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Morgan Stanley Sees QE3 Rally Lasting Hours Not Weeks
We have quite vehemently reminded readers of the dismal drop in US (and global) macro data over the past few months. These disappointing economic surprises and the ensuing global growth weakness will, Morgan Stanley believes, lead to a global policy response (rate cuts where rates can be cut and QE where they can't) and while they expect this monetary policy to work in many important emerging economies, they are doubtful as to whether it will make a material difference to growth in developed economies. Certainly, there are obvious risks to growth (Euro rupture and US fiscal cliff) that could counteract any QE effect but they rather critically note that unconventional policy is effective when the issue is systemic stress; it is less so when growth is the concern. The QE2 rally was largely due to better macro data, which coincidentally started right after Bernanke hinted at QE2. If macro data stays weak, they expect any 'Pavlovian' QE3 rally to last hours or days, not weeks or months. The bull case for a tradable rally is one of simple observation that prior central bank action has coincided with important market turning points but the more skeptical MS strategists suspect this more correlation than causation as they point to the muted effect monetary policy has in an extended deleveraging to stimulate activity.
Morgan Stanley - Pavlovian Policy or 'Doggy' Markets
Global macro weakness seems set to trigger another round of global monetary easing. Prior aggressive policy action has coincided with risk asset rallies. However, those policy actions also corresponded with improving macro data, which we think was the critical factor. There will be a Pavlovian reaction from markets if we get further easing, particularly QE3 from the Fed. But if macro stays weak, expect any QE3 rally to last hours or days, not weeks or months.
Macro news is falling short of expectations almost everywhere
Our sense is that investors are split on the significance of this, but many see monetary easing as a potential catalyst for a tradable rally, even if they – like us – doubt its ability to significantly improve the macro outlook. The bull case is based in part on the simple observation that prior central bank action has coincided with important market turning points (Exhibit 2).
Fed balance sheet expansion and US equities were, for a while, correlated (Exhibit 3).
Other central banks’ balance sheets and equity indices show little correlation.
Our view is that the apparent effect of policy easing was more correlation than causation. However, note two qualifications:
- First, policy easing has a much greater chance of working in EM, where credit systems still function and the economies are not burdened by the structural baggage now weighing on developed economies.
- Second, we are not arguing that monetary policy has been unimportant over the past few years. Unconventional policy has been, at several points, critical to avoiding systemic stress leading to systemic collapse. Central bank liquidity can lubricate a private sector in seizure. This was most obvious after the collapse of Lehman’s. The ECB’s long term repo operation was also important last year. When risk assets, rightly, were affected by the tail risk of systemic implosion, reducing that risk triggers (and warrants) a risk rally.
What’s at issue now is whether unconventional policy either works to stimulate activity, or can directly boost risk asset prices. We’re skeptical on the first point. Deleveraging cycles mute the effect of monetary policy on growth. Unconventional monetary policy may be an effective shield – can defend against systemic breakdown – but not a good sword: broadly unable to encourage a return to normal credit creation, where monetary policy can work to stimulate growth.
Having said that, the important issue for many investors is whether further unconventional easing can trigger a tradable rally in risk assets, even if there is little or no effect on the macro outlook. We’re doubtful. When growth is the concern, as now, tradable rallies require better macro news.
That macro was critical in the QE2 rally is most obvious from looking at bond markets. Whatever else QE2 did, buying bonds should have affected Treasuries - but as the chart shows, the commencement of QE2 – as with QE1 (large scale asset purchases) and operation twist – coincided with rising Treasury yields. And, as an aside, Fed selling Treasuries (as it did in late 2007) coincided with falling yields.
Of course, we don’t know what would have happened otherwise – perhaps yields would have moved even higher. But that is beside the point. If the Fed’s action were designed to encourage a shift to risky assets by lowering the yield on safe assets, the point is that its actions coincided with rising yields. Moreover, yields fell as LSAP and QE2 ended.
This shows that not even the Fed can dominate the pricing of the world’s largest, most liquid, asset market. What explains the seemingly perverse reaction of Treasury markets to the Fed’s actions? Simple: it was the swing in macro data (Exhibit 5). The swing in macro likewise explains much of the swing in equities through the past few years, as suggested by Exhibit 6. We think Mr. Bernanke got lucky with QE2: macro data improved almost from the moment it was flagged at Jackson Hole in August 2010. That improvement, not QE2, was in our view the key to the subsequent rally.
