• Tag Archives QE
  • Now China’s Curve

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    Suddenly central banks are mesmerized by yield curves. One of the jokes around this place is that economists just don’t get the bond market. If it was only a joke. Alan Greenspan’s ‘conundrum’ more than a decade ago wasn’t the end of the matter but merely the beginning. After spending almost the entire time in between then and now on monetary ‘stimulus’ of the traditional variety, only now are authorities paying close attention. Last September the Bank of Japan initiated QQE with YCC (yield curve control). The ECB in December altered its QE parameters to allow for what looks suspiciously like a yield curve steepening bias. And the Fed in its last policy statement declared its upcoming intent to think about balance sheet runoff that, as my colleague Joe Calhoun likes to point out, is almost surely going to be favored in the same way.
    Central bankers spent years saying low interest rates were stimulus. They have yet to explicitly correct their interpretation, preferring the more subtle approach of instead altering their operations as noted above. As I wrote back in December.

    This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ June 20, 2017.

  • “Grouchy” SocGen Analyst: “Fed Will Be Buying Again Long Before They Finish Normalizing”

    Over the weekend, One River’s CIO Eric Peters said that last week’s announcement by the Fed marked the “end of the QE era.” At least one person, however, is not convinced: as the “increasingly grouchy” SocGen FX strategist Kit Juckes writes in his overnight note, slams calls that the Fed’s announcement was a “hawkish hike”, and says that “while we got more detail about the Fed’s plans to run down its balance sheet, these amount to a pace so slow that they’ll still have boatloads of bonds on board when the next recession strikes. My guess is they’ll be buying again long before they finish normalising the balance sheet (whatever that really means).”
    Looking at the Fed’s disclosed projections, which anticipate the Fed to continue normalizing until 2020, or well past the point the next recession is expected, his skepticism is certainly warranted.

    This post was published at Zero Hedge on Jun 19, 2017.

  • Bi-Weekly Economic Review: Has The Fed Heard Of Amazon?

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    The economic surprises keep piling up on the negative side of the ledger as the Fed persists in tightening policy or at least pretending that they are. If a rate changes in the wilderness can the market hear it? Outside of the stock market one would be hard pressed to find evidence of the effectiveness of all the Fed’s extraordinary policies of the last decade. Even there, I’m not sure QE is actually the culprit that has pushed valuations to, once again, incredible heights. I’m also not sure exactly what the Fed is trying to accomplish and I don’t think it really does either. All evidence points to the nonsensical idea that interest rates need to be raised so the Fed will have room to cut them later. Unfortunately, that is as logical as monetary policy gets these days.
    I may not know what’s going on and Janet Yellen surely doesn’t but the bond market usually does. And unlike Yellen we here at Alhambra do pay attention to what the bond market is telling us. It isn’t a tale of full employment and imminent wage and cost push inflation. It also isn’t a tale of robust growth that needs reining in lest it get out of control and put too many people back to work. So, we are left scratching our collective heads trying to figure out what exactly is motivating Yellen & Co. to try and slow down an economy moving at the speed of a sloth.

    This post was published at Wall Street Examiner by Joseph Y. Calhoun ‘ June 18, 2017.

  • San Francisco Bay Area Sheds Jobs and Workers

    Commercial and residential real estate bubbles choke the economy. The upper bounds of hype and craziness have been reached.
    The San Francisco Bay Area has seen an astounding jobs boom since the Great Recession. The tsunami of global liquidity that washed over it after the Great Recession, central-bank QE and zero-interest-rate policies that sent investors chasing blindly after risk, a blistering no-holds-barred startup bubble with the craziest valuations, one of the greatest stock market bubbles ever – whatever caused the boom, it created one of the craziest housing bubbles ever, a restaurant scene to dream of, traffic jams to have nightmares over, and hundreds of thousands of jobs. But it’s over.
    In May, employment in San Francisco dropped to 542,600 jobs, the lowest since June 2016, according to the data released on Friday by the California Employment Development Department. The employment peak was in December 2016 at 547,200.
    The labor force in the City fell to 557,600. That’s below March 2016! This confirms a slew of other data and anecdotal evidence: People and businesses are leaving. It’s too expensive. They’re voting with their feet.

