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QE III Replies |
HenryTo
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 Posted: Wed May 09, 2012 5:42 pm Post subject: |
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Bridgewater also looking for the Fed to implement some kind of QE3 policy.
| Quote: | As Long-Term Interest Rates Approach Zero, the Fed’s Ability to Stimulate via Interest Rate Changes is Further Reduced
The short-term interest rate is normally the Fed’s primary monetary policy tool, but since short-term interest rates hit the 0% floor in 2009, stimulation through long-term interest rates has taken on an increasingly important role. The Fed’s announced intention to hold short-term interest rates at very low levels through late 2014 and their recent Twist operation were both intended to stimulate the economy through declining long-term bond yields. In the past year, long-term bond yields in the US have fallen by 150 basis points, a big enough decline to change both the economics of borrowing and the valuation of long-term assets. The economy’s responsiveness to this decline in long-term interest rates was muted due to the forces of deleveraging. Going forward, the deleveraging process is likely to sustain a lower level of responsiveness to interest rate changes, and now the potential to bring bond yields down further is limited by their increasing proximity to zero. Ten-year Treasury yields are now at 1.8%, long-term real yields are already slightly negative and short rates are already discounted to stay at zero for many years. Up to this point the Fed has been able to arrest dips in the economy and markets through their various actions, but as their number of tools is reduced, the risk that a dip turns into an air pocket incrementally increases. And given the recent slowing of the economy and renewed risks in Europe, the pressure for the Fed to do something sooner rather than later is increasing. |
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HenryTo
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rffrydr
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| Posted: Mon Mar 12, 2012 10:11 am Post subject: |
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This looks structural to me; and only tied to QE shorter term. P/E returned to it's pre-crash glidepath lower; it has been coming down since the DotBomb when tech fueled our dreams and Wintel margins got projected beyond the horizon.
This goes against a long-held, long-term, belief by me and others that P/Es should swell in controlled inflationary environments. Deflation is NOT one of these...so we'll give it, and a modest "15" some time.
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HenryTo
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HenryTo
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| Posted: Tue Feb 21, 2012 7:26 pm Post subject: |
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Bridgewater on the state of global monetary easing.
| Quote: | The Third Round of Global Monetary Stimulation is Having its Intended Effects
Last week, the Bank of Japan decided to roughly double the pace of its purchases of JGBs, adding more monetary fuel to what is effectively the third round of reflation by the developed world’s central banks since 2009. At this point, the central banks of the US, Euroland, the UK and Japan are all stimulating through various forms of quantitative easing. Taking into account the nature of their actions, over the past six months global central banks have provided as much monetary stimulation as in early 2011 and about 40% of the peak monetary stimulation of 2009. Next week, the stimulus will rise further as the ECB executes its next round of three-year LTRO bank lending. And the BoJ’s commitment to an explicit 1% inflation target also seems to imply a willingness to take more aggressive action if necessary to achieve the inflation target (and the odds are very high that it will be necessary to achieve that goal). The collective impact of central bankers’ recent efforts has been to boost global growth, raise stock prices, narrow credit spreads, lower cross-border bank funding spreads, weaken the dollar and reduce long-term bond yields across most countries. The following chart shows the degree of monetary stimulation that has been applied by the developed world’s central banks since 2007. There have been three phases of monetary stimulation accumulating to about 6% of world GDP so far. |
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rffrydr
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| Posted: Thu Nov 03, 2011 6:26 am Post subject: |
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MBS twist primed, if not loaded.
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rffrydr
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| Posted: Tue Sep 27, 2011 6:24 am Post subject: |
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Fed is not through. It stepped aside for Obama's "Jobs" initiative--which does anyone expect?
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rffrydr
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| Posted: Thu Sep 08, 2011 7:12 am Post subject: |
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Gross, who's been badly wrong, is highlighting the dangers of yield-curve smackdown--killing leverage. The Great Deleveraging strikes again?
| Quote: | By flooring maturities out to two years then, and perhaps longer as a result of maturity extension policies envisioned in a forthcoming operation twist later this month, the Fed may in effect lower the cost of capital, but destroy leverage and credit creation in the process. The further out the Fed moves the zero bound towards a system wide average maturity of seven to eight years the more credit destruction occurs, to a US financial system that includes thousands of billions of dollars of repo and short-term financed-based lending that has provided the basis for financial institution prosperity.
NH
The Fed’s old M3 yardstick of credit growth which includes repo monetisation would likely similarly decline. If so the posit of American economist Hyman Minsky of an unstable financial system based on the leveraging of a positively sloped yield curve – and deleveraging when it was not – would be obvious for all to see. Helicopter Ben should be careful – another Blackhawk Down might be in our near-term future. |
http://www.ft.com/cms/s/0/04868cd6-d7b2-11e0-a06b-00144feabdc0.html
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Ven
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| Posted: Wed Aug 17, 2011 1:40 pm Post subject: |
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It's amazing how desperate traders/investors are to call anything "QE" they can get their hands on.
