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Citi On QE3 - Less Flavor, More Calories

Tyler Durden's picture





 

There is an ongoing debate among market participants over the reasons for asset elevation - global growth expectations? liquidity hose-pipes? European tail-risk reductions? or some combination of the three. Citi's Steven Englander attempts to uncover the changing face of the Fed's QE impact - with some very specific findings this time around.

 

Citi, QE3: Less Flavor, More Calories

Ever since QE3 expectations solidified in mid-August gold has far outperformed the S&P and risk-correlated, in contrast to when QE1 and QE2 were announced. We see this is indicating that the expected impact of QE on activity is less for this round than for previous rounds and that the attractiveness of the rest of the world is also less than when the prior QE rounds were announced. 

 

We look at the gold reaction as a an indication of how much asset prices are driven by pure liquidity addition, the S&P to see how much is expectation of top line growth (recognizing that liquidity also has some impact) and risk correlated G10 currencies (a basket of CAD, AUD,NZD, NOK, SEK) as a measure is how much the impact is pure substitution out of USD.

 

When QE was announced in March 2009, the gold price reaction was relatively muted throughout the period, S&P exploded from the get go and small risk sensitive G10 currencies traded in between (Figure 1).

 

Figure 1. Gold (light blue), S&P (navy) and small G10 currencies (green) indexed to 100 when QE1 announced

We date the second QE from late August 2010 when Fed Chairman Bernanke gave his 2010 Jackson Hole speech. Again the S&P reacted sharply, although the runup in the first six months of QE2 was less than in the first six months of QE1 (Figure 2), Currencies and gold held their own but the dominance of the equity market impact is clear.

 

Figure 2. Gold (light blue), S&P (navy) and small G10 currencies (green) indexed to 100 when QE2 announced

This episode shows very different behavior so far. Recognizing that it is early days, what is clear is that the gold response is far outpacing the S&P and currency move (Figure 3). Gold is by far the winning asset relative to the S&P and even currencies. This is consistent with a view that there will be a lot of liquidity in the system but that neither US nor global prospects are as attractive as they were in the past. Hence the appeal of gold as an asset that reflects high liquidity and is a near money substitute.

 

Figure 3. Gold (light blue), S&P (navy) and small G10 currencies (green) indexed to 100 in most recent QE episode

 

Source: Citi

 


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Thu, 09/13/2012 - 15:36 | Link to Comment DormRoom
DormRoom's picture

Stagflation cometh.

Thu, 09/13/2012 - 15:40 | Link to Comment mammoth mo
mammoth mo's picture

Until it all falls down.

They had two options - keep going with the ponzi or tell the truth.

 

This was no surprise.

The only question is how long will stagflation work?

Thu, 09/13/2012 - 15:51 | Link to Comment Yen Cross
Yen Cross's picture

Hyper-Inflation cometh first! Chart provided. http://www.forexpros.com/rates-bonds/u.s.-10-year-bond-yield

Thu, 09/13/2012 - 16:23 | Link to Comment Ruffcut
Ruffcut's picture

I do meat shopping and am getting concerned.

Hyper inflation will be deadly.

It' s not far out of probability, but for sure is getting uppity.

I'm looking for a side of beef, home grown tasty meat. Fuck gold and silver. I got silver, but can't eat it either.

Thu, 09/13/2012 - 16:48 | Link to Comment DosZap
DosZap's picture

Fuck gold and silver. I got silver, but can't eat it either.

No, but you sure can buy a side of beef.

Thu, 09/13/2012 - 15:36 | Link to Comment Silver Bug
Silver Bug's picture

Here come the banksters putting their "Spin" on it. QE to infinity is now here to stay!

 

Banzai7 Visual Combat Art

Thu, 09/13/2012 - 15:38 | Link to Comment Snakeeyes
Thu, 09/13/2012 - 15:38 | Link to Comment mjorden
mjorden's picture

to infinity ... AND BEYOND!

 

(I always wanted to say that with just my cape and underwear!)

