• Tag Archives QE
  • Can Britain Afford To Be A Hard Power?

    Recently the UK Royal Navy and Ministry of Defence unveiled their brand new aircraft carrier HMS Queen Elizabeth at a cost of 3 Billion Pounds. This at a time when UK national finances are under heavy pressure and the country has been experiencing seven years of severe austerity.
    It has recently come to light that in true Ministry of Defence fashion (poor project management & wasteful spending, duplication, poor planning, lack of oversight and accountability) the true costs are set to rocket even further for more aircraft needed to be able to land properly on HMS QE. How very British. The decision to go ahead with a brand new and very expensive aircraft carrier for the UK at a time of acute social and economic headwinds has been hailed by some as an exciting new weapon in Britain’s hard power arsenal that will allow Britain to punch above her weight in world affairs and global power projection rankings in Jane’s Weekly.

    This post was published at Zero Hedge on Jul 25, 2017.

  • David Stockman Warns The Market’s “Chuck Prince Moment” Has Arrived… “Only More Dangerous”

    On July 10, 2007 former Citigroup CEO Chuck Prince famously said what might be termed the ‘speculator’s creed’ for the current era of Bubble Finance. Prince was then canned within four months but as of that day his minions were still slamming the’buy’ key good and hard:
    ‘When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,’ he said in an interview with the FT in Japan.
    We are at that moment again. Only this time the danger of a thundering crash is far greater. That’s because the current blow-off top comes after nine years of even more central bank policy than Greenspan’s credit and housing bubble.
    The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.
    Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about ‘stimulus’, ‘accommodation’ and guiding economies toward optimal levels of inflation and full-employment.

    This post was published at Zero Hedge on Jul 22, 2017.

  • Nobody told the euro that Mario Draghi was dovish

    If Mario Draghi was trying to talk down the euro, it didn’t go so well.
    The European Central Bank president attempted to strike as dovish a stance as was possible given the circumstances in his news conference Thursday. He emphasized the lack of a pickup in underlying inflation, insisted the Governing Council won’t really think about tapering until the fall, and banged away on how the central bank could actually ramp up its quantitative easing program, should conditions deteriorate.
    The performance was seemingly a disappointment to anyone looking for reassurance when the ECB will lay out what it plans to do with its quantitative easing program in 2018. The ECB is committed to continuing it program of 60 billion a month in bond purchases through the end of the year, ‘or beyond.’
    But euro bulls didn’t appear to care. The shared currency EUR/USD, -0.0086% jumped during the news conference and then extended gains, topping $1.16 versus the dollar and trading at its highest level since August 2015.
    The news conference performance was in contrast to a speech in Portugal late last month that got investors primed for a QE wind-down. At that conference, Draghi’s emphasis on how reflationary pressures were replacing deflationary pressures was the trigger.

    This post was published at Market Watch

  • ‘A Stock Market Crash is Coming!’

    Conventional ‘Wisdom:’ Markets move up and down, but the stock market always comes back. The DOW is frothy and needs a correction, but the stock markets are healthy and big gains lie ahead.
    Pessimistic version: Jim Rogers said, ‘the next crash will ‘the biggest in my lifetime.” [Coming soon …]
    Question: Given the craziness in politics, the Middle-East, Central Banking, and global debt levels … do you own enough gold bullion?
    Conventional thinking: ‘Trump will save the markets, reduce taxes, and boost stock prices even higher.’ [Don’t plan on it.]
    ‘Gold pays no interest and has gone down for six years.’ [True but irrelevant.]
    ‘The Yellen Fed can’t let market bubbles pop so they will create more QE, more bond monetization, ‘printing,’ and Fed support. In short, the ‘Yellen Put’ is alive and will protect investors.’ [Maybe not…]
    ‘The market got hurt in 1987, 2000, and 2008. It rallied back each time and went higher. This time will be no different. Stocks may correct but they are a good long term investment.’ Read ‘The Bull Case: S&P is heading to 3,000.’ [How big a loss before the rally?]

    This post was published at GoldStockBull on July 20th, 2017.

  • How can the Fed possibly unwind QE?