    This post was published at Wolf Street by Wolf Richter ‘ Jun 17, 2017.

  • Markets Blow off the Fed until Next ‘Financial Event’

    Fed lays out plan to unwind QE by $600 billion a year. Markets shrug. But ‘Painful sell-offs eventually materialize…’ Yellen sounded ‘surprisingly hawkish,’ the experts said after the news conference today. She saw a strong labor market and downplayed slightly softer inflation as temporary. The Fed forecast economic growth at the same miserably slow rate we’ve seen for years, with the median projections of 2.2% growth in 2017, 2.1% in 2018, 1.9% in 2019, and 1.8% in the ‘longer run.’
    So the FOMC voted eight-to-one to hike by a quarter point the target for the federal funds rate to a range between 1.0% and 1.25%. It maintained its forecast of one more hike this year. And it laid out its plan on how to unwind QE.
    The Fed is no longer speculating whether or not to start unloading its $4.5-trillion balance sheet. It has a specific plan. The nuts and bolts are in place. It was agreed to by ‘all participants,’ it said in the Addendum. And it’s going to start ‘this year.’

    This post was published at Wolf Street on Jun 14, 2017.

  • Central Banker’s Real Legacy: Pension Funds Panic ‘Reach’ For Yield

    Ben Bernanke’s creativity inspired a generation of economists and central bankers. QE, ZIRP and NIRP established a new class of economics that is mathematically sound but practically disastrous. Billions of dollars were transferred from savers to investors to boost the economy, but the wizards of quant forgot that something has to give. In this case, it was the formation of a pension crisis that threatens the golden years of millions of retirees across the world. None of the econometrics models provide a solution for the growing gap in pension funding, other than unsustainable debt accumulation.
    Creativity cascaded to the less sophisticated pension fund managers. In a desperate reach for yields they increased exposure to project finance.
    Perceived higher returns, long-term investment horizon and inflation protection made it the perfect match for pension funds. However, like their central banker peers, pension fund managers were completely mistaken. Actual risks were largely underestimated. The binary nature of cashflow risks makes conventional risk measures meaningless.
    This is best illustrated by looking at the cumulative default rates of project finance (1991-2011) in North America, which exceeded the default rate of the non-investment grade Ba bonds in the first 6 years and is more than triple that of investment grade default rates.

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

  • Quantitative Easing Explained

    [Ed. note: This article was originally posted in November of 2010 – we have decided to republish it with updated charts, as it has proved to be very useful as a reference – the mechanics of QE are less well understood than they should be, and this article explains them in detail.]
    Printing Money
    We have noticed that lately, numerous attempts have been made to explain the mechanics of quantitative easing. They range from the truly funny as in this by now ‘viral’ You Tube video with two robotic teddy-bears discussing the Fed chairman’s qualifications (‘my plumber has a beard too’), to outright obfuscation such as the propagation of this ‘Bernanke explains he’s not printing money, it’s just an asset swap’ notion. This was apparently repeated by NY Fed president William Dudley on one occasion as well.
    However, ‘quantitative easing’ does amount to printing money, even if it does not involve the issuance of currency in the form of banknotes. Probably readers have heard the term ‘high-powered money’, which is often used as a description of the monetary base. Why is base money considered ‘high powered’? To explain this we must briefly consider how the central bank-led fractionally reserved banking cartel in a fiat money system actually works.
    Let us first take a step back and consider a free market. In a free market, a highly marketable good will be chosen as money. Historically, all sorts of goods have been used as money (from salt to cowry shells), but wherever gold and silver were available, the market eventually settled on these metals. It is obvious why: there was a preexisting strong demand for them, they are highly durable, divisible, fungible and scarce. In the case of gold, its scarcity furthermore ensures a high per unit value, making it feasible for large scale transactions.

    This post was published at Acting-Man on June 9, 2017.

