• Tag Archives Quantitative Easing
  • Lord Rothschild: “Share Prices Are At Unprecedented Levels, This Is Not A Time To Add Risk”

    Gross: Global yields lowest in 500 years of recorded history. $10 trillion of neg. rate bonds. This is a supernova that will explode one day
    — Janus Henderson U. S. (@JHIAdvisorsUS) June 9, 2016

    One year ago, the financial world was abuzz when the bond manager of what was once the world’s biggest bond fund had a dire prediction about how “all of this” will end (spoiler: not well).
    ***
    Two months later, it was the turn of another financial icon – if from a vastly different legacy and pedigree – that of Rothschild Investment Trust Chairman himself, Lord Jacob Rothschild, who echoed Bill Gross with an unexpectedly gloomy warning in his 2016 half-year financial report, saying that central bankers are continuing “what is surely the greatest experiment in monetary policy in the history of the world. We are therefore in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30% of global government debt at negative yields, combined with quantitative easing on a massive scale.”

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


  • People’s QE? It’s Venezuela with Tea and Cakes

    It is sad to see that, facing the evidence of the failure of demand-side policies and money printing, many commentators propose some of the most outdated and failed policies in modern economic history. In the UK, Mr. Jeremy Corbyn, the new leader of the Labour Party, believes that the government spends too little. With a current 44.4% of GDP public spending, saying the government spends ‘too little’ is an insult to taxpayers and efficient public bodies alike.
    But Mr. Corbyn wants to penalize the private sector creating the largest transfer of wealth from savers and taxpayers to government ever designed. The Peoples QE (quantitative easing).
    In Europe, we are already used to the follies of magic solutions from populist parties. Syriza, Podemos, and others always come up with ‘magic’ and allegedly ‘simple’ ideas to solve large and complex economic issues, and always fail when reality kicks in, but there are few that match the monumental nonsense of the wrongly-called ‘Peoples QE’. It is the ‘Governments QE’, rather.
    Why Is this People’s QE a Bad Idea? The analysis starts from the right premise. Quantitative Easing, as we know it, does not work, and creates massive imbalances. So what do they propose? Sound money? Erasing perverse incentives of printing money and unjustifiably low rates? No. Doing exactly the same, but passing the massive perverse incentive of currency debasement to politicians who, as we all know, have no perverse incentive whatsoever to overspend (note the irony).

    This post was published at Ludwig von Mises Institute on August 18, 2017.


  • BREAKING AWAY FROM THE WEST: Gold Investment In Germany & The U.K. Surged

    While gold demand in the West continues to languish, something has recently motivated renewed interest in the yellow precious metal in Germany and the United Kingdom. Now, when I say ‘renewed interest’, I am referring to a surge in gold investment by Germans and British that we haven’t seen for quite some time.
    This big increase in gold investment in Germany and the U. K. over the past year and a half is not from the diehard physical bar and coin investors, rather it is from a source that is even more interesting… it’s coming from investors in the retail Gold ETF Market. You see, this is a much different segment of the population who move into the Gold ETF Market versus the 1% that buy physical bar and coins. When there is a surge of Gold ETF buying, it means the institutional or regular mainstream investor is worried about the overall market.
    And why shouldn’t Europeans be worried as the ECB – European Central Bank’s President, Mario Draghi, stated in June that they would continue its bond buying program (QE – Quantitative Easing) until 2019, even though they believe that the ‘regions growth’ looks broadly balanced. This is like a doctor telling his patient, ‘we are going to continue with broad-based Chemo-Therapy’, even though your cancer has gone into remission.

    This post was published at SRSrocco Report on August 12, 2017.