Thu, 09/13/2012 - 16:01 | Link to Comment CPL
CPL's picture

Follow your bliss baby.  Follow your bliss...

 

 

Thu, 09/13/2012 - 15:40 | Link to Comment MachuPicchu
MachuPicchu's picture

BEn has made a  GOoooOOOOLLLLLdddDDD..!

Thu, 09/13/2012 - 15:41 | Link to Comment Dr Benway
Dr Benway's picture

"neither US nor global prospects are as attractive as they were in the past"

 

I would say we are at the point where no prospects are attractive, it's just a matter of choosing the least unattractive.

 

Terminal patient dilemma, bitchez

Thu, 09/13/2012 - 16:02 | Link to Comment CPL
CPL's picture

The best looking horse at the glue factory.

Thu, 09/13/2012 - 15:47 | Link to Comment LULZBank
LULZBank's picture

OT but you've got to see this! Total LULZ!!

http://www.youtube.com/watch?v=rdIWKytq_q4

Thu, 09/13/2012 - 16:01 | Link to Comment iDealMeat
iDealMeat's picture

+1,  Almost as good as Leno asking people, "Who lives on 1600 Pennsylvania Ave"..  Then asking them who lives in a pineapple under the sea...

 

There really is no hope for the silly sheeple..

Thu, 09/13/2012 - 15:42 | Link to Comment roadsnbridges
roadsnbridges's picture

Citi just figured out currency debasement?

Thu, 09/13/2012 - 15:44 | Link to Comment ziggy59
ziggy59's picture

Should be Shiti Bank

Thu, 09/13/2012 - 15:42 | Link to Comment ziggy59
ziggy59's picture

In respect to Uncle Ben, Ben and Jerrys should make a new flavor..
Gold and Silver..creamy and loaded with flakes!

Thu, 09/13/2012 - 15:43 | Link to Comment mrktwtch2
mrktwtch2's picture

wrong!..!what turned the market in march of 09 was the suspension of mark to market accounting..and mark to make belive was brought back..this is why history is important..

Thu, 09/13/2012 - 15:53 | Link to Comment unununium
unununium's picture

Well buying $40B more worthless crap from banks every months helps too.

Thu, 09/13/2012 - 16:04 | Link to Comment Papasmurf
Papasmurf's picture

Just in time for year-end bonuses.

Thu, 09/13/2012 - 15:43 | Link to Comment LongSoupLine
LongSoupLine's picture

Fuck you Citi Bank...crooked thieving fucks.

Thu, 09/13/2012 - 15:43 | Link to Comment LongSoupLine
LongSoupLine's picture

Fuck you Citi Bank...crooked thieving fucks.

Thu, 09/13/2012 - 15:45 | Link to Comment LongSoupLine
LongSoupLine's picture

sorry for the DP...but it does look good twice however.

Thu, 09/13/2012 - 15:48 | Link to Comment LULZBank
LULZBank's picture

First one got 2 negatives for some reason.

Thu, 09/13/2012 - 15:55 | Link to Comment LongSoupLine
LongSoupLine's picture

yeah, trolls are too fucking stupid to notice the one right under it. lol.

Thu, 09/13/2012 - 16:07 | Link to Comment LULZBank
LULZBank's picture

Well... You've offended one of them now!!! lol

Thu, 09/13/2012 - 15:58 | Link to Comment Budd aka Sidewinder
Budd aka Sidewinder's picture

That's what she said

Thu, 09/13/2012 - 15:44 | Link to Comment Seorse Gorog fr...
Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

Where's Graham Summers from Phoenix Capital when you need him?

Thu, 09/13/2012 - 15:44 | Link to Comment kito
kito's picture

CITI ON QE3: THANK YOU BEN, THANK YOU BEN THANK YOU BEN!!!!

Thu, 09/13/2012 - 16:06 | Link to Comment CPL
CPL's picture

Until someone asks for delivery.

Thu, 09/13/2012 - 15:45 | Link to Comment fonzannoon
fonzannoon's picture

Gold should be up $100 bucks and climbing today and silver should be up $5. Margin compression will continue to hit equities but metals suffer no such thing.