    There are currently two important items on the Fed’s wish list. The first is to restore interest rates to more normal levels, and the second is to unwind the Fed’s balance sheet, which has expanded since the great financial crisis, principally through quantitative easing (QE). Is this not just common sense? Maybe. It is one thing to wish, another to achieve. The Fed has demonstrated only one skill, and that is to ensure the quantity of money continually expands, yet they are now saying they will attempt to achieve the opposite, at least with base money, while increasing interest rates.
    Both these aims appear reasonable if they can be accomplished, but the game is given away by the objective. It is the desire to return the Fed’s interest rate policies and balance sheet towards where they were before the last financial crisis, because the Fed wants to be prepared for the next one. Essentially, the Fed is admitting that its monetary policies are not guaranteed to work, and despite all the PhDs employed in the federal system, central bank policy remains stuck in a blind alley. Fed does not want to institute a normalised balance sheet just for the sake of it.

    This post was published at GoldMoney on July 20, 2017.

  • The Elephant in the Room: Debt

    It’s the elephant in the room; the guest no one wants to talk to – debt! Total global debt is estimated to be about $217 trillion and some believe it could be as high as $230 trillion. In 2008, when the global financial system almost collapsed global debt stood at roughly $142 trillion. The growth since then has been astounding. Instead of the world de-leveraging, the world has instead leveraged up. While global debt has been growing at about 5% annually, global nominal GDP has been averaging only about 3% annually (all measured in US$). World debt to GDP is estimated at about 325% (that is all debt – governments, corporations, individuals). In some countries such as the United Kingdom, it exceeds 600%. It has taken upwards of $4 in new debt to purchase $1 of GDP since the 2008 financial crisis. Many have studied and reported on the massive growth of debt including McKinsey & Company http://www.mickinsey.com, the International Monetary Fund (IMF) http://www.imf.org, and the World Bank http://www.worldbank.org.
    So how did we get here? The 2008 financial crisis threatened to bring down the entire global financial structure. The authorities (central banks) responded in probably the only way they could. They effectively bailed out the system by lowering interest rates to zero (or lower), flooding the system with money, and bailing out the financial system (with taxpayers’ money).
    It was during this period that saw the monetary base in the US and the Federal Reserve’s balance sheet explode from $800 billion to over $4 trillion in a matter of a few years. They flooded the system with money through a process known as quantitative easing (QE). All central banks especially the Fed, the BOJ and the ECB and the Treasuries of the respective countries did the same. It was the biggest bailout in history. As an example, the US national debt exploded from $10.4 trillion in 2008 to $19.9 trillion today. It wasn’t just the US though as the entire world went on a debt binge, thanks primarily to low interest rates that persist today.

    This post was published at GoldSeek on Friday, 21 July 2017.

  • The ECB Morphs into the Mother of All ‘Bad Banks’

    As part of its QE operations, the ECB continues to pour billions of freshly created euros each month into corporate bonds – and sometimes when it buys bonds via ‘private placements’ directly into some of Europe’s biggest corporations and the European subsidiaries of non-European transnationals. Its total corporate bond purchases recently passed the 100 billion threshold. And it’s growing at a rate of roughly 7 billion a month. And it’s in the process of becoming the biggest ‘bad bank.’
    When the ECB first embarked on its corporate bond-buying scheme in March 2016, it stated that it would buy only investment-grade rated debt. But shortly after that, concerns were raised about what might happen if a name it owned was downgraded to below investment grade. A few months later a representative of the bank put such fears to rest by announcing that it ‘is not required to sell its holdings in the event of a downgrade’ to junk, raising the prospect of it holding so-called ‘fallen angels.’
    Now, sixteen months into the program, it turns out that the ECB has bought into 981 different corporate bond issuances, of which 34 are currently rated BB+, so non-investment grade, or junk. And 208 of the issuances are non-rated (NR). So in total, a quarter of the bond issuances it purchased are either junk or not rated (red bars):

    This post was published at Wolf Street by Don Quijones – Jul 20, 2017.

