Eric Peters: "Last Week Saw The End Of The QE Era"

As a follow up to Eric Peters' comments on the Fed's ongoing tightening strategy (which he ascribed to the Fed's questionable desire to "subdue Wall Street"), the One River Asset Management CIO has some observations on what happens next, which roughly echo what Citi's Matt King said last week: "the QE era is ending" and as a result, while before last week's meeting "everyone assumed that the moment the VIX hits 20, they’ll come to the rescue. Now, no one can be sure."

From his latest weekend notes:

“Can they do it? Should they?


"Last week was the end of the QE era,” he said. “Central banks will turn into net sellers of assets in the coming 2-3 years.”


The printing and buying will continue for some time, but the turn is now in sight.


“The Fed will start unwinding. The Canadians said they want to tighten. The UK had a hawkish meeting. China is deleveraging. The ECB is tip toeing toward the exit.” Only the Japanese still sound dovish.


Before yesterday’s Fed meeting, everyone assumed that the moment the VIX hits 20, they’ll come to the rescue.” And now, no one can be sure.

And as a bonus, some additional observations on where in the business cycle we are currently:

“We’re so clearly late-cycle,” said the CIO. “The only thing that’s really missing is inflation.” US CPI had just surprised on the downside, declining 0.3 to +1.9% (core -0.2 to +1.7%).


“But perhaps it’s all very simple, things often are.” Q2 GDP is rebounding from the typical Q1 doldrums.


“Maybe this is inflation. Perhaps this is what late-cycle inflation looks like in a heavily indebted world.” Unemployment is 4.3%. The Fed sees it headed toward 4.0%. “Maybe we’re already past the peak. It may be that this was as good as it gets.”

Finally, an anecdote from Peters on disruption:

“They took everyone to the cleaners, they were everywhere,” said Lithium, handsfree on Highway One. “They were vertically integrating, they had economies of scale, the ability to pressure people politically, change local ordinances, extract tax breaks,” he continued, downshifting from ludicrous gear. “They abused workers, they had welfare recipients working in their stores, who turned around and spent their paychecks where they worked.” That’s the story of Walmart. “That’s what ‘getting there’ looks like.” In today’s winner-take-all world, that’s the destination of choice. “Investors miss the big picture on how this game really works,” explained Lithium, banking a turn at a buck-twenty.


“There’s a valley of death that every company has to cross.” Few firms in the world have a better plan and a better man than Tesla, and even it may not make it across. “We love everything about Musk. But he has no plan to turn the corner. His only hope is to ‘get there.’ It’s another damn the torpedoes model.” Bezos adopted the same strategy.


“Amazon has executed better than anyone, and yet it’s had a couple 90% drawdowns along the way. If investors can’t fathom a 90% Tesla drawdown they’re insane.” Musk may have to cross the valley of death a few times before getting there.


“Uber is imploding. It’ll hemorrhage and slowly die now.” Kalanick is no Bezos or Musk. “You simply have to ‘get there’ for these models to work.” And some companies that ‘get there’ may find themselves unable to monetize the model at the end. “Netflix is starting to get there. Amazon is arguably not there yet; though you can’t imagine anyone catching them.


Even Google could be toppled. And so many others will fail,” said Lithium. “It’s an interesting time to invest. And very dangerous. So much capital destruction lies ahead.”


fx E5 Mon, 06/19/2017 - 07:49 Permalink

Nobody, including peters has ever provided a consistent and reasonable answer to the question, why the CBs should tighten significantly at all - or at least beyond the breaking point for markets?
Inflation would be the ONLY official argument to force them into real tightening, but it is absent (or manifesting itself in the asset bubbles everywhere).
So, WHY should the CBs tighten beyond any symbolic measures?

In reply to by E5

Ghordius fx Mon, 06/19/2017 - 07:57 Permalink

that why... depends on the actions of the other CBsthe standard "why" would be because inflation would start to become un-manageable, laterbut the real and imminent "why" is still the actions and reactions among the other CBs. particularly China's, at the momentnote, for example, that you won't read much on RT or the US MSM on how the Russian National Bank is loading up USTs, at the moment

In reply to by fx

NoDebt Mon, 06/19/2017 - 07:20 Permalink

"Maybe we’re already past the peak. It may be that this was as good as it gets."I've been saying that for years.  At least since the mid-90s. 

Mungo9000 Mon, 06/19/2017 - 07:22 Permalink

Even if they stop QE, I doubt central banks will sell bonds back to the market. They own one third of all paper. There's far less risk just to hold them and let them mature.We, as normal investors, may think in terms of a few decades to build a nest egg, but a central bank can think in terms of a hundred years.