  • Our European Tour

    Our European Tour this season has been very enlightening including meetings with politicians, corporations and many of the top banks. The concern centers around the ECB having to change policy with regard to negative interest rates. The net result has been to create massive hoarding of cash rather than spending cash for the sake of just spending. The banks were hopeful that a rise in rates will bring the money pouring back in for deposits. The real concern has been that the authorities are hard on the big banks while ignoring the small banks. This is true even in Germany, for the lending on real estate in Europe has been extensive and the credit has been questionable although the lending limit on property is running about 80%. However, the income requirement is not stringent and if rates begin to rise, the fear is there may be set in motion a real estate crisis in Europe similar to the S&L Crisis in the States.
    Clearly, the big concerns have been that all the economic theories are turning to dust. Nearly 10 years of quantitative easing has utterly failed to reverse course and the banks are most vulnerable in Southern Europe namely in Greece, Italy, and Spain. The understanding of inflation has collapsed as has the quantity of money theory and the notion that when interest rates rose, the stock market should have dropped. All of these theories still taught in school have crumbled to dust in the real world and people are more and more reaching out for help and explanations other than opinion. Where’s the research? They say.

    This post was published at Armstrong Economics on Jul 31, 2017.


  • The Hedge Fund That Almost Broke The World

    Before the financial crisis and the billions of dollars in corporate bailouts, and trillions more in central bank quantitative easing, the world of investing was simpler.
    Back then, markets moved in two directions, traders trusted their models, and hedge funds stacked with PhDs and top executives from well-respected bond trading houses were expected to make money hand over fist. And for three glorious years in the mid-1990s, Long Term Capital Management did exactly that. But when the fund suddenly imploded in 1998, stung by economic crises in Russia and Asia that caused it to lose $4 billion in a bizarre six-week stretch…
    ***
    … it almost brought the entire financial system down with it.
    In a recent interview on Real Vision’s Adventures in Finance podcast, former LTCM Founding Partner Victor Haghani, who was at the epicenter of the firm’s meteoric rise and catastrophic collapse, discusses the birth of the fund, its flawed investment strategy and the impact its collapse had on the broader financial landscape.

    This post was published at Zero Hedge on Jul 29, 2017.


  • Happiness Is a Normal Yield Curve

    ‘I never liked quantitative easing. Flattening the yield curve is not stimulative; flattening the yield curve is anti-stimulative.’
    – Ken Fisher
    ‘There is a limit to how much the United States Treasury can borrow.’
    – Alan Greenspan
    ‘In other words, we have the models we have because of inertia and theology, but also because all we can do is all we can do.’
    – Kit Webster
    ‘[T]he specific manner by which prices collapsed is not the most important problem: A crash occurs because the market has entered an unstable phase, and any small disturbance or process may have triggered the instability. Think of a ruler held up vertically on your finger: This very unstable position will lead eventually to its collapse, as a result of a small (or an absence of adequate) motion of your hand or due to any tiny whiff of air. The collapse is fundamentally due to the unstable position; the instantaneous cause of the collapse is secondary.’
    – Didier Sornette, French geophysicist

    This post was published at Mauldin Economics on July 29, 2017.


  • Fed QT Bearish for Stocks

    Ominously for the stock markets, the Federal Reserve is warning that quantitative tightening is coming later this year. The Fed is on the verge of starting to drain its vast seas of new money conjured out of thin air over the past decade or so. The looming end of this radically-unprecedented easy-money era is exceedingly bearish for these lofty stock markets, which have been grossly inflated for years by Fed QE.
    Way back in December 2008, the first US stock panic in an entire century left the Fed frantic. Fearful of an extreme negative wealth effect spawning another depression, the Fed quickly forced its benchmark federal-funds rate to zero. Once that zero-interest-rate policy had been implemented, no more rate cuts were practical. ZIRP is terribly disruptive economically, fueling huge distortions. But negative rates are far worse.
    So instead of turning ZIRP to NIRP like the European Central Bank in June 2014 and the Bank of Japan in January 2016, the Fed chose a different unconventional-monetary-policy path. Just before it went full ZIRP in late 2008, it had started quantitative easing. Despite this fancy name, QE is nothing more than old-fashioned central-bank money printing. The Fed spun up its printing presses at wildly-unprecedented rates.

    This post was published at ZEAL LLC on July 28, 2017.