  • ECB Keeps Rates, QE Unchanged; Ready To Increase QE “In Size And Duration”

    While nobody was expecting much from the ECB’s policy statement this morning, with all eyes on Draghi’s press conference in 45 minutes, judging by the disappointed market reaction to what were largely canned remarks by the ECB which sent the EURUSD in kneejerk reaction lower, positioning is indeed stretched and unless Draghi comes out with hawkish bazookas blazing, the EURUSD may slide bigly.
    Back to the ECB’s decision, it announced that it kept both its rates and QE unchanged, with QE expected to run at 60BN per month until end of December or beyond if needed, ‘and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.’ The ECB said it was also ready to extend QE ‘in terms of size and/or duration’ if economic outlook worsens or financial conditions ‘become inconsistent with further progress towards a sustained adjustment in the path of inflation.’
    On rates, the central bank expects these to stay at present levels ‘well past’ QE horizon
    Main refinancing rate unchanged at 0.00% Deposit facility rate unchanged at -0.40% Marginal lending rate unchanged at 0.25% Full statement below:

    This post was published at Zero Hedge on Jul 20, 2017.

  • Did the Fed Just Ring a Bell At the Top?

    Very few investors caught on to it, but a few weeks ago the Fed made its single largest announcement in eight years.
    First let me provide some context.
    For eight years now, the Fed has propped up the stock market. In terms of formal monetary policy the Fed has:
    Kept interest rates at ZERO for seven years making money virtually free and forcing investors into stocks and junk bonds in search of yield.
    Engaged in over $3.5 TRILLION in Quantitative Easing or QE, providing an amount of liquidity to the US financial system that is greater than the GDP of Germany.
    In terms of informal monetary policy, the Fed has consistently engaged in verbal intervention any time stocks came in danger of breaking down.
    For eight years, ANY time stocks began to break through a critical level of support a Fed official appeared to issue a statement about future stimulus or maintaining its accommodative monetary policies.

    This post was published at GoldSeek on 19 July 2017.

  • Deutsche: The Fed Has Created “Universal Basic Income For The Rich” And Now It Can’t Get Out

    Two weeks after Aleksandar Kocic highlighted the moment in 2012 when the market stopped caring about newsflow and reality, and, in a word “broke” with pervasive complacency setting in regardless of macro uncertainty…

    … Deutsche Bank’s post modernist master of stream-of-consciousness narrative is back with a new essay dissecting his favorite topic, the interplay between the Fed and markets, the so-called “umbilical limbo” that connects the two in the form of ultraeasy monetary policy and QE in general, and more importantly, the narrative that the Fed has spun over the past ten years, which while supportive of risk assets, has concurrently resulted in what Kocic calls a “permanent state of exception” from normalcy as a result of the Fed decision to defer the financial crisis indefinitely.

    This post was published at Zero Hedge on Jul 15, 2017.

  • How Dumb Is the Fed?

    Bent and Distorted POITOU, FRANCE – This morning, we are wondering: How dumb is the Fed?
    The question was prompted by this comment by former Fed insider Chris Whalen at The Institutional Risk Analyst blog.
    [O]ur message to the folks in Jackson Hole this week [at the annual central banker meeting there] is that the end of the Fed’s reckless experiment in social engineering via QE and near-zero interest rates will end in tears.
    ‘Momentum’ stocks like Tesla, to paraphrase our friend Dani Hughes on CNBC last week, will adjust and the mother of all rotations into bonds and defensive stocks will ensue. We must wonder aloud if Chair Yellen and her colleagues on the FOMC fully understand what they have done to the US equity markets. […]
    Once the hopeful souls who’ve driven bellwethers such as Tesla and Amazon into the stratosphere realize that the debt driven game of stock repurchases really is over, then we’ll see a panic rotation back into fixed income and defensive stocks.

    This post was published at Acting-Man on July 14, 2017.

  • Draghi Said To Address Jackson Hole Followed By ECB QE Tapering Announcement

    Just in case traders haven’t gotten whiplash from all the hawkish-to-dovish-to-hawkish shifts in central bank posturing over the past month, here is the WSJ which reports that for the first time in three years, ECB’s Mario Draghi is scheduled to address the Fed’s Jackson Hole conference in August, “in a speech that is expected to give a further sign of the ECB’s growing confidence in the eurozone economy and its reduced dependence on monetary stimulus.”
    While the Fed debates whether to hike rates in December (market odds are now roughly 50%) and announce the winddown of its balance sheet in September, the biggest question facing the global market is the future of the ECB’s 60 billion QE program, currently due to run through December, and when it will start tapering. Technically, according to Deutsche, even more important is the BOJ’s QE but that particular monetization program is likely to continue well into 2018 as the Nikkei reports. As such the marginal flow of liquidity in global markets is in the hands of Mario Draghi.

    This post was published at Zero Hedge on Jul 13, 2017.