Thu, 09/13/2012 - 15:55 | Link to Comment unununium
unununium's picture

Yes, the move is impressive given that metals prices are controlled (fed's words) on days like this.

Thu, 09/13/2012 - 16:51 | Link to Comment DosZap
DosZap's picture

Yes, the move is impressive given that metals prices are controlled (fed's words) on days like this

They tried that yesterday, didn;t work out all that well this time, did it.

Thu, 09/13/2012 - 16:37 | Link to Comment kito
kito's picture

fonz, have you been studying your markets and staying away from cnbc? 

Thu, 09/13/2012 - 15:45 | Link to Comment Yen Cross
Yen Cross's picture

 Lower corporate guidance, from Multi Nationals, and (expensive milk) will leak into 2013 in a bad way!

 SNAP up BITCHEZ!

Thu, 09/13/2012 - 15:46 | Link to Comment roadsnbridges
roadsnbridges's picture

If I were a hedge fund manager, I would liquidate into this ripfest, close down, and take my 20% to elsewhere.

Thu, 09/13/2012 - 15:46 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

For an entire world with devastating fiscal problems, how can they possibly withstand the temptation to tax gold transactions?  There is literally no downside.  It has no value to society.  It has no impact on GDP.

A steep tax on it would seem inevitable.

Thu, 09/13/2012 - 15:50 | Link to Comment roadsnbridges
roadsnbridges's picture

If the Goobermints don't obey the law, why should I?

Thu, 09/13/2012 - 15:54 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Because they have jails.  

Thu, 09/13/2012 - 15:53 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Why tax when they can already rehypothicate?  You clearly haven't been paying attention, in a law-less world where fraud is the status quo, possession is 100% of the law.

Thu, 09/13/2012 - 15:56 | Link to Comment unununium
unununium's picture

I wonder what the tax for losing it in a boating accident will be.

Thu, 09/13/2012 - 15:58 | Link to Comment Clayton_Bigsby
Clayton_Bigsby's picture

You can't tax what you don't have a monopoly over. 

Plus they would need a goon squad out with shovels and pickaxes to try and collect. You ever seen the typical IRS employee? Good luck with the physical activity.

Thu, 09/13/2012 - 16:09 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

The tax would be on transactions, not possession.

Far worse, when it starts and is steep, transactions will stop.  That will end published prices.

You'll never know if your counter party is an agent or not.

Srsly, there is no downside to govts taxing gold transactions.  It would be a zero economic impact source of revenue.

Thu, 09/13/2012 - 16:32 | Link to Comment Clayton_Bigsby
Clayton_Bigsby's picture

Sukhdeep is an agent?!

Thu, 09/13/2012 - 16:47 | Link to Comment DosZap
DosZap's picture

 how can they possibly withstand the temptation to tax gold transactions?

 

Two words: Black Market

Thu, 09/13/2012 - 15:48 | Link to Comment kieran1968
kieran1968's picture

Looks like Ben ditched the helicopter for an SUV. Just getting in practice for todays announcement.

 

http://www.youtube.com/watch?v=CjKuBkMNQZU

Thu, 09/13/2012 - 15:49 | Link to Comment oldman
oldman's picture

Still nothing-to-do

All done just waiting for the next shoe to fall

How many legs does this son-of-a-bitch have?

om

Thu, 09/13/2012 - 15:56 | Link to Comment Yen Cross
Yen Cross's picture

Old Man? Me too!  There is plenty you can do. Buy a new safe,(pm's), and hollow out a place in your walls for "fast cash"!

  Or you can(partially) expatriate like I did 4 years ago?

Thu, 09/13/2012 - 17:19 | Link to Comment oldman
oldman's picture

@YC

Yen, why did you wait so long

All of the above done

Before '98     

Didn't want to be late

How many legs left

How many shoes?

Maybe we never will get any news                      

om

 

Thu, 09/13/2012 - 15:51 | Link to Comment unununium
unununium's picture

Gold must skyrocket BEFORE inflation does.

