surges 30 points on air.

Must be a lot of high fiving at the Fed, they have turned the markets into a Greyhound track where all they need to do is steer the pack with a meatball.


Thu, 07/26/2012 - 09:45 | 2652869 Everybodys All ...
Everybodys All American's picture

Perhaps they simply buy the ES themselves. Nah, Bernanke is too much of a free market guy to do that isn't he. /s

Thu, 07/26/2012 - 09:47 | 2652874 SheepDog-One
SheepDog-One's picture

And I bet you wish you were there at the Fed, to be the centerpiece for their 'Boner Jam'.

Thu, 07/26/2012 - 09:50 | 2652891 GMadScientist
GMadScientist's picture


Thu, 07/26/2012 - 09:53 | 2652898 Vincent Vega
Vincent Vega's picture

And there goes NFLX.....another face planting, blow torching, puking up blood, all time, world record, where's it gonna end, brand spanking new, high five, 52 week low!

Thu, 07/26/2012 - 10:46 | 2653144 Vincent Vega
Vincent Vega's picture

Wow, look at that DOW drop....from 250 to 185, 184, 183....in minutes. Falling like a one egg pudding....173....

Thu, 07/26/2012 - 11:25 | 2653301 Ckierst1
Ckierst1's picture

The markets are swinging away at a curveball that the PTB pitcher hasn't released and, really, he's still taking signals from the catcher.

Thu, 07/26/2012 - 09:39 | 2652840 fonzannoon
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"The major problem with daily jawboning by central bankers, such as Draghi today, and the Fed via Hilsenrath on Tuesday, is that it "achieves" to price in QE without QE actually being implemented"

This seems to be the brilliance of it

Thu, 07/26/2012 - 09:40 | 2652845 mayhem_korner
mayhem_korner's picture



So what is the bottom when QE doesn't come or, more importantly, when the terminal virus infecting the world economy builds immunity to QE...?

Thu, 07/26/2012 - 09:53 | 2652921 khakuda
khakuda's picture

If you and I were on the Fed, that is the question we would ask.  What do we do when we do a QE and the markets don't respond.  Since there seems to be no distaste for endless QE, that day is sure to come.  Bernanke doesn't think it will.  He thinks he's just double down, blow off his restrictions and buy stocks and bonds and houses and everything else.

They don't see the real crisis coming, just like they didn't see the real estate bubble, the internet bubble, etc.  When it does come, they'll blame someone else.

Thu, 07/26/2012 - 09:57 | 2652938 fonzannoon
fonzannoon's picture

Or the flip side is they learned from their last mistake. Last go around they did not have control of the market. Now by suppressing volatility they have completely hijacked the markets. The only fly in the ointment I still can't reconcile is zirp/nirp. That is still staring the banks/insurance companies right in the face and it does not bode well for them.

Thu, 07/26/2012 - 10:27 | 2653056 RiverRoad
RiverRoad's picture

When that metaphorical QE tree falls in the forest and there's no one around to hear it, will it still make a sound?

Thu, 07/26/2012 - 09:41 | 2652846 emersonreturn
emersonreturn's picture

a very old man whose pawned his gold watch, imagining he can retrieve it whenever he chooses.  

Thu, 07/26/2012 - 09:42 | 2652849 Tortuga
Tortuga's picture

Hold it, gotta get pen and paper, BOFA is talking, so it must be true.

Thu, 07/26/2012 - 09:42 | 2652851 khakuda
khakuda's picture

If it's not already, at some point, it's going to become evident even to the least financially savvy and the markets, that the game is over.  Four years of the same moves over and over and all these announcements are doing is proving definitively that there is no real solution.

Thu, 07/26/2012 - 09:46 | 2652871 GMadScientist
GMadScientist's picture

They're always the first to know.

Thu, 07/26/2012 - 09:42 | 2652853 Peter Pan
Peter Pan's picture

QE is just lipstick and I jsut don't see this pig of a world economy getting any prettier.


Thu, 07/26/2012 - 10:34 | 2653099 kito
kito's picture

There is no qe.....anybody gullible enough to buy anything, stocks, gold etc, into this hype will have their trading faces ripped from their head when qe doesn't materialize.......

Thu, 07/26/2012 - 09:43 | 2652854 john_connor
john_connor's picture

R2K is already being faded.  yawn.