Growth concerns, not systemic risk, are now unsettling markets. Investors, rightly in our view, are increasingly skeptical about the ability of unconventional policy to boost growth in developed economies. Certainly, it seems unlikely to counteract fiscal tightening, now under way in Europe and UK, and in prospect in the US. Further easing may trigger an initial market response – there are too many investors who think it works to think otherwise. But without macro improvement, that risk asset rally will be short-lived, in our view.
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Can't disagree. Lower interest rates do not equal jobs in this environment, nor are they creating demand. In fact, they'll just scare decision makers and consumers. Not like the credit challenged get the low interest rate credit cards . . .
Reminds me of all the penis-pill spam I get.
30 year treasury looks as though it may have stalled. With 10 and 30 year auctions coming up, this could be a great short on any sustainable good news out of Europe (and by sustainable, I mean like weeks).
Watch bunds.
My guess is that you'd get a more positive effect by sticking a knife in an electrical socket.
Why on Earth anyone would want to play in a rigged casino is beyond me. You'd think the words "Corzined" and "Madoffwith" would set people's alarms off, but nope, for some reason the rubes believe they can not only participate in this game of three-card monte, but win.
The banksters thank you for your contributions, as without you, they have nothing but bots.
frontrunning every 100 share order..... = fade that
beginner's question: you mean if "good" ("we have the situation under control") news comes out of europe you're betting 30 yr treasury yields will then rise in response?
Yes. The prices for bunds and JGBs should foreshadow what will happen to treasuries in the next few days. There was a lot of panic buying the last 3 weeks. That combined with an auction staring them straight in the face is the recipe for a potentially big change in yield. Who really wants to hold the volatility of that duration? Almost no one, and yet we were at something like 98% bond bulls a week ago.
Thanks.
1. Aren't yields mostly reflective of treasury trading rather than treasury holding? ie: most traders aren't thinking of actually holding the treasuries for 30 yrs, just what they could trade them for next week? ie: i don't see why the duration is a deterrent, as i think you're implying.
2. Aren't you expecting tons of panic next week as we approach the Greek election?
Answers:
1) People have correlated long-term (30 year) rates against GDP, inflation, and on. Yields, long-term, correlate reasonably well with these two measures. Short-term, risk preference is by far more important in pricing treasuries. When you have panic buying on risk-off, it makes for a bit of a blow-off top - similiar to commodities. The owners are stuck when news comes out that changes investor risk preference. Long-term treasuries have almost been priced for armageddeon and a lot of investors are on the same side of the trade.
2) I think the panic buyers are already positioned. They may be wrongly positioned, given the bullish sentiment.
Thank you
and lastly, do you have historical info showing the predictive value of bund/jgb's on ust as you said? or is it more of a recent experience gut instinct thing? thanks
Experience over the past 3 years. The USD, yen and CHF are the safe haven currencies. Bunds are the safe haven if you have to be invested in the Euro. Since the whole world is risk-on or risk-off, global bond markets tend to do the same thing as global stock markets.
One more idea. If over the course of a relief rally buyers pile high on Facebook shares (some are venturing into them today), this might set up another super short opportunity.
if that reflects yer level of macro-understanding and what you got from reading this bankster press release and tyler's into, no one would be surpriZed...
I'm only picking on Facebook because no one knows what support will be for this stock. If you pile on, without knowing where your support really is, where do you set the stops?
No wonder MS is below $20, they can't lie like the rest.
Or they want everybody to chase the market when it rips to new highs again. Rinse repeat.
Fuck you MS
Riddle me this?
If (when) JPM "LOST" 2 billion dollars. WHO "WON" 2 BILLION DOLLARS?
Allegedly Boaz Weinstein.
http://www.zerohedge.com/news/about-boaz-weinstein-london-whale-bulls-eye
Lets try to keep it as simple as:
Say you have something you claim is 'worth' $2 and a bunch of crooked accountants tell you its actually 'worth' $0.20 --- how much have you 'lost'? And did anyone really 'gain'?
There is no spoon!
"It's a zero-sum game, kid"-Gordon Gecko to Bud Fox in Wall Street
More importantly - the "Who are you going to believe? Me or your lying eyes?" QE approach may fool all of the people some of the time ... or some of the people all of the time ...
... but it can longer fool all of the people all of the time that the Emperor (Ben) has new clothes, the banks have enough money and the free fall experienced when the EU splits apart in mid-flight (mid to late July) is just a new Disney theme park ride.
This summer we reach the cusp point - more and more people realizing they need to be highly liquid and prepared or they will just be zombie walking around aimlessly saying, "Hunh ???"
barliman
Well, if you can't trust the good folks over at Morgan Stanley, who can you trust?