It's really kind of -- disturbing -- to watch the drug addicts run out of supply and start picking up random objects "believing" they are gonna get their fix.
I don't think these things can be any more clear by now:
1. QE was always meant to be temporary (or "transitory" if you like)
2. Its purpose was to temporarily boost the market so that investment banks could exit their March '09 long positions, without tanking the market
3. Now that these positions have been exited, the Fed no longer has incentive to temporarily boost asset prices (which was harmful to the real economy)
Regardless of many different reports that I've seen out there, the Fed's balance sheet is NOT expanding.
They have no desire right now to expand it. At all. |
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rffrydr
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rffrydr
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rffrydr
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| Posted: Wed Aug 10, 2011 8:47 am Post subject: |
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The Federal Reserve
| Quote: | Central bankers necessarily speak in code. On Tuesday, the Federal Open Market Committee’s 523-word long communiqué (with three dissenters, the most in two decades) proved extraordinarily hard to crack. US stocks fell sharply immediately after the announcement, but the market closed up almost 5 per cent.
The last judgment looks like the right one. If he could speak in plain English, maybe Ben Bernanke would have expressed himself thus:
“We have to do something to turn markets around, and to put the S&P sovereign downgrade behind us. We do not have time to thrash out a new round of quantitative easing through bond purchases, and with inflation expectations still higher than they were when QE2 started, that would be hard to justify.
“But a promise to leave rates where they are now (virtually zero) for another two years is a big deal. First, we are tying our hands here, since central banks are nothing without their credibility. Second, since target rates will stay low for two full years, it is safe to push the yield on two-year Treasuries down to virtually nothing. That has the same effect as QE. The Fed can also do some quasi-QE on the sly by selling bonds on its balance sheet, and using the proceeds to buy more longer-dated paper on the market.
“Of course, this means letting the dollar tank. Other countries will hate us. So be it. And obviously, low rates could stimulate inflation. But frankly, we would be only too happy for inflation to rise a bit. The key to getting through this rough spot is that everyone calms down, and sees that they have no choice but to buy risky assets.”
If that is what Mr Bernanke meant, then markets finally got the message. Gold, a hedge on the debauchment of the dollar, hit new records as did the Swiss franc. Two-year Treasury yields fell to their lowest in decades. Investors bought stocks. All of which is exactly what would have happened after a QE3 announcement. The Fed got what it wanted – and all in return for promising to do what it would probably have done in any case. |
LEX
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diesel
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| Posted: Fri Jul 15, 2011 4:14 am Post subject: |
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Russia's currency wasn't freely floating on the market at that time i.e. it was pegged to the dollar. My definition of a currency issuer is one that doesn't have to maintain a peg i.e. the market sets the exchange rates. Otherwise you are always liable for a run on your reserves just like under the old gold standard.
Russia should have just let the ruble devalue rather than trying to defend its peg. It was a act of madness given that trade flows had long since turned against them.
BTW, IMO the USA is a long way from inflation given its massive output gap (16% underemployment and lack of GDP growth).
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HenryTo
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| Posted: Thu Jul 14, 2011 12:37 pm Post subject: |
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Bill, you forgot Russia in 1998. That was Soros' thinking too.
But of course, we're not talking about a U.S. default. There's no solvency problem, especially given the US$60 trillion tied up in U.S. household wealth and the taxing power of the U.S. government. The problem is going to be devaluation through inflation--we're still very far away from that, but it's a possibility. This would cause interest rates to spiral higher in a worst-case scenario. |
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rffrydr
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| Posted: Thu Jul 14, 2011 9:28 am Post subject: |
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If you think commodity prices are going to get in the way of FED action then another listen to the Lacker interview I posted would be in order:
http://media.bloomberg.com/bb/avfile/News/Haysadvantage/vPhTr.Lp4xC4.mp3
QEII, squeezing banks out of the comfort zone on the treasury curve, was no match for BAC giving up a year's earnings on a CDO plate (in part to the NY FED!)--which is now being reviewed by NYAG on public fishing expedition..... Breaking itself up while BK'ing Countrywide (which it never legally took possession of) would go a long way towards drawing a line under this chit for the banking industry.
My favorite candidate for a kind of QE III would be the reset of all Fannie/Freddie mortgages in course of their restructuring a la Gross's suggestion. Works from the bottom up with money going right back to the economy while freeing up banks--so long as they get indemnified on foreclosures to follow. It's fiscal/monetary/legal/political all-in-one. I guess that's just too ambitious for anything. 
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