Erek Mon, 06/19/2017 - 07:22 Permalink

Even Google could be toppled. And so many others will fail,” said Lithium. “It’s an interesting time to invest. And very dangerous. So much capital destruction lies ahead.” An interesting time to invest? More like an interesting tiime to get your ass out and watch the other guy's capital get destroyed.

DontWorry Mon, 06/19/2017 - 07:27 Permalink

Every time I see something on central bank printing coming to an end, I think of this:Cougar_w: Thu, 05/24/2012 - 17:18 Hope you didn't put much money on that bet, Dawg. These fuckers are going to print hard enough to wake the dead. They'll print like mo'fos, print like mad men, print like fly pimps. Print until their eyes bleed. They will print via the swaps, via bank bailouts and mergers, via fixed Treasury yields, via real honest-to-God negative interest rates, via loans to banks on no collateral, via payroll tax reductions, and in the end via actual fiat paper instruments which they might very well drop in bails from actual mutherfucking helicopters. They will not give two figs what anyone thinks. Here is why. Because this is the Goddamned end of it my friend. There is no accounting beyond this point. There will be no history of it. No one to take notes of rates of exchange, or of the graft and violence, nobody to worry about the deficit or the GDP or the national debt of any nation large or small under the blazing Goddamned sun. End. Of. It. Does anyone bitch about how Rome totally debased their coinage at the end? Hell no. But whoever did it had enough to hand and grabbed some land with a nice vineyard and sat back and waited for the Middle Ages to start 700 years further on. And that's what a singularity is about. Anything that passes through is striped of all meaning. Nothing we think is important now will remain so beyond the event horizon. Nobody will remember, nobody will write about it, nobody will be held to any standard. Ever for evar. So yeah, they'll print like the mad crazed terrorists they are. Because they have nothing to lose, and maybe something to gain. Maybe a dollar. Maybe a day. Maybe a slim chance to escape with some of the loot. Whatever the fuck advantage they see in it, for themselves and their elite crap wanking buddies, they will full-on-full-time-fucking do it to advantage. Watch for it, Dawg. It's totally on this time, on like Donkey Kong. And when the dust is settled in a generation hence it's going to have become another unbelievable episode among the ages of men.

overmedicatedu… Mon, 06/19/2017 - 07:32 Permalink

think a minute  ..for us little people we lend our money at 0.01% while the banks and ccard co's lend to us at 23% or more.. now how hard is it to see our finance system is designed to concentrate wealth in fewer and fewer hands.. massive crime..we never hear about on the telly or for us here in usa the TV.. eyes wide shutand of course Yellen and co and the .gov dc see nothing..

Miss Informed Mon, 06/19/2017 - 07:34 Permalink

Why should the central banks turn net sellers of assets? The way it is they are buying everything worth owning with money they conjure out of thin air. Their owners, the Rothschilds, Rockefellers, the cabal of International Jews, et all will own most everything and most of humanity will be reduced to debt servitude. If they stop the buying asset prices would plunge so they can claim acting in the public interest as they loot the world.

Ghordius Miss Informed Mon, 06/19/2017 - 07:51 Permalink

there was a time when the Rothschilds owned the Bank of England, yesit was the same time when conspiracy theorists in the US were waiting for the Rothschilds to set up a branch in the USlater, they argued that they were wrong because the Rothschilds made a pact with the Rockefellers and J.P. Morganmeanwhile, after the WW2 the UK nationalized the Bank of England. in case you are not familiar with the word, it means taking it away from the Rothschildsthe Bank of England now belongs to the British State. the only shareholder is the UKthis is not the case for the FED, in case you are wondering. but you can only wonder if you leave the world of the 19th Century and open your eyes in the 21st

In reply to by Miss Informed

Ghordius overmedicatedu… Mon, 06/19/2017 - 08:02 Permalink

how about "all armies and navies" "can be seen as one Mob"?that "it's all the same, really" and "it's all a conspiracy of adults against us children" is kind of tiring, to meyes, you can simplify. no, it does not necessarily explain properly any realityCommunists tried for generations to sell the "it's those rich guys screwing us poor guys"now, go to Qatar, and ask the very rich families that rule there if they are being squeezed or not, and whyor ask in the US why US policy is that Qatar is kind of "their problem"... like Kuwait was, for a short time, Saddam's issueor if this is going to stay so