If you want a reason for vapor rallies, it's evident MS analysis.
But Mattress Firm Holding Corp. (MFRM) is down 20%. Nobody wants mattresses anymore.
XLF up menas matress down, dont need them to hide your money under.
No one has homes and mattresses get soggy easily...
Even if MS is right, too bad, I will never believe them. One of the many LIARS everywhere.
It is places like Zero Hedge where we can get news you don't get from the State Run Media. And colluding Wall Street Banksters.
Let's see if The Fed sticks with their "moderate" growth opinion.
And with Obama hucking loan mods at taxpayer expense, maybe they will QE3 or Twist after all!
http://confoundedinterest.wordpress.com/2012/06/06/fed-says-moderate-economic-growth-and-housing-market-improvement-white-houses-mortgage-refi-for-dummies/
Which is why its better to just hint at it and not actually do it.
A nice dump into the close today would be nice.
"A nice dump into the close today would be nice."
That's why I start every morning with a bowl of "Fiber Fed Flakes" brand cereal. It keeps my bowels and the market moving - which is great because both are full of crap!
Fiber Fed Flakes - Print your way to a healthy day!
Free fiat toy in every box - while "supplies" last ;)
It sure would!
Instead they are going to ram rod ths shit out it some more.
Enjoy.
How can that be when this is the start of it? Even if they sell on the news, that is more than a week.
Don't ge me wrong, I think we belong back below 666.
At a time of historic low interest rates you would really have a hard time making the case for further stimulis when the positive effect is suspicious or so short in duration to begin with. That being said Bernanke has been known to do the wrong thing over and over again. I expect he will extend operation twist to the end of the year or whenever they run out of short term debt which ever comes first.
what I have been saying for last 6 months, the next QE will be nail in coffin, we might rally 5-10% but then collapase after that.
I think here they must be talking about the remaining lifespan of MS, no?
My money is on no QE, or an extremely lame version that won't move the market up substantially. They've gotten what they want out of the Big O and they are ready for the next Banker in Chief. Also, they need a lot more pain to be inflicted before mainstreet squeels for more bank giveaways, massive reduction to social programs, and the elimination of the capital gains tax -- all of which is on the agenda. Now that it's effectively a two man race, they can let the carnage begin.
The majority have no savings with near 50 miilion on foodstamps. Government is insolvent with corruption rampant to the highest levels. The squeals for QE come from broke bankers, not the public, you putz.
The squeals are already coming from the bankers, putz. The "I cry uncle" I'm talking about will come from the middle-class voters with pensions or 401ks, who believe the bullshit that giving more money and lower taxes to already rich people will get them good paying jobs.
As stimulus -> infinity, rally periods -> 0.
What is the rate at which rally periods are decreasing? When is the projected limit?
Big money knows, fed spigot off = asset deflation.
Next QE will come after some major event, Lehman like collapse or worse. We need cover, as to not to draw too much attention and awake the sheeple.
There will be lot of headlines and headfakes on the MSM running, how the world would collapse totally, unless the PhD Economists and technocrats huddle themselves into frantic endless meetings and come up with a solution to save the World.
They will. It will be called Quantitative Easing.
Such solutions require leadership, expertise and creativity, they are not so easy, as one might be lead to believe.
The wider Shalom Bernanke tribe has plenty of expertise in concealed backdoor bailouts of their banking buddies. So the next trillion may be already pumped into the markets as we talk.
True.
But still, there must be a reason they announce the QEs and also the sum money being printed or digitally created. Think about it.
My humble view: there may be no announcement at all. If the Fed doesn't provide contantly sufficient liquidity, the entire banking system will collapse. And Bernanke knows this all too well.
So while the people are kept focussing on some minor event somewhere pushed by the mass media, the Fed will have their stooges CTRL-P'ing till the fingers are sore.
You can’t fix the US economy just on lies. You can’t fix Europe just by saying it’s fixed. There isn’t any recovery. It’s not slowing. It’s not going anywhere. They never say the economy is slowing. It’s always the recovery that’s slowing. That’s not recovery.
It’s a rally on bad news; we’ve had lots of bad news. It seems that the more we rally and the more bad news we have, the worse the news gets.
It’s like robbers rallying because they are so glad to hear that they can hit another store; eventually, they run out of stores.
Maybe Morgan Stanley is correct, or more likely not. The charts suggest we may see some rally for now, and a strong gold and copper (and silver!) market plus a change in sentiment seem to pull the markets up.
The gold chart looks very bullish, so being long in miners and as well some oilers should do for now.
When again was the last time anyone from the sell side had been correct in their issued statements?