  • Dimon Says QE Unwind May Be More Disruptive Than You Think

    JPMorgan Chase & Co. Chairman Jamie Dimon said the unwinding of central bank bond-buying programs is an unprecedented challenge that may be more disruptive than people think.
    ‘We’ve never have had QE like this before, we’ve never had unwinding like this before,’ Dimon said at a conference in Paris Tuesday. ‘Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.’
    Central banks led by the U.S. Federal Reserve are preparing to reverse massive asset purchases made after the financial crisis as their economies recover and interest rates rise. The Fed alone has seen its bond portfolio swell to $4.5 trillion, an amount it wants to reduce without roiling longer-term interest rates. Minutes of the Fed’s June 13-14 meeting indicate policy makers want to begin the balance-sheet process this year.
    ‘When that happens of size or substance, it could be a little more disruptive than people think,’ Dimon said. ‘We act like we know exactly how it’s going to happen and we don’t.’
    Cumulatively, the Fed, the European Central Bank and the Bank of Japan bulked up their balance sheets to almost $14 trillion. The unwind of such a large amount of assets has the potential to influence a slew of markets, from stocks and bonds to currencies and even real estate.

    This post was published at bloomberg

  • Unwinding QE will be ‘More Disruptive than People Think’: JP Morgan CEO Dimon

    ‘We act like we know exactly how it’s going to happen, and we don’t.’
    ‘We’ve never had QE like this before, and we’ve never had unwinding like this before,’ said JPMorgan CEO Jamie Dimon at the Europlace finance conference in Paris. ‘Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.’
    He was referring to the Fed’s plan to unwind QE, shedding Treasury securities and mortgage-backed securities on its balance sheet. The Fed will likely announce the kick-off this year, possibly at its September meeting.
    According to its plan, there will be a phase-in period. It will unload $10 billion the first month and raise that to $50 billion over the next 12 months. Then it will continue at that pace to achieve its ‘balance sheet normalization.’ Just like the Fed ‘created’ this money during QE to buy these assets, it will ‘destroy’ this money at a rate of $50 billion a month, or $600 billion a year. It’s the reverse of QE, with reverse effects.
    Other central banks are in a similar boat. The Fed, the Bank of Japan, and the ECB together have loaded up their balance sheets with $14 trillion in assets. Unwinding this is going to have some impact – likely reversing some of the asset price inflation in stocks, bonds, real estate, and other markets that these gigantic bouts of asset buying have caused.

    This post was published at Wolf Street on Jul 12, 2017.

  • The Economic Reset Has Been Planned & The Bankers Want To Control It – Episode 1329a

    The following video was published by X22Report on Jul 11, 2017
    Wholesale sales tumble for the 3rd straight month in a row while inventories are building up. We have never seen QE until 2008 and we do not know what an unwind will look like or the discontinuation of QE, which could lead to a disaster. Rising interest rates will make the debt completely unsustainable. The central bankers knew the fiat system would only last a certain period of time, they have been planning this from the beginning just like they planned to come off the gold standard in 1971. Their main objective is to keep control of the system once the reset occurs.

  • “The Tide Is Going Out” – JPMorgan’s Dimon Warns QE Unwind Could Be Far Worse Than Fed Hopes

    Janet Yellen confidently stated at the last FOMC press conference that The Fed will start unwinding its massive balance sheet “relatively soon” and Patrick Harker, the Philadelphia Fed president, has said the process will be so dull that it is equivalent to watching paint dry.
    Not everyone agrees…
    Louis Crandall, an economist at Wrightson Icap, said at the time:

    This post was published at Zero Hedge on Jul 11, 2017.

  • When It Shows Up in Economic Releases, This Data Will Push Fed to Tighten Fast

    The other day we explored Federal Withholding Tax collections that suggested that the US economy is beginning to overheat. Data on other tax collections in June from the US Daily Treasury Statement also is leaning that way. It takes a month or two for the economic data to catch up with the reality of what is happening in real time.
    The tax collections data has no lag. It tells us what is going on in real time, with no manipulation whatsoever. We merely need to track it to know what’s coming in the lagging economic data reports. That gives us an edge enabling us to stay ahead of the crowd to take advantage of, or protect ourselves from, what’s coming.
    In this case, strong economic data will encourage the Fed to begin its promised course of balance sheet reductions. That will be a real tightening, as opposed to the sham tightening of increasing the interest the Fed pays the bank on the excess reserves at the Fed.
    Jim Rickards refers to this coming balance sheet reduction as Quantitative Tightening. I think that’s an apt monicker. Just as Quantitative Easing, QE, or money printing, pumped money into the markets and drove the asset bubbles that are still raging today (see yesterday’s price data on new home sales), QT will drain money from the markets and starve those bubbles.