In reply to by overmedicatedu…

Gordon_Gekko Ghordius Mon, 06/19/2017 - 08:12 Permalink

Primary the colonies of the imperial beast...US, UK, Europe (all so-called "nations")...China and Russia seem to be independent for can basically guess by their actions... whomever's are the most DEPRAVED are part of the Cartel. Hard to believe, I know. But consider this, "the truth will set u free, but first it will piss u off"

In reply to by Ghordius

Gordon_Gekko Mon, 06/19/2017 - 07:59 Permalink

Not knowing the real nature of the beast will be the downfall of many astute investors, for they underestimate the true DEPRAVITY of the system they inhabit.

flyonmywall Mon, 06/19/2017 - 08:05 Permalink

The Central banks lowered interest rates, and profited on the way down in interest rates. Trust me, they will profit while interest rates rise. Central banks aren't allowed to lose money.It won't matter if they entire world's economy crashes.

choco bunny Mon, 06/19/2017 - 08:37 Permalink

THe fed will do what they do.   The market predictions made by Shepwave have been spot on. Friday afternoon they called even the short term rally that is extending into today.  They are holding out for a potential new high in the S&P 500 to line up with the Dow.  At least that is what I think they are looking for.  Their short term trades have been spot on with market fluctuations. 

Koba the Dread Mon, 06/19/2017 - 09:06 Permalink

When I got to the 4.3% unemployment figure I stopped reading. 4.3% inflation, Land of the Free, Oswald killed JFK, 9-11 was done by 19 coke-head, whore-hopping, alcoholic jihadis who didn't know how to fly, I'll love you in the morning.Do you believe any of this shit?

sbenard Mon, 06/19/2017 - 10:27 Permalink

It's a good thing the US is debt-free, or with these new all-time record highs in stocks, we might think this was another bubble -- even a bigger one than the last! 

decentraliseds… (not verified) Mon, 06/19/2017 - 11:12 Permalink

 Why waste time on this alligator when the swamp’s most critical economic and political problems revolve around the hegemony of a global corporate cartel, which is headquartered in the US because this is where their dominant military force resides. The US Constitution is therefore the “kingpin” of an all-inclusive global financial empire. These fictitious entities now own the USA and command its military infrastructure by virtue of the Federal Reserve Corporation, regulatory capture, MSM propaganda, and congressional lobbying. The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, for whatever reason, our Founders granted the greediest businessmen among them unrestricted corporate charters with enough potential capital & power to compete with the individual states, smaller sovereign nations, and eventually to buy out the USA itself. The only way The People can regain our sovereignty as a constitutional republic now is to severely curtail the privileges of any corporation doing business here. To remain sovereign we have to stop granting corporate charters to just any “suit” that comes along without fulfilling a defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't afford to privatize our Treasury to transnational banks anymore. Government must be held responsible only to the electorate, not fictitious entities; and banks must be held responsible to the government if we are ever to restore sanity, much less prosperity, to the world. It was a loophole in our Constitution that allowed corporate charters to be so easily obtained that a swamp of corruption inevitably flooded our entire economic system. It is a swamp that can't be drained at this point because the Constitution doesn’t provide a drain. This 28th amendment is intended to install that drain so Congress can pull the plug ASAP. As a matter of political practicality we must rely on the Article 5 option to do this, for which the electorate will need overwhelming consensus beforehand. Seriously; an Article 5 Constitutional Convention is rapidly becoming our only sensible option. This is what I think it will take to save the world; and nobody gets hurt: 28th Amendment: Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to: 1, prohibitions against any corporation; a, owning another corporation; b, becoming economically indispensable or monopolistic; or c, otherwise distorting the general economy; 2, prohibitions against any form of interference in the affairs of; a, government, b, education, c, news media; or d, healthcare, and 3, provisions for; a, the auditing of standardized, current, and transparent account books; b, the establishment of state and municipal banking; and c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.    

Last of the Mi… Mon, 06/19/2017 - 12:38 Permalink

The massive wealth divide that is the economy now won't be allowed to go away anytime soon. The FANGS obscene wealth is dependent on the Fed's QE and they know it. It is this wealth they use to tamp down Trump, the constitution, and any semi-honest politician. The turn is in sight. Yeah right, that just means we're about to enter a period where the FED blatantly lies about the QE they're printing. Nothing more.

GreatUncle Mon, 06/19/2017 - 12:41 Permalink

For what its worth in 2008 I said those with money were vunerable to an economic collapse like 1929.Not this time, they were given 10 years to reallocate their economic positions.Why 10 years? Because most longer term contracts were in the order of 10 years.That time span is now reached and now they try to tighten having preserved their economic position.Lol the thing is a rebalancing of the economy cannot happen because that rebalancing is mainly all they stole ...So a tightening will never work.