Stephen Roach Smokes Crack-Addicted Market "QE3 Is Not Going To Work"

Tyler Durden's picture

Is it any wonder that Stephen Roach is now ex-Morgan Stanley? Today's brilliant truthiness in his interview on Bloomberg TV is an absolute must-watch as the veteran market practitioner notes that the Fed is forced to act next week and while consumers are telling you that they want to pay down debt - which all the monetray stimulus in the world is not going to change - that QE is nothing but crack to a ridiculously addicted market. With 70% of the US economy in a balance sheet recession, the Fed knows this (which he notes is now run by WSJ's Jon Hilsenrath since what he prints must be adhered to by Ben for fear of market disappointment) and is "dangling QE in front of the markets like raw meat - but it has not worked and it will not work!" But critically, he believes, the euphoric response of markets will be tempered since they have become "used to the fact that all of this unconventional monetary easing by the central bank is just not what it is supposed to be."


Roach on whether more Fed stimulus is a good idea:

The Fed is flailing and has been flailing for the better part of the last three years. We had QE1, which worked, and that’s it.  We’ve had QE2, Twist 1, Twist 2 and now maybe QE3.  The economy is in the doldrums. The biggest piece of the economy is the American consumer. 70% is in a balance sheet recession…The Fed knows this, but they are dangling this raw meat in front of the markets and the markets are salivating as they always do in that frenetic way that they try to believe in the Fed. But it has not worked and it will not work. “

On how likely it is that the Fed will issue more stimulus:

“Absolutely. They have no choice. They have gone about their usual pre-FOMC leak frenzy where they talk to this reporter and that reporter. Jon Hilsenrath is actually the chairman of the Fed. When he writes something in the Wall Street Journal, Bernanke has no choice but to deliver on what he wrote.”

On whether the Fed will move on stimulus next week:

“Absolutely. They will not disappoint the markets. The markets are now setting themselves up and discounting the next QE2. The Fed has just woken up to ‘oh my gosh, the economy is weak again.’ Well hello! The economy has been weak for the consumer for 18 quarters. The growth rate of consumption over the last four and a half years has averaged below 1%. 70% of the economy growing below 1% and the Fed is just figuring this out? Come on.”


“The point is, when they plant a story in the Wall Street Journal, and this story has been planted. Jon Hilsenrath is the weed that grows…the guy has a perfect track record…They’ll do some type of QE3. Twist 2 was a huge disappointment. It was a feeble flailing at the windmill and the economy is a lot weaker than when they reached the Twist 2 decision. They’ll have to do another round of quantitative easing. I don’t know exactly what securities will be involved. You could speculate it could be mortgage-backeds to try to help the housing market. There is some criticism they have been too focused on Treasuries. We’ll have to wait and see, but I think it will definitely be another round of quantitative easing as opposed to the twisting again like we did last summer.”

On whether QE3 will work:

“No, it’s crack! That’s what it is. It’s not going to work. QE1 worked because it was in the midst of wrenching crisis. QE2 failed, despite what the Fed’s research shows. Twist 1 has failed. Twist 2 is failing. When 70% of the economy is in a balance sheet recession and the growth rate for 18 quarters in row has been at less than 1% at an average annual rate, consumers are telling you something. They want to pay down debt and rebuild saving and all of the monetary stimulus in the world is not going to change what is a perfectly rational response. So the idea that the Fed is going to step in and save the day, it has not worked in the past except during the depths of the crisis and i give them credit for that. And it will not work in the future. Don’t believe the Fed PR that they put out while we have research that shows that it worked. Of course they do.”

On whether he expects futures to be higher than they are right now:

“The markets have responded positively to the leaks that came out late yesterday afternoon, but the response is small. I think the markets have gotten used to the fact that all of this unconventional monetary easing by the central bank is just not what it is supposed to be. In terms of delivering an actionable vigorous response in the real economy.”

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JohnKing's picture

QE3 will work.


But only for THEM.

TruthInSunshine's picture

QE3, 4, 5, 6, 7, 8.....through XXXXXXXXXVII will work, because if interest rates drop another 25 to 75 basis points, this will spawn an absolute feeding frenzy of consumption and investement



Ben 'Banker's Bag Man' Bernanke



cc:  Dr. Paul Krugman, Ph.D, Nobel Laureate and CEO of Hostile Alien Invasion Financial Group, PLLC

Pladizow's picture

The Fed: Chasing that first High!

Ben's got his spoon, needle, tourniquet and ever larger quantities of hopium ready!

tip e. canoe's picture

A Knife, A fork, A bottle and a cork.. 