    This post was published at Wall Street Examiner on July 10, 2017.

  • Macro Manager Massarce: “Financial Markets No Longer Make Sense”

    Over the past several years we have repeatedly stated that despite protests to the contrary, the single biggest factor explaining the underperformance of the active community in general, and hedge funds in particular, has been the ubiquitous influence of the Fed and other central banks over the capital markets, coupled with the prevasive presence of quantitative strategies, HFTs, algo trading and more recently, a surge in price-indescriminate purchases by passive, ETF managers.
    Specifically, back in October 2015, we wrote that “as central planning has dominated every piece of fundamental news, and as capital flows trump actual underlying data (usually in an inverse way, with negative economic news leading to surging markets), the conventional asset management game has been turned on its head. We have said this every single year for the past 7, and we are confident that as long as the Fed and central banks double as Chief Risk Officers for the market, “hedge” funds will be on an accelerated path to extinction, quite simply because in a world where a central banker’s money printer is the best and only “hedge” (for now), there is no reason to fear capital loss – after all the bigger the drop, the greater the expected central bank response according to classical Pavlovian conditioning.”
    Several years later, Goldman Sachs confirmed that we were correct. In a note released this April, Goldman’s Robert Boroujerdi asked in a slide titled “Does Active Have A QE Hangover” and showed that the current run of active manager underperformance began shortly after the onset of QE.

    This post was published at Zero Hedge on Jul 10, 2017.

  • US Equities: Unwinding the Yellen Leveraged Buyout

    This is a syndicated repost courtesy of theinstitutionalriskanalyst. To view original, click here. Reposted with permission.
    ‘When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,’ Citigroup CEO Chuck Prince
    July 2007
    Watching new era car company Tesla (NASDAQ:TSLA) getting knocked down a couple of notches last week, it occurred to us that the Fed’s program of quantitative easing or ‘QE’ amounts to a leveraged buyout (LBO) of the US equity markets. How else can we explain TSLA, a firm whose financial performance is measured by free cash outflow, being more valuable than far larger car companies that actually earn profits?
    Think of it: TSLA is an LBO without any cash flow. Of course, the global equity markets are all about discounting future earnings or, in the case of TSLA, the next capital raise. With $7 billion in debt and a voracious appetite for other peoples’ money, TSLA embodies the new era notion that it is acceptable for companies to loose money until they grow large enough to be profitable – maybe.
    The archetype for this style of corporate management is of course Amazon (NASDAQ:AMZN), a firm that is happily consuming whole industries as it grows into a global horizontal and vertical monopoly – and all of this without so much as a peep from the Antitrust Division at the Department of Justice.

    This post was published at Wall Street Examiner

  • Why the Next Recession will be a Doozie for Consumers

    Tougher for workers, rougher for the economy.
    The employment data released today beat expectations nicely. In June the economy added 222,000 civilian jobs. April and May numbers were revised up. In total, over the past three months, nonfarm payrolls rose by 581,000 jobs.
    This data will do nothing to deter the Fed from proceeding with its tightening plans. The Fed should never have cut its policy rate to zero, or kept it down that long, and it should have never engaged in QE. However, acting as lender-of-last-resort when credit froze during the Financial Crisis – when even GE and IBM had trouble borrowing to meet payroll – was essential to keep the system from collapsing. These short-term loans were not part of QE and were paid back. But the hangover of QE is still on the Fed’s balance sheet.
    So I support whatever ‘normalization’ efforts the Fed might undertake. They should have happened years ago.
    Among the reasons the Fed wants to ‘normalize’ policy now is to put aside some dry powder for the next recession or crisis. And it will come. Recessions are an essential part of the business cycle. If allowed to proceed, they’ll blow the cobwebs from the system, remove excess debts, and clean out the misallocation of capital – at the expense of creditors and investors. It’s a fresh start for the economy.

    This post was published at Wolf Street by Wolf Richter ‘ Jul 7, 2017.