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QE In Perspective

Tyler Durden's picture





 

We have already discussed what is priced into FX markets with regard QE3 - and as Barclays notes, we also saw a similar gain in momentum into QE1 and QE2 (only to fade post the announcement). Mortgage traders see a sizable QE3 more than priced in, which is especially notable given the consensus forming around the NEW LSAP being centered on the MBS market. Of course, global markets are imbibing more than just the hope of the Fed's extreme policy actions but the ESM ratification as well as handicapping ECB's OMT conditionality (and European growth expectations). Having said all that, it is worthwhile to get a sense of just what happened among the major risk asset classes into and beyond the prior QE (and Twist) announcements, and just what these markets have been doing in the lead-up to this much-anticipated announcement.

 

The spread between Par MBS and the 10Y CMS has compressed to near-record lows - implying more than a little expectations that the Fed will do its next greast LSAP in the Mortgage space - in size...

 

...and across six of the most often cited risk assets,

 

as Barclays notes:

Interestingly, the build-up to the FOMC decision has been different this time around, with the S&P 500 and oil prices rallying over the past three months. This partly reflects a degree of anticipation of looser policy in the US. If so, this means that if QE3 does occur, the subsequent rallies are likely to be more muted, in our view.

 

It seems that no matter where one looks, as one wise old mortgage derivative trader put it "the rumor has been bought."

Charts: Credit Suisse and Barclays

 


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Tue, 09/11/2012 - 12:54 | Link to Comment GMan_
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BULLISH!

Tue, 09/11/2012 - 13:06 | Link to Comment Gazooks
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rumor leased, swapped, re-hypothicated, colateralized, Corzined... then bought

Tue, 09/11/2012 - 13:10 | Link to Comment LMAOLORI
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Here's some perspective from the real world stop screwing the people!

 

 

As Low Rates Depress Savers, Governments Reap Benefits

 

Here It Comes (Moody's)

 

Tue, 09/11/2012 - 12:54 | Link to Comment bigdumbnugly
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This partly reflects a degree of anticipation of looser policy in the US.

 

did you mean "loser" policy?

Tue, 09/11/2012 - 13:16 | Link to Comment NotApplicable
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According to the number of times I see it spelled that way on the internets, absolutely.

Tue, 09/11/2012 - 13:51 | Link to Comment LeisureSmith
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LeisureSmith Rule of thumb: Loose ladies lose their lingerie.

Tue, 09/11/2012 - 12:56 | Link to Comment Squid Vicious
Squid Vicious's picture

OK but QE4 pricing-in is just warming up in the bullpen

Tue, 09/11/2012 - 13:07 | Link to Comment DavidC
DavidC's picture

Loved that Squid!

DavidC

Tue, 09/11/2012 - 12:57 | Link to Comment malikai
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And if there is no new LSAP targetting MBS', then what? I'll venture to say the S&P pops +30points on the day, 100 in a week.

Tue, 09/11/2012 - 13:00 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

Picked a wrong week to stop sniffing glue.

Tue, 09/11/2012 - 13:21 | Link to Comment Dr. Engali
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I can't take much more of this. It looks like I picked the wrong week to quit anphetamines.

Tue, 09/11/2012 - 14:27 | Link to Comment malikai
malikai's picture

If Rex Cramer gets a word of this, the shit's gonna hit the...

Tue, 09/11/2012 - 12:59 | Link to Comment Meesohaawnee
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like a poster said this weekend. More QE is the government giving the middle finger to the middle class. If there is, vote accordingly. Obama will need to go no matter how bad the next chimp is. If Romney doesnt pounce on more QE as manipulating the election hes too dumb to be president anyway

Tue, 09/11/2012 - 13:06 | Link to Comment fuu
fuu's picture

You act like either of them have free will and that they are not just playing their parts while reading their scripts.

Tue, 09/11/2012 - 13:12 | Link to Comment Meesohaawnee
Meesohaawnee's picture

good point

Tue, 09/11/2012 - 14:49 | Link to Comment defencev
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Those with income less than 200K should vote for Romney cause all investment profits for this category will be tax free.

Compare with total collapse within next 18 months under Obama. His emergency measures will include: closing the borders, capital control, confiscation of precious metals ,suspension the constitution and rounding up all anarcho-faschists  (I would support the last one). And I am just scratching the surface here.

Tue, 09/11/2012 - 13:00 | Link to Comment Deep79
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ZH should have a seperate website dedicated to QE talk.