Alea Iactaest's picture

QE3 will work b/c the Fed is "now run by WSJ's Jon Hilsenrath" and Hilsenrath is run by GS (and doing god's work).

fockewulf190's picture

Time to break out some powder and load the boat with some more Phyzz.

poor fella's picture

I hear overdose is a bitch...

cynicalskeptic's picture

Poor junkies can't AFFORD to OD - rrely happens unles they hit the LOTTO or a new dealer unexpectedly improves the quality trying to drum up business - catching the old users unawares.

It's the rich celebs that OD big time - they can afford way more than their bodies can tolerate.


The parallel here is that the average consumre can't AFFOrD to SPEND.  They're broke and unemployed - already overloaded with debt.   Meanwhile the really wealthy are loading up on Monets and 400oz gold bars - read the article on Swiss Free Port storage in the NYT - things which really don't do much to stimulate the economy.   After all you can only own so many Bentleys.......

Hugh_Jorgan's picture

I agree they will QE ad infinitum; in the the power-addled mind of The Bernank he has no other choice, However, the "feeding frenzy" will never be seen by you and I. The "real" unemployment rate is ~23%, that is great depression territory, no one at the top is going to be handing out cheaper money to the unwashed masses. This is just more bend, extend and pretend antics. The economy is in dire straights.

Daily Bail's picture

PERP WALK - Former CEO & Chairman Of Anglo Irish Bank Arrested For Fraud

The Irish bankster perp walk begins precisely at the 1:18 mark.  It's about time this punk faced a jury of his peers.


Vuke's picture

Hmmm. Civilized "perp" walk.  No handcuffs, no burly cops and no guns.  Maybe something to adopt.

Sabibaby's picture

I don't think facing his peers will do enough justice. Lets make him walk among the people :)

The Monkey's picture

It might work, if the intention is to reduce the demand (and price) of portfolio insurance in an environment frought with event risk.

The Fed is stuck with the regime they have created, guarantees for the greater fool.

yrad's picture

"Come on, Doc. Just one more shot of Corzine"

cynicalskeptic's picture

uh... THAT'S bad stuff - it's cut with really strong laxatives.... leaves you feeling really empty and hungry - and shit all over the place

Clayton Bigsby's picture

I sure wish Betty Liu would shut the fuck up once in a while

mick68's picture

Stupid twit interviewer is only interested in whether QE3 will happen or not. Perfect example of the salivating dogs waiting for their bone. What are those dogs going to do when QE3 fails or even kicks off hyperinflation?

This is so ugly to watch, everyone turned into saucer eyed money lovers, like watching a zombie movie.

Zola's picture

I'm tired of these old men who have bought hook line and sinker into the scheme, made tons of $$$ , and then retire and feel like they can criticize the whole thing from a safe distance after having benefitted nicely from it all. Hypocrits.

Conman's picture

Would you rather they come on tv and say the opposite? Old age = closer to death = need to attone.

francis_sawyer's picture

Took the words right off of my keyboard...

Shizzmoney's picture

I see a difference between the two commetns, but agree, in part, with both Zola and Conman's assertions.

Roach is really putting his heart of his sleeve.  Did he profit off of the corrupt system? Absolutely.  But he's old school in the sense I am sure he remembers what happen during the Civil Rights era.  The violence, rioting, and the evils protecting by governments in the streets when malace was ignored (like it is here). 

He knows, from investment experience, what the fuck is going on.  Biderman laid out the technicals on what QE Twists have done for the market (growth, which declines each time, followed by a market sell off).  The Hilsenrath comments really are "risque" in the sense here we have a former exec of a corporate establishment fund saying, basically, the Fed is taking part in planting propaganda to appease the market, and to bandaid fraudulent debt with paper printing. 

That's the type of stuff you used to hear spulated on here or Alex Jones.  Now its on Bloomberg.  It's refreshing, IMO (also b/c I think it is right!).

Weill's comments?  Now THAT is a classic case of "Greg Smith's Dilemma".  Plus, I think him, along with the other banking establishment and Neo Liberal Government heads....know what's about to happen.  Social upheaval, political unrest, and a market crash that's coming which will make the 2011 London Riots look like a Phish Concert.  So, come out with some populist political rhetoric, and act "contrite" as you step out of your limo to tell the masses what they want to hear. 

Weill's comments are Optimism Porn.  If he really meant them, he would of thought that back in 1999.