Germany has to look at the future...and its not the EU for them...they used to sell them a bunch of thingamijigs......but now the new markets are going to be in Latin America...and the BRICs after they get thru this changeover affect....the USA and Japan are going to flatline...as well as the EU...So for me..If I was Germany..I would leave the UNION...
Yes. It’s been the big-banker-connected corporations based in Germany who have benefited most, not the German people.
2105204 PY-129-20 laid it out 01/28/2012 on ZH:
“This is not working. And we all know it. End the current EU, end this currency union. We Germans exported very well before the EURO experiment started. You think it is because of the Euro that we export so much? Nope. It's because of the cheap labour in my country. Unlike our European neighbours we do not have a minimum wage. There are people out there in Germany that work for 1 Euro per hour. Can you top that? I guess slavery is the next hip thing here. I am tired of this shit. More and more Germans are waking up every morning knowing that they will never be able to retire. Actually the whole system here is built around this…
‘There will be a lot of anger when this thing explodes here in Germany. And this anger will be directed towards the German elite.”
Well said ... 100% correct !
Stop shoving QE down a money pit of a market.
Start pumping up the checking accounts and Snaps in the land...
Then you will see a people move forward. Not wall street or the banks.
Common people have no powerful lobby in D.C., so they can't be important, so no free money for this fringe group -- might be the view far up the food chain.
Look at this rally. And what has changed? Sure does wipe out the shorts for a while. I thought QE whatever would last a few days, not just hours. But we will find out.
And I bet those who sold their metals and miners after 2PM feel a bit ridiculous by now. Why would you listen to anything these moronic Fed people say? I just do not get that.
Another 5% 2PM rally in Facefuck shares. Still hasn't worked out well the last 5 times it has happened.
Who the hell even knows what is going on with the "market" anymore.
I saw gas at my local station go up to $3.79 today, WTF. Oh stock market rally means higher pump prices.
Two weeks ago when oil fell to $95 gas dropped to $3.45. Now oil is at $85 and gasoline is more expensive than when the barrel price was over $100. Sure makes perfect sense.
I wish I could walk into the CNBC studio so whenever some idiot talking head makes the claim the market trades on fundamentals I can hit them in the head with a baseball bat.
And a footnote reminder regarding US-taxpayer bailed Morgan Stanley from commentor markets.aurelius May 31, 2012:
Oh, did I forget to mention MS wants to move a “large chunk” of its $52 TRILLION derivatives portfolio over to its FDIC-insured “bank” sub, you know, the part regulated by the Fed + FDIC. Apparently, the FDIC is holding things up while it reviews matters. That’s comforting. I guess the basic issue to be addressed is: Do we (Fed + FDIC) want to import all of this fissle material to the part of MS that taxpayers and the central bank unconditionally guarantee (you know … the sub that takes customer deposits and insures customer accounts)? Apparently, MS is trying to get out ahead of a credit downgrade that would force it to post more margin on its derivatives (because it is now officially recognized as a risk sink by Moody’s), and likely would lose business, given the credit rating of its current risk silo is so much lower than the credit ratings of the firms and individuals with which it would like to do business. Complicating matters some: GS already has the authority to move derivatives to its FDIC-insured “bank,” i.e., the higher-rated risk silo.
Wonder how that’s going to turn out? Wonder if this will be the coup de grace vis-a-vis the complete neutering of U.S. financial regulation? Humm …
http://www.ft.com/intl/cms/s/0/8b320cac-a998-11e1-9972-00144feabdc0.html#axzz1wHTGfE3c
http://baselinescenario.com/2012/05/31/jamie-dimon-and-the-fall-of-nations/
Why not? BofA did it.
Lewis’ BofA was a Yom Kippur special of Goldman and Merrill, i.e., the Fed and Paulson.
Old Testament: A goat used in the ritual of Yom Kippur (Leviticus 16); it was symbolically laden with the sins of the Israelites and sent into the wilderness to be destroyed.
$52 trillion? Well BAC moved $75 trillion so it's all good. After all they FDIC will cover everything up to $250,000. The sheeple will feel comfortable with that.
THE Same MS that pushed FB at 38 ?
How do yo spell Credibility
The QE is announced after the Fed has already distributed the trillions to their home boys.
Wow, bears brutalized once again.
What happens if this is another major intermediate low, and 6 months from now we are at new 4-year highs?
Will we hear any apologies from the KWN "eggspurts" who predicted the "Total Financial Collapse" yesterday?
How about all the gurus like Richard Russell who were pointing at all the bearish action calling for "The Mother of All Tops"??