  • UK Election Chaos Sparks Selling Spree In Bonds & Bullion

    Because nothing says sell safe-havens like a shocking election result in the nation at the center of European Union chaos…
    Exit Polls signal May failure… sell Gold
    At least bonds initial reaction made some sense… but since then it’s been Sell the dip in yields and buy stocks… because more QE will paper over any political cracks, we’re sure…
    Some have suggested that this is due to the May colatilion implying a ‘softer’ Brexit, implying less global turmoil, implying less need for safety? We remind those ‘thinkers’, like pregnancy, there’s no half-Brexit.

    This post was published at Zero Hedge on Jun 9, 2017.

  • Mario Draghi Explains The ECB’s Dovish-Hawk Statement – Live Feed

    What Mario taketh (removed lower rate guidance), he also giveth (keeps “well past” QE language) as Citi notes The ECB came in just about exactly where the market expected it to be leaving EURUSD slightly lower. The question is now whether the ECB have something left in the locker for Draghi’s press conference? If it stays like this, Citi expects EUR to go lower.
    The ECB dropped the easing bias, and reiterated that rates are to stay at present or lower levels past QE horizon, sees QE running until end of December or beyond if needed… and EUR is leaking…

    This post was published at Zero Hedge on Jun 8, 2017.

  • ECB Preview: “Will He, Or Won’t He”, And Now To Trade The Announcement

    Will he, or won’t he?
    It was supposed to be the ECB meeting when Mario Draghi unveils the “guidance switch”, hinting if not at the (eventual) interest rate increase then at least a small step toward a QE exit. And then the Bloomberg trial balloon hit.
    As reported earlier, a Bloomberg ‘sources’ story suggested that the ECB will cut its inflation forecasts to 1.5% (from 1.7%, 1.6% and 1.7% for 2017, 2018 and 2019, respectively). If confirmed, this would be rather dovish, and may put any “switchover” plans on indefinite hold. According to SocGen, although the report cites the recent fall in energy prices behind the forecast change, this wouldn’t explain the two-tenths change for 2019, which would need to be explained by a downward revision of core inflation (which remained very optimistic at 1.8%).
    The other key elements to focus on will be the risk assessment for growth and the rate guidance. On the first one, the ECB is expected a move to a ‘broadly balanced’ risk profile. That is understandable given the recent trend in business confidence and progress in labour markets. Analysts also expect the ECB to drop the ‘or lower’ and a dropping of the word ‘well’ in ‘well past.”

    This post was published at Zero Hedge on Jun 8, 2017.

  • Debate: Will Shrinking the Fed’s Balance Sheet Crash the Markets?

    Following the 2008 financial crisis, the US Federal Reserve purchased trillions in toxic debt and US treasuries in order to restore confidence in the banking system.
    Academics referred to this multi-year process as quantitative easing or QE, but it was more commonly thought of as money printing, with many fearing that it would lead to hyperinflation, a collapse of the dollar, and skyrocketing gold prices.
    Though these worst-case scenarios failed to materialize, fears over hyperinflation have now been replaced by hyperdeflation (or, simply, a market crash) as the Fed engages in so-called ‘quantitative tightening,’ simultaneously raising rates while allowing their balance sheet to shrink back to normal, pre-crisis levels – something that may begin as early as this year.
    With the more popular bearish view getting louder in recent months and Financial Sense listeners emailing us in response, we decided to get Matthew Kerkhoff’s take on this debate since he correctly explained to our audience many years ago why QE wouldn’t lead to hyperinflation.
    Kerkhoff is a long-time contributor at Dow Theory Letters and the Chief Investment Strategist at Model Investing. Here’s what he had to say…

    This post was published at FinancialSense on 06/05/2017.

  • All You Need To Know How To Trade This “Market” In Five Words

    Remember when buoyed by the ever present specter of QE, stocks would levitate no matter what happened, because “good news was good, but bad news was better”? Well, according to BofA, we are right back where we started.
    From BofA:
    All news is good news. May’s jobs report – with lower than expected headline jobs growth of 147K, negative revisions of -66K and downward revisions to wages – represents another piece in a string of disappointing hard economic data. Impressively, even though stocks initially struggled eventually they turned around and closed up 0.37% on the day. Clearly, equities continue to respond well to both positive and negative economic data, as the latter leads to a more dovish monetary policy stance.