Nothing will change, though.....until the People are finally back in charge.


cougar_w's picture

When I see rich bankers and financial wizards getting in front of the media and doing teary-eyed mea culpas, I have to imagine they are writing themselves a handy "Get Out of Noose Free" card. That's all they want to do, avoid a hanging.

Doubleguns's picture

guillotine then. They must pay. 

cynicalskeptic's picture

Hard for 'the people' to get back in charge when TPTB have armies and tanks - and have no restrictions on using them against their own populations. Ask Syrians.   (LIbyans got rid of Ghaddaffi only because outside forces also wanted him gone... look at who's pumping Libya's oil now - and ask what happened to their gold)

5880's picture


things changed

JohnKozac's picture

Betty Bloomberg is pissed that Roach speaketh the truth (as he belives it) when he does not give his host (Bloomy) credit for their (missed) predictions.


Roach is pretty good imo. More honest then most...esp his tongue-in-cheek, "Hilsenrath is head of the Fed." comments....

Concentrated power has always been the enemy of liberty.'s picture

Crack smoking, Bitches!

Shizzmoney's picture

File the latest hit piece on Barosky's "Bailout" by the NYT under: "NeoLiberal Fantasy Land Stories"

As ugly and flawed as the rescue process was, and as galling as Wall Street’s revived bravado and bonuses can be to most Americans, the fact remains that an economic collapse was averted, and that Main Street is recovering: slowly, but typically so for recessions brought on by credit crises. As Europe’s crisis persists for a fourth year, commentators around the globe have suggested that the Continent should have followed America’s example.


Pareto's picture

Thats' bunk.  that's exactly the kind of thinking that has made things worse, not better.  I love these Keysian arguments, of "oh my god the world is going to end, banks are too big too fail, we have to stimulate and rescue the market", and yet $15 T later, the market continues to demonstrate, UNEQUIVOCALLY, that prices will and must inevitably fall.  there is No Free Lunch.  No amount of stimulus, twist, QE3, is going to change the fact that relaitive to their productivity, most assets are over priced precisely and because of the stimulus being hurled at it.  If it was that easy, if all we had to do was print money, or create government sponsored stimulus (which as you know diminishes the solvency of the balance sheet), wouldn't that be a permanent line item on the government's income statement?  Let prices fall and let them fall fast so that the market can price resources efficiently - paid for and put to their highest use value.  Only this will lead to capital formation that is real, and therefore, sustainable.

partimer1's picture

who says the market is economy?  who says the Fed is for economy?  

semperfi's picture

Roach is WRONG!   It will work.  Because its sole purpose is to MONETIZE THE DEBT.  Gee, that was easy.

cynicalskeptic's picture

Morgan Stanley is still in existence and he has a job... talk about biting hands that feed..........   if free markets worked Morgan Srtanley would be on the corporate dung heap - completely out of business - not regularly merged and rescued.   

buzzsaw99's picture

the fed is a looting operation plain and simple.

kalasend's picture

Isn't Roach a semi-perma-bull before when he was with MS?

Jacque Itch's picture

Nope.  Been reading him for 10 years.  Solid, except he believes in China a bit too much.

Blankenstein's picture

Not sure about his overall economic view, but Roach was one of the few economists that spoke out that the housing market was unsustainable early on ~ 2003.  

Quinvarius's picture

QE2 wasn't big enough.  That is why it failed.  I knew the moment it was announced it wasn't big enough.  I don't mean not big enough to juice the market either.  I mean not big enough to make dent in the Fkd up balance sheets it was supposed to assist.  If you are going to monetize the debt, you need to monetize the right kind of debt in the right amounts.

cougar_w's picture

They will need at least $2T this time.

Whatever the amount is half will go straight to Europe, by the quickest means.

eclectic syncretist's picture

It's a good day to be in possession of gold and silver.  After all, what does QE benefit more, equities or gold/silver?  Oh yeah, gold and silver by a looooooooottttt.

Over the past five years equities are flat, while gold and silver are each up over 100% thanks to uncle ben and the debtsters.

marz929's picture


saturn's picture

Keeping low profile in hope he will be forgotten.


Slithering around in the pit...

Dr. Engali's picture

Good Lord listen to her get all defensive because Roach said Hilsenbarf is the fed's bitch.........No he is not we are the fed's bitch!


Hype Alert's picture

Seriously, it was like a cat fight over who was the better bitch.  Bloomberg mentality, lol.

DosZap's picture

To whoever signed Baracks B Day card thank you!!!!!!!!.

I was going to switch websites, after 45 minutes of that smug puss,I was thinking suicidial thoughts.