And don't even get me started on Louise "Turkey Neck" Yamada with her backward-looking bear calls.
LOL...
now i know why you've been quiet up until the last few days - you were getting your balls busted
This happens to all of us, now and then...
I'm glad you can laugh at yourself Mr One Day Wonder...
Russell's only been right on gold for 12 years running now. LMAO.
Here he is folks
Let me guess you shorted 1422, and bought 1266
MORON
who the fuck knows, but backward-looking bear calls have as much credibility as bull calls based on nothing more than monetary hijinks. The whole thing stinks no matter which way you call it. We're all going to pay the price for this recklessness and irresponsibility, bulls and bears alike. Better to be a hedgehog or any other burrowing animal.
MORON STANLEY
WHAT A FREAKING BUNCH OF BABOONS... USELESS DOUCHE BAGS
I see that MS is now lending shares of FB to short sellers. That's my kind of prick!
Wow, 30 fucking handles on the SPX.
I have to give it to them. It's some seriously ballsy shit.
It must be lovely to be the master of the universe and all.
Expect the market to get back to at least 1340. Going on a tear for the shorts from last week
Sure. Why not? Fuck it, why not 1,500. Why not 2,000.
Just program it the way it needs to be. Pretty simple, evidently.
The good thing is that it's legit. Otherwise, people could get really upset about it.
How long is an MS hour?
"You've got balls kid, I'll give you that!"
MS is going to make a ton of cash lending FB to for shorts They will be motivated to bring the price up to keep their PB clients and other BDs borrowing this POS at ridiculous annualized negative rebates based on the price of the stock. Don't short this crap.
The local retail clothing store says sales down 60% YoY, and the local burger joint says revenues down 28% YoY.
Karamurza, Russian expert on manipulation of conscious and propaganda, says that the best defense from the influence of subliminal messages and manipulation is not to know that you are being manipulated, but avoid being exposed to it at all. We shouldn't be listening to what the bastards are saying at all.
I'm sorry what were you saying? I was busy exposing myself.
The last week or so, the news was the worst I've seen since 2008.
On top of that interest rates crashed to 60-year lows, with the average 10-yr. yield closing at 2% for the longest consecutive weekly streak in world history.
You cannot underestimate the power of "Animal Spirits" brought on by cheap money.
And you definitely cannot underestimate the "Master and Commander", Ben Bernanke, who engineered the world's greatest financial miracle ever recorded:
1) Lowest 30-year interest rates in decades
2) Skying stock markets during the worst economy since the 1930's
3) Crashing commodity markets despite hockey sticked deficits
4) USDX and U.S. Treasuries now the pinnacle of "safety and security" for investment.
Do you have posters of the Bernank lining your mom's basement walls?
Wasn't that reason enough to go long, especially when gold miners clearly show signs of a double bottom? Let's remember the old adage: buy when drones are firing from the air...
Seen that 'worst news ever' line from you many times, along with your genuflections to the charisatan ... whatever. If you want to celebrate fiddling while Rome burns I'll see you in hell I guess.
This is going to be very ugly.
The Bernank will determine what the markets will do tomorrow. Hell they must own most of the markets by now anyhow. Its them Warbucks, Rockefellers and Rothschilds playing with themselves at this point.
Gee, and MS was sooooo right on Facebook.
Gasp!!! Economic fundamentals matter?
I AGREE .... i have said for more than a year that QE3 would be its undoing ... plus .... the rightwing/corporatist/fascist/libertarian establishment want Obama and his minions gone (no matter HOW much he has done their bidding)
I'll pass on listening to 5 year low, FB fumbling, blow myself up with derivatives morgan stanley.
exibit #1 -- chart of the year...way to go MS.
secular bear, bitchez! don't give me no more 'bull'shit about multiple equilbrium -- equilibriums are only maginot lines to be crossed and recrossed. red arrow DOWN!
what'd ya say? 40% of US corp. profits derived from euro-area? now imagine if that 40% were suddenly inverted...so, tell me more about your ole-normal PE valuation charts...don't worry bulls, i'll be back in a bit to tell you more about what's new.
economic models are made to be broken...shattered!
http://www.youtube.com/watch?v=6nULwgHsVqw
you're welcome, bulls. for what, you ask...oh, don't worry, janus is now wise enough to not try and build brick walls in front of bull rallies. just let these hulkin beasts exhaust themselves.
the art of war, bitchez!
rats on the west side/
dead bulls...shattered/
pride and joy and dirty dreams,
janus
If benny wants better macro data during qe3, benny gets
I say Ben says no. And does nothing.