Two Days Ahead Of More QE, JPM Finds That World Is Already "Drowning In Liquidity"

Tyler Durden's picture

A few days ago, the BOE's Andy Haldane, rightfully, lamented that the apparent "solution" to the exponentially growing level of complexity in the financial system is more complexity. Alas, there was little discussion on the far more relevant central planning concept of fixing debt with even more debt, especially as the US just crossed $16 trillion in public debt last week, right on schedule, and as we pointed out over the weekend, there has been precisely zero global deleveraging during the so-called austerity phase. But perhaps most troubling is that with 2 days to go to what JPM says 77% of investors expect with be a NEW QE round (mostly MBS) between $200 and $500 billion in QE, the world is, also in the words of JP Morgan, drowning in liquidity. In other words, according to the central planners, not only is debt the fix to record debt, but liquidity is about to be unleashed on a world that is, you guessed it, already drowning in liquidity. The bad news: everything being tried now will fail, as it did before, because nothing has changed, except for the scale, meaning the blow up will be all that more spectacular. The good news: at least the Keynesians (or is it simply Socialists now?) out there will not be able to say we should have just added one more [    ]illion in debt/liquidity and all would have worked, just as our textbooks predicted. Because by the time it's over, that too will have happened.

From JPM's Michael Cembalest:

It has been a strange year. If you were concerned about the global economy this year, you were right:

  • Leading indicators of manufacturing, such as new orders, are weakening just about everywhere
  • Chinese, Korean and Taiwanese exports are slowing sharply; China may be growing at only 6%
  • European growth is ~0%, with the periphery in recession. Germany business surveys also fading
  • Last week’s US jobs report was weak across the board (payrolls, work week, labor force participation and wages)
  • US capital spending trends are slowing (e.g., capital goods orders ex-aircraft)
  • Countries like Brazil are showing signs of industrial fatigue due to an overly strong currency in 2010-2011
  • The US election does not look like it will bring clarity to the US fiscal/debt ceiling divide (polls show Democrats keeping the White House and Republicans keeping the House of Representatives)
  • US housing is staging a modest recovery, but it’s not a game-changer given its smaller contribution to employment
  • Corporate profits are high, but the trend in EPS revisions is negative and profits growth is slowing

However, global equity markets have done well, up 13% so far in 2012. The bottom line: with the world drowning in liquidity, the right portfolio moves this year have been to take advantage of low equity valuations, look through all the economic weakness and expect that continued monetary stimulus will  eventually bear fruit. We have done some of that but not as much as we might have, and as things stand now, global equity markets have outperformed what I had expected. The world’s Central Banks have made it clear that inflating their way out is preferable to the alternatives, an environment that is conducive to risky assets that are priced very cheaply, until and unless they lose control of inflation.

For those confused, Cembalest only added "unless" out of political courtesy, because as even the Fed itself admitted last night, first via St. Louis Fed's James Bullard and soon everyone else, the Fed has finally been exposed as being nothing but a puppet tool of politicians, who in turn have always been sponsored muppets of Wall Street (Who can possibly forget Chuck Schumer telling Bernanke to "get to work Mr. Chairman"). In other words, we now know politicians run not only fiscal, but monetary policy. How to hedge against this apocalyptic proposition? Simple. Cue Kyle Bass: "Buying gold is just buying a put against the idiocy of the political cycle. It's That Simple."

It really is.

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Theosebes Goodfellow's picture

This is my take on Dareconomics:

Please visit my blog/

Please add foot traffic to my blog/

Look at me, I'm an econimic sage after having read ZH.


Really Dare, get an avatar before trying to get people to go to your site. Also, If you do have a "take" of the Fed QE, just post it, even if you have to cut and paste it from your blog. Geeesh....

Element's picture

And there was also the Central Bankster brain-trust saying that their tools do work, they just need to be, "...much more aggressive using them".

When in a hole ... stop ...

Muppet of the Universe's picture

There is only 1 "take" on fed printing.  One day there will HAVE to be a new currency, b/c this one is printed into oblivion and is based on the petro dollar accord.  pure and simple.

in the intermediate period, there will be a monumental transfer of wealth into hard commodities such as art, land, and metals. 

That is why we buy precious metals.  pure and simple. 

There is no take on printing.  only money makers and idiots.


Lost Wages's picture

Is JPM buying stocks or bonds? :)

Stock Tips Investment's picture

You have to stay awake. The markets are starting to show signs of life. Whether up or down. What matters is to do so in circumstances in which we can benefit. And that's just what I think will happen.