Thu, 07/26/2012 - 09:43 | 2652857 yogibear
yogibear's picture

Paper burns. Bernanke and the rest of the fed members are slaves to Wall Street. No indepent thinkers at the Federal Reserve anymore.

Thu, 07/26/2012 - 09:43 | 2652858 SheepDog-One
SheepDog-One's picture


Thu, 07/26/2012 - 09:43 | 2652860 GERxit
GERxit's picture

At least one can count on the FED plus its banking lemmings to surpress GOLD a little longer (8:30 and gold starts falling while stocks go up further).

Thu, 07/26/2012 - 10:30 | 2653074 RiverRoad
RiverRoad's picture

Gold will fall or tread water until "they" are done buying it.

Thu, 07/26/2012 - 09:44 | 2652864 mess nonster
mess nonster's picture

I assume that pricing-in nullifies (by the percentage thereof) the effectiveness of any QE. If QE gets priced in @ 100%, then why have it? But that's the whole point of the article, and I'm just stating the obvious.

Maybe I'm all wrong here, but if there is a price-in neutralization, what happens if there is no QE? Does that sound like a loud POP? An event considered inevitable will get priced in, and the only effective QE would be the one that came as a complete surpirse.  But then that begs the question of why the inevitable collapse is not priced in...

Thu, 07/26/2012 - 09:52 | 2652909 rubearish10
rubearish10's picture

QE3 "is coming" lasts longer than you could wait.

Thu, 07/26/2012 - 09:44 | 2652865 DavidC
DavidC's picture

Only 65%?


Thu, 07/26/2012 - 09:45 | 2652868 GMadScientist
GMadScientist's picture

Ah man....the Hopium headrush is giving me a migraine. Shouldn't last more than a few hours though.

Thu, 07/26/2012 - 09:46 | 2652872 LULZBank
LULZBank's picture

A casino, even a rigged one, only loses its customers when they ultimately go broke.

Thu, 07/26/2012 - 09:53 | 2652912 mess nonster
mess nonster's picture

What if...all the casino's customers are broke, and they are all playing with loans from the casino? If they all went away because they were broke, the casino would go out of business, so it has to loan all the broke gamblers money so they can keep gambling (and losing) with the casino's own money, and the casino has no way of getting more money except as the gamblers pay off their loans with the winnings they hope to get from the casino, when they bet the money the casino loaned them...

Everything's wrong with this picture, except accuracy.

Thu, 07/26/2012 - 10:02 | 2652955 GMadScientist
GMadScientist's picture

Did you mean the casino or the customers going broke?


Thu, 07/26/2012 - 10:15 | 2653001 LULZBank
LULZBank's picture

Customers going broke. Casinos hardly go broke.

Thu, 07/26/2012 - 10:51 | 2653159 GMadScientist
GMadScientist's picture

Stay tuned!

"The Silver Legacy Resort Casino in Reno, half owned by MGM Resorts International, voluntarily filed for Chapter 11 bankruptcy reorganization on Thursday in U.S. Bankruptcy Court for Nevada. Silver Legacy is adjacent to MGM Resorts' 1,572-room Circus Circus Reno."


Thu, 07/26/2012 - 09:48 | 2652878 Paper CRUSHer
Paper CRUSHer's picture

Recall all o'those economic & corporate reporting premarket anul-lysts whisper no's no longer used .....what we have here,same shit ,different name

Ol'QE version 1.1 upgrade.> QE version 1.2 aka.WHISPER QE

Thu, 07/26/2012 - 09:48 | 2652880 digalert
digalert's picture

The http://www.usdebtclock.org/ shows the monetary base and M2 are rising.


Thu, 07/26/2012 - 09:49 | 2652886 LULZBank
LULZBank's picture

The wizards on Wall St know where the markets would be when the New QE would is launched and they have noticed the markets are already up 65% of that level.

So technically the Fed only needs to implent 35% of New QE to get the desired result and save the 65% for New QE4.

My my.. these analysts are so intelligent. I almost envy them.

Thu, 07/26/2012 - 09:59 | 2652944 mess nonster
mess nonster's picture

If only it worked like that. I think what would happen if only 35% of the expected QE were anounced, the market would collapse by some exponent of the 65% missing from the QE.  The market rises on the EXPECTATION. This has the illusion of efficiency, but it really is only the anticipatory euphoria of a heroin addict just before he sticks the needle in his arm. If the syringe is mostly (65%) empty, all he gives himself is a deadly embollism, much worse than no needle at all.

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