    This post was published at Zero Hedge on Jun 5, 2017.

  • Gold Miners in 2017 Whipsaw

    Ever since 2012’s failure of the ‘QE 3 rally’ in the precious metals it has not been fruitful to micro manage the gold sector, because that failure jump started a savage bear market that would need time to work out the excesses both in the sector’s investor base and in its mining businesses, which had become bloated and inefficient. That’s what bear markets do; they clean out the landscape to make it inhabitable for new investors one day. Here is a weekly chart showing the bear’s kickoff. HUI’s 55 week EMA then became the ball and chain that kept its fate sealed (red arrows) until January of 2016.

    This post was published at GoldSeek on 4 June 2017.

  • Is Bitcoin Standing In For Gold?

    In a series of articles posted on http://www.paulcraigroberts.org, we have proven to our satisfaction that the prices of gold and silver are manipulated by the bullion banks acting as agents for the Federal Reserve.
    The bullion prices are manipulated down in order to protect the value of the US dollar from the extraordinary increase in supply resulting from the Federal Reserve’s quantitative easing (QE) and low interest rate policies.
    The Federal Reserve is able to protect the dollar’s exchange value vis-a-via the other reserve currencies – yen, euro, and UK pound – by having those central banks also create money in profusion with QE policies of their own.
    The impact of fiat money creation on bullion, however, must be controlled by price suppression. It is possible to suppress the prices of gold and silver, because bullion prices are established not in physical markets but in futures markets in which short-selling does not have to be covered and in which contracts are settled in cash, not in bullion.
    Since gold and silver shorts can be naked, future contracts in gold and silver can be printed in profusion, just as the Federal Reserve prints fiat currency in profusion, and dumped into the futures market. In other words, as the bullion futures market is a paper market, it is possible to create enormous quantities of paper gold that can suddenly be dumped in order to drive down prices. Everytime gold starts to move up, enormous quantities of future contracts are suddenly dumped, and the gold price is driven down. The same for silver.

    This post was published at Investment Research Dynamics on May 31, 2017.

  • Citi: “We Have Only Seen This Market Anomaly Twice Before: In 1999 And 2006”

    With one bank after another – including Goldman, JPM and BofA – quietly urging investors in recent weeks to head for the exits in a time when the Fed is not only hiking rates but warning about “vulnerabilities from elevated asset positions“, over the weekend the latest bank to join the bearish chorus was Citi, and specifically Jeremy Hale’s cross-asset team, which in a moment of surprising honesty writes that “eight years into the cycle – and one where QE has been the asset market driver – virtually every market appears rich“, including stocks, bonds and credit.
    According to Hale, this pervasive lack of value “presents the biggest challenge in setting medium term asset allocation tilts” and reminds his readers that as a result he has adopted a fairly defensive approach to the reflation trade, by going overweight cash.
    More important still is his observation that at this juncture, even Citi’s own internal projections have become contradictory, and notes that “views and the input forecasts from our asset class specialist colleagues have started to diverge somewhat. Note how EA credit spreads are seen to widen whilst EA equity returns are still strongly positive in our forecast horizon.” This is important because as the Citi analyst writes, “with our credit colleagues worried about ECB taper at rich valuations and equity strategists focused on earnings, such a divergence may well happen, but historically is somewhat of an anomaly.”

    This post was published at Zero Hedge on May 28, 2017.

  • Markets Face A Brutal “Margin Call” If Trump Loses Any More Credibility, Deutsche Warns

    It took the Fed several long years to discover just how reflexive and circular the relationship it had established with the stock market had become. The Fed’s Catch-22 was first observed back in September 2013, when as the Fed was still debating whether to taper or not caught in a vicious cycle where any hint it would ultimately end QE would be met with a prompt selloff, Deutsche Bank explained how it had found itself in such a reflexive mess:

    This post was published at Zero Hedge on May 21, 2017.