Dixie Rect's picture

Long: government issued dunce caps

Cognitive Dissonance's picture

"Cue Kyle Bass: "Buying gold is just buying a put against the idiocy Fascist intent of the political cycle. It's That Simple."

Calling it idiocy is being way too kind. Fascist sounds much more accurate.

Element's picture

Both are are great comments actually.

Everybodys All American's picture

The world is drowning in debt. There you go I fixed it just so people don't get confused even though we know liquidity is code for debt in central bank circles.

Sudden Debt's picture

here in Belgium, our politicians want to force banks to give at least 4% on deposits. in that way the banks need to lend money out to pay for the interest of the accounts.

it sounds sound to me.

alangreedspank's picture

Maybe. But how did it go last time the government forced banks to do something ?

Haole's picture

So, for instance, "governments" ultimately forced bankers to depose democratically elected politicians and replace them with more bankers in Greece, Italy and Spain? 

alangreedspank's picture

And also forced banks to lend money to people they wouldn't have otherwise, hence, partly why the housing bubble.

Haole's picture

"...the Fed has finally been exposed as being nothing but a puppet tool of politicians..."

Uh, isn't that backwards?

alangreedspank's picture

No, the Fed is the bread and butter of politicians wanting to promise 'free' stuff to their consituents. The Fed is here to buy their debt and provide the liquidity.

THX 1178's picture

Why does the Fed have shareholders then? Why does the Fed take a profit? Why was it chartered by bankers and industrilaists. Sure it gives politicians a way to pay for things without raising taxes. The banker-shareholders like this too. VP Rockefeller... government isn't controlled by banks, it IS BANKS.

q99x2's picture

Yes but they need that money to buy the weapons and infrastructure to kill us with.

Cognitive Dissonance's picture

We needed to kill you in order to protect you.

Vietnam redux..........

yogibear's picture

Have to keep the stock market going up. Bernanke and the Fed should just have an index added to thier balance sheet where takes  the countrfieted money and just buys all the stocks with printed money.

It would give the boys on Wall Street happy and create future favors for NY Fed Dudley and Goldman Sachs.

Bernanke is buying everything,  

Higher and higher and higher debt ceilings. Larger and Larger student loans, more food stamps and entitlements.

More and more and more debt.

Why work? Just have Bernanke print and send everyone his printed money. People would spend it.

For Bernanke, Dudley, Yellen, Draghi and the rest of the Central Banksters any fiscal resposibility has been thrown out. It's just print until something sticks.

Like throwing crap on teflon. If your throw enough, it may stick but you may be buried in it.




Bartanist's picture

Obviously the problem is NOT insufficient available debt, it is too much available debt, too little value creation and that big sucking sound that comes from the banks and government.

When banks feel they deserve a cut of ALL assets created in the world, simply for creating money out of thin air (and distributing it) and government thinks they deserve a cut of all economic activity in the world, just because they have the physical power to beat, kill or imprison anyone with impunity; then IMHO there are serious fundamental flaws in the system.

Value creation is not valued correctly and bully power (money or physical coersion) is over-valued.

Someday the grown-ups will need to take over for the kids and sociopaths.

Pasadena Phil's picture

When your old car with a worn-out engine starts sputtering, step on the gas! If it works once, step on the gas again! Don't worry about flooding the engine. We'll burn that bridge once we get there. One problem at a time.

Tortfeasor's picture

Paradoxically, the solution to obesity caused by too much potato chips, too much soda, and too much icecream, is more potato chips, more soda, and more icecream.

Winston Churchill's picture

That debt can only  keep increasing in value Ben,just like you said of housing.

De je vu all over again.

So many bubble, and one big prick.

Robslob's picture

Gold will tank along with everything else when the system blows...a small problem of course will be "sold out" when that comes to pass.

So it isn't really about is about purchasing power and regardless of whatever banker dictated price gold ends up at it will still have purchasing power...the dollar, not so much...

KickIce's picture

When the system blows there will be war. or due to war.  Anyway, doesn't matter, everything tanks except food, fuel and firearms/ammo.

Al Huxley's picture

If they stop giving the money to the fucking banks and give it to me instead, I promise to spend it and not just leave it parked at the FED.

Dr. Engali's picture

I promise to buy plenty of precious metals which will summarily be lost in an unfortnate boating accident.

Cognitive Dissonance's picture

Mrs Cog says the problem behind all my boating accidents is that I need a bigger boat.