Why?

Because it must be too late for the sheeple to protect themselves.

Thu, 09/13/2012 - 15:53 | Link to Comment Dr. Engali
Dr. Engali's picture

Silver needs to close the gold/silver ratio first. Then the sheeple will really be cut out.

Thu, 09/13/2012 - 15:52 | Link to Comment Dr. Engali
Dr. Engali's picture

Sheesh...gold who would have thunk it? I'm glad to see citi is so far ahead of the curve.

Thu, 09/13/2012 - 15:52 | Link to Comment divedivedive
divedivedive's picture

Could today's action be little more than removing more toxic MBS assets from the banks ? Could it be that there are enough of those to keep the Fed buying until mid-2015 ?

Thu, 09/13/2012 - 15:52 | Link to Comment youngman
youngman's picture

I like my house..and I am not going to buy another...so I bought gold...but I am going to vote...

Thu, 09/13/2012 - 15:52 | Link to Comment libertarian_neocon
libertarian_neocon's picture

Based on the CPI Food, CPI Energy and GDP data, QE2 actually raised inflation and lowered GDP (graphs at the link), so why does Bernanke think QE3 will work?

 

http://libertarian-neocon.blogspot.com/2012/09/bernanke-just-killed-cons...

Thu, 09/13/2012 - 16:15 | Link to Comment Zero Govt
Zero Govt's picture

Citi, one of the main bankrupt beneficiaries of Fed QE, deflects our attention away from the reason for QE, the rotten brats of banking and politics needing yet more nappy changing and bailouts, to the cocktail sipping climes of inflating asset prices

Citi has failed to mention in this article (propagnda piece) it'll be the bwankers first in the begging line who get to dictate which asset prices inflate while other investors will get scraps off the table (or just fleeced by their shinanigans)

blessed

how much has Citi got coming in this latest Fed nannying, how many rotten mortgages will they sweep off their bankrupt books?

"less-flavor-more-calories" ...that's Citi propaganda (deceipt) for sugar coating a turd

Thu, 09/13/2012 - 15:56 | Link to Comment magpie
magpie's picture

...and we have entered the alternate history universe of Carter's Second (Third ?) term.

Thu, 09/13/2012 - 16:02 | Link to Comment LawsofPhysics
LawsofPhysics's picture

much worse, there was wage inflation thanks to Carter.  No such luck this time around.

Thu, 09/13/2012 - 16:16 | Link to Comment Yen Cross
Yen Cross's picture

LawsofPhysics         Wage Deflation?

                                                                                I agree with ya.

Thu, 09/13/2012 - 16:50 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Don't forget, it was also possible to still raise rates back then as well.  Not the case now.  This is about the death of the dollar, period.

Thu, 09/13/2012 - 17:26 | Link to Comment oldman
oldman's picture

XC/Law

Are the death of wages thin?

We think too much

but I'm glad you two are still playing      om

Thu, 09/13/2012 - 16:18 | Link to Comment mayhem
mayhem's picture

thump

Thu, 09/13/2012 - 16:06 | Link to Comment bnbdnb
bnbdnb's picture

I'm seriously contemplating gold instead of house payments.

Thu, 09/13/2012 - 16:09 | Link to Comment GFORCE
GFORCE's picture

Brian Wesbury is done bitchez

Thu, 09/13/2012 - 16:12 | Link to Comment Colonel Klink
Colonel Klink's picture

Shittybank is still around?!?  Another zombie bank that just won't die.

Thu, 09/13/2012 - 17:43 | Link to Comment Tombstone
Tombstone's picture

Citi?  Who cares about a bank run by the statists? 

Thu, 09/13/2012 - 21:03 | Link to Comment ECE
ECE's picture

Keynsian morons.    may cost us all the loss of what is left of capitalism.

Hope and Change is backwards.   Obama meant Change, and then you better have a ton of HOPE!

IN all the years,  never could i imagine the ledge where the central planners have us all now!!

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