This is just getting as bad as CNBC all this talk of nonsense

 

Tue, 09/11/2012 - 13:02 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

What ELSE are we gonna talk about? Fundamentals?

Anywhere else they glaze over the QE and pretend its all due to a better economy or something.

Tue, 09/11/2012 - 13:15 | Link to Comment gunsmoke011
gunsmoke011's picture

No Shit. God help world market if the German High Court does the unthinkable - actually do what is best for the German people and hold the entire scam unconstitutional. That would pretty much make anything Bernank does irrelevant.

Tue, 09/11/2012 - 13:26 | Link to Comment smlbizman
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lets talk about chicks man.....

Tue, 09/11/2012 - 13:09 | Link to Comment Meesohaawnee
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totally agreed. Begged for this to stop the day of jobs report. Were just playing right into their game. lets have a ZH partition. You have to click to go to a QE server. Only on that server are there QE articles.

Tue, 09/11/2012 - 13:12 | Link to Comment Dr. Engali
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We could talk about the Kardashians if you like.

Tue, 09/11/2012 - 13:17 | Link to Comment NotApplicable
NotApplicable's picture

Dat Ass?

Or is it time to start focusing on the younger ones?

Tue, 09/11/2012 - 13:25 | Link to Comment Meesohaawnee
Meesohaawnee's picture

both are capital destructive

Tue, 09/11/2012 - 13:01 | Link to Comment Dollar Bill Hiccup
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Asset inflation is still inflation.

Tue, 09/11/2012 - 13:02 | Link to Comment buzzsaw99
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wherever there is a dirty deal barclays is there

Tue, 09/11/2012 - 15:52 | Link to Comment crusty curmudgeon
crusty curmudgeon's picture

Let's see...Newton's 3rd Law of Motion says that there is an equal and opposite reaction to every action.  Stock market is up....oh, wait, this time it's different! Where are the pink donuts?  It's almost time for the View...

“None are more hopelessly enslaved than those who falsely believe they are free.”Goethe

Tue, 09/11/2012 - 13:06 | Link to Comment DavidC
DavidC's picture

I had somebody telephone me earlier to try to get me into Carbon Credits. When I started on about the debt and mess we're in, he told me I was picking holes and being negative instead of focusing on the 'potentials'. He eventually told me I'm naive and know nothing and put the telephone down on me.

Hmmm.

DavidC

Tue, 09/11/2012 - 13:19 | Link to Comment Mr Lennon Hendrix
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People are clueless.  Either they want to buy carbon credits, invest in the Iraqi Dinar, or hold dollars until Rossi's ionized nickle/cold fusion machine is sold at Target.

I am surprised we have not funded a monorail from NYC to LA yet.

Tue, 09/11/2012 - 13:22 | Link to Comment Breezy47
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Your name must be on some liberal anthropogenic global warming believer list to get a cold call like that. I wonder how it got there?

Tue, 09/11/2012 - 13:44 | Link to Comment DavidC
DavidC's picture

Breezy47,
That made me smile!

DavidC

Tue, 09/11/2012 - 13:23 | Link to Comment SafelyGraze
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There are "programs" offered by utility companies to give the customer "exposure" to green credit mumbledy mumble.

The language of the offer makes it seem as though you are buying something that will lower your monthly bill.

nuh uh.

or making a charitable contribution toward someone somewhere doing something helpful with green energy.

nuh uh.

it's just a voluntary payment you're agreeing to make in addition to your bill. a payment because you support a cause. not that the payment is applied toward that cause. although it might be. or might not be. the utility is not obligating itself. you are. 

kinda like making a voluntary ss contribution.

Tue, 09/11/2012 - 13:45 | Link to Comment SafelyGraze
Tue, 09/11/2012 - 13:44 | Link to Comment SafelyGraze
Tue, 09/11/2012 - 13:44 | Link to Comment SafelyGraze
Tue, 09/11/2012 - 13:43 | Link to Comment SafelyGraze
Tue, 09/11/2012 - 13:12 | Link to Comment Mr Lennon Hendrix
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Quantifying QE can be done by size of the purchase, but what is not quantifiable is how loans are spun post QE.  By that I mean, how are dollars fractionally reserved and how are assets rehypothecated.