I think it might be something else.

Boating accident

h/t to WilliamBanzai7 for this image.

Colonel Klink's picture

When this thing sinks, everybody better be ready to SWIM BITCHEZ!!

ptoemmes's picture

Equal weighted ballast in the bow might work, e.g. another fat long as you igone the water rushing over the gunwales.

Come to think of it...yet another metaphor for the end game of adding more debt.



Where's the beer?



Cognitive Dissonance's picture

In the belly already. Just finishing up the ham on rye before heading to shore.

Another load of PMs deposited in Davey Jones' locker.'_Locker

Dr. Engali's picture

Hilarious...thanks for the chuckle.

Cognitive Dissonance's picture

Mrs Cog says I'm too fat so no more nookie until I can see my nooker.

I think she's serious this time. :)

Dagny Taggart's picture

Perhaps now would be a good time to consider the organic and sprouts darkpocalypse diet lol? Just sayin...

Bay of Pigs's picture

Hey Dagny, You still over at Turds joint or have the Mods banned you like me? LOL.

Ying-Yang's picture

invest in a tool called the pecker periscope.. then all ahead full

knukles's picture


A 3 pointer for describing exactly the fucking problem with the way the Federalies are attempting to manage out of a Liquidity Trap.
Should the money be given to The People, The Consumers who comprise 70% of GDP/economic activity, the money WOULD GET SPENT thereby goosing the PT portion of MV=PT as opposed to simply pushing V downwards.

That is exactly what was meant by Dumping Money from a Helicopter in the first fucking place.  Not giving it to the Banksters at 0% for the positive carry of a life time which even they can screw up.

See... just credit everybody's 401(k) with cash back to pre-crash levels, give everybody a free (Gubamint grant for doing fuck all nothing, like welfare all around) $10K and it'll get spent, come hell or high water.
And if somebody says "Oh booyah, we can't do that, it'll be inflationary with all than additional cash floating about", then don't do another QE or just go the fuck ahead and raise reserve requirements to sterilize the shit.

Wake the Fuck Up!  We're already handing out that kind of money to the financial elite, anyhow.


SRVDisciple's picture

Keynesian economics requires the ignorance of the masses.  Only if the tractor-parts-builder in Kansas who starts to see his business heading off of a cliff is unaware that uptick/stabilization in business is due to gummit printing will he operate as if nothing is wrong. He will hire, spend, and plan for growth. If he knows that his few extra sales are due to a Bernanke Bandaid, then he will continue to act as if business is really down and will play things close to the vest.

sessinpo's picture

Keynesian economics requires the ignorance of the masses.


Very true. That also applies to just about all forms of government and ideology that discourages individualism and individual freedom, something socialist fear and detest. You know, the anarchist and trouble makers when actually the opposite is true. I won't intrude upon you and you don't intrude upon me. In fact, we might become friends and through cooperation, make something great. Oh yea, I forgot, Obama said we don't build things. My bad.

SemperFord's picture

But silver is sooo much cheaper!

Dr. Engali's picture


"The good news: at least the Keynesians (or is it simply Socialists now?) out there will not be able to say we should have just added one more [ ]illion in debt/liquidity and all would have worked,"


They won't be able to say that with any credibility ( not that they have it now) but that won't prevent them from saying it anyway.


resurger's picture

We will have "Unlimited Interventions" untill the S&P touches 1,500+

Ben Bernanke

CrimsonAvenger's picture

See, this is why I don't give a shit about QE - it's the difference between drowning in 30 feet of water or 29 feet.

fresno dan's picture

Oh, you zero hedge commenters, what with your reality and sustainability.

We're in this pile of sh*t because we stopped making loans for new  houses. 

·                     But ask yourself a few questions: In such a system, what metric is used to say, Oh, determine who gets a loan for a house, and how much should the loan be for?
If home prices are continually rising, due to the amount of credit available to buy houses, and rising house prices justify ever bigger loans to buy ever more expensive houses, what stops this process?
A lack of new suckers. That is why I am proposing the fresno dan economic recovery program: NEWSUCKERS
Novel economic work stimulus utility cumulation* kabuki expansion recovery statute - - MerriamWebster tells me "cumulation" is a perfectly cromulent word

What!??!?!  - The Federal Reserve is already doing that?  No wonder I only make 53 cents a day collecting pepsi cans in a shopping cart and The Bernanke makes a bundle...

Theosebes Goodfellow's picture

+1 for using the word "cromulent" in a sentence.