  • Stocks and Precious Metals Charts – Between the Crosses, Row By Row

    “One of the common failings among honorable people is a failure to appreciate how thoroughly dishonorable some other people can be, and how dangerous it is to trust them.”
    Thomas Sowell
    Today was an option expiration, and we had an additional pop in stocks in order to complete the routing of the bears who piled on to the ‘Trump dump.’
    The putative reason for today’s rally was a statement by the Fed’s Bullard about the role that additional QE may play. I am not sure if this was ‘real’ or just another reasons to wash and rinse the public.
    Next week will be the June option expiration for precious metals on the Comex.
    Stocks are at a bit of a crossroads here. The SP 500 futures and big cap tech in the NDX, for example, have retraced approximately fifty percent of the recent drop, and are both at the midpoint of their respective bull trend channels.

    This post was published at Jesses Crossroads Cafe on 19 MAY 2017.

  • ECB Tapering May Trigger ‘Disorderly Restructuring’ of Italian Debt, Return to National Currency

    The only other option: ‘Orderly restructuring.’ Here’s the staggering scale of the Italian government’s dependence on the ECB’s bond purchases, according to a new report by Astellon Capital: Since 2008, 88% of government debt net issuance has been acquired by the ECB and Italian Banks. At current government debt net issuance rates and announced QE levels, the ECB will have been responsible for financing 100% of Italy’s deficits from 2014 to 2019.
    But now there’s a snag.
    Last month, the size of the balance sheet of the ECB surpassed that of any other central bank: At 4.17 trillion, the ECB’s assets have soared to 38.8% of Eurozone GDP. The ECB has already reduced the rate of purchases to 60 billion a month. And it plans to further withdraw from the super-expansionary monetary policy. To do this, according to Der Spiegel, it wants to spread more optimistic messages about the economic situation and gradually reduce borrowing.
    Frantically sowing the seeds of optimism on Wednesday was Bruegel’s Francesco Papadia, formerly director general for market operations at the ECB. ‘On the economic front, things are moving in the right direction,’ he told Bloomberg. The ECB will begin sending clear messages in the Fall that it will soon begin tapering QE, Papadia forecast. By the halfway point of 2018 the ECB would have completed tapering and it would then use the second half of the year to move away from negative interest rates.

    This post was published at Wolf Street on May 18, 2017.

  • A Bad Recipe: Failing Growth Amidst Sustained Global QE, Debt & Bubble Valuations

    Economic growth came in at a tepid 0.7% in the first quarter of 2017. Nevertheless, officials at the Federal Reserve continue to insist the economy is strong. They held interest rates steady in April, but insisted hikes were still on the table. In fact, the Atlanta Fed forecast Q2 growth to come in at over 4%.
    Peter Schiff called the Atlanta Fed’s prediction ‘crazy,’ nothing that they are starting out with a much higher estimate for Q2 than they had in Q1, despite having all of this information about how weak the economy was in Q1 that they didn’t have a few months ago.
    And that’s the crux of the matter. The actual economic data doesn’t support the economic optimism, nor the Fed’s monetary policy. In this in-depth analysis of the current economic and policy climate, Dan Kruz makes a strong case against the policymakers’ optimism.
    Introduction (‘It’s the economy, stupid!’)
    US real GDP growth for Q1:17 was 0.7% with downward revisions likely given increasing weakness throughout the first quarter in retail sales and in auto sales. Yet the Fed remains upbeat on growth while it maintains that further increases in the Fed Funds rate are all but a given. The fly in the ointment: the faltering US economy, which will increasingly stress banking system solvency; money center bank solvency is the privately-owned Fed’s true mandate. In the meantime, the rest of the world keeps ‘printing.’ How long until the Fed rejoins the overt QE party? Is the Fed raising the Fed Funds rate to a miniscule level so that it can offer a few rate decreases prior to revisiting its ZIRP?

    This post was published at Schiffgold on MAY 17, 2017.