You will never know how, but trust me, everyone will soon find out that the system is leveraged ad infinum on the back of Central Banks that use the same rules of banking that every bank uses.  The only difference is their is no oversight of the Fed, nor will there ever be, for if there were it would be shown that the Fed is bankrupt and the whole financial system, and the pseudo-science of economics with it, would come crashing down.

Tue, 09/11/2012 - 13:13 | Link to Comment yogibear
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This means Bernanke and the Fed are being constantly forced to QE for years by Wall Street.

The Federal Reserve is nothing more than an organization of Wall Street chumps.

Tue, 09/11/2012 - 13:19 | Link to Comment Mr Lennon Hendrix
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The devil is in the details, ain't it?

Tue, 09/11/2012 - 13:30 | Link to Comment TrustWho
TrustWho's picture

The Tylers are absolutely correct about FLOW. The FED has NO plan to unwind this mess they are creating with their balance sheet, they can NOT stop adding more liquidity to the market. Matching their past liquidity actions is a neutral monetary policy; therefore less to none is negative, and increasing until he reaches infinity is stimulating. Daddy Bernanke is about to lose control if he has already not lost control.

Tue, 09/11/2012 - 13:24 | Link to Comment bnbdnb
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My wild prediction... Fed comes out stating, going forward, less transparency.

Tue, 09/11/2012 - 13:24 | Link to Comment kevinearick
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And we have reached the main event on the fight card, the independent farmers that want to get rid of subsidies, with nature on their side, and the corporate and middle class farmers, with the fed on their side.

this is where the sh-show actually gets interesting, especially in ohio, around columbus, which is already a ghost town. the university death throws ...

Tue, 09/11/2012 - 15:41 | Link to Comment TonyCoitus
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Columbus Ohio is a ghost town?  WTF are you smoking?

Tue, 09/11/2012 - 13:35 | Link to Comment TrustWho
TrustWho's picture

This article implies the market will fall if expectations of QE is unmet and the market will fall if QE expectations are met because smart money sells the fact.

So what will be the trigger to sell? Who pulls the trigger first?

Tue, 09/11/2012 - 13:35 | Link to Comment Squid Vicious
Squid Vicious's picture

this is a remarkable experiment in fucking the middle class... gasoline now 3.85/gallon and heating oil just ripped 25%... and we might actually have winter this year, early reports indicate  

Tue, 09/11/2012 - 13:37 | Link to Comment Squid Vicious
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and my cereal box is now smaller than the Shalom's heart which shrunk 3 sizes this year, they say

Tue, 09/11/2012 - 13:47 | Link to Comment dingoj
dingoj's picture

OK, I'll short the EUR tomorrow. Thanks, man.

Tue, 09/11/2012 - 14:00 | Link to Comment Milton Waddams
Milton Waddams's picture

I was unfortunate enough to catch some cable news over the weekend and was shocked to see segments about the inevitability of additional QE discussed.  When they aren't talking about QE these are the types of shows that are covering abducted young blonde women and similar pablum for the masses.  Takeaway:  QE has gone mainstream and the general public is being conditioned to believe it is in its best interests.

Tue, 09/11/2012 - 14:16 | Link to Comment Quinvarius
Quinvarius's picture

Nah.  Too many traders sold the rumor of no QE.  The real participants know the money can not stop flowing and it never did stop.  What would be awesome if the no QE crowd would stop trying to convince everyone that Bernanke is going to let the banks all die.

The rules were changed.  Bernanke doesn't have to announce anything.  He just gives out free money at will.  Stop fighting the last war.

Tue, 09/11/2012 - 14:26 | Link to Comment Snakeeyes
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What a disaste. Fed will do something, but it won't help unemployment and housing. Just froth the stock market.

http://confoundedinterest.wordpress.com/2012/09/11/clintons-housing-and-regulatory-record-can-the-fed-stimulate-housing-further/

Tue, 09/11/2012 - 14:50 | Link to Comment Herdee
Herdee's picture

I'm on the inflation side of the next move in the global economy so I found it interesting that I bumped into this interview with Frank Giustra.It's on KITCO and titled "A Billionaire's bet on Inflation."If you think that the FED is a slave to Wall Street and Washington,you'll find his perspective unique.He knows President Clinton too.He talks about the food sector,junior mining stocks and gold amongst other sectors.More QE has got to be on the way in order to get this inflationary  jump started,that is what I'm thinking.Because they can't let this whole economy go broke,the logic dictates the easier method out.Look at this billionaire's view.

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