  • BoJ Keeps Rates Unchanged, Postpones 2% Inflation Deadline

    The Bank of Japan kept its monetary stimulus program unchanged even as it pushed back the projected timing for reaching 2 percent inflation for a sixth time.
    The downgraded price outlook will raise more questions about the sustainability of the BOJ’s stimulus at time when other major central banks are turning toward normalizing their monetary policy. The European Central Bank, which is said to examine options for winding down quantitative easing, concludes its own governing council meeting later on Thursday.
    By again delaying the timing for hitting its price goal, the BOJ acknowledged the need to continue easing for at least several more years, probably beyond 2020 because of a sales-tax increase scheduled for late 2019, said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG and a former BOJ official.
    “Going forward, there will be even more attention on the sustainability of the stimulus from market participants and lawmakers,” Shirawaka said.
    BOJ Governor Haruhiko Kuroda said it was regrettable the central bank needed to push back its inflation goal again, saying it hadn’t intentionally made its forecasts too optimistic. He noted that central banks in the U.S. and Europe had also overestimated inflation.

    This post was published at bloomberg


  • 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


  • 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.


  • BIll Gross: Beware The “Unknown Consequences Lurking In The Shadows”

    Starting off with two macabre examples of extreme behavior – one man who can’t stop eating and another one who can’t start – in his latest monthly letter Bill Gross says that “monetary policy in the post-Lehman era” has become the modern equivalent of gluttony: “they can’t seem to stop buying bonds, although as compulsive eaters and drinkers frequently promise, sobriety is just around the corner.”
    Pointing out a number we discussed just yesterday, Gross notes that “to date, since the start of global Quantitative Easing, over $15 trillion of sovereign debt and equities now overstuff central bank balance sheets in a desperate effort to keep global economies afloat.” What Gross is referring to, of course, is the chart we showed just yesterday in “The Most Dangerous Moment”: Why Every Bank Is Suddenly Talking About Q3 2018”

    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.


  • We’re Partying Like It’s 1928; Are We Heading for a Crash?

    We’re partying like it’s 1928.
    Of course, that was the year before the Black Tuesday stock market crash and the beginning of the Great Depression. During a recent interview on CNBC’s Power Lunch, Morgan Creek Capital CEO Mark Yusko said he sees a lot of parallels between today and 1928-1929.
    I have this belief that we’re flowing toward the path of 1928-29 when Hoover was president. Now Trump is president. Both were presidents with no experience who come in with a Congress that is all Republican, lots of big promises, lots of things that don’t happen and the fall is when people realize, ‘Wait, it hasn’t played out the way we thought.’’
    During her recent testimony before Congress, Fed Chair Janet Yellen continued to talk up the ‘strong’ US economy. Last month, she said banks are ‘very much stronger’ and another financial crisis is unlikely anytime soon. Stocks continue to climb. Analysts seem positively giddy about the employment numbers.
    It’s a veritable party.
    But as Yusko pointed out, there are some sketchy things going on in the other room. He says that too much stimulus and quantitative easing have resulted in a ‘huge’ bubble in US stocks.

    This post was published at Schiffgold on JULY 14, 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.


  • 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


  • The Bankers’ Endgame and the Rise of Gold and Silver

    We’re going to owe Chicken Little an apology
    In May 2007, in Subprime America Infects Asia and Europe I predicted a severe financial crisis was imminent: the risks that have lain dormant beneath globalization’s foundation are about to erupt and a reordering of the world’s financial geography is about to ensue. It’s spring 2007 and the sun is shining in the US, backyard BBQs are being cleaned in anticipation of summer’s use. A severe financial crisis, however, is in the offing; a crisis as unexpected as the Golden State Warrior’s last minute steak to the NBA playoffs.
    An unexpected financial crisis, however, will be much more consequential than Don Nelson’s magical resurrection of the Warrior’s NBA hopes. There, at least, the Warriors will have a chance. But because most people don’t know a financial crisis is coming, they will have little chance of survival. This summer, America’s subprime CDOs are coming home to roost, and not just to the US.
    In July 2007, two multi-billion dollar subprime hedge funds collapsed. One year later, the greatest financial crisis since the 1930s bankrupted Wall Street banks; real estate fell 40 – 70%; and central banks flooded markets with zero-cost credit and trillions of dollars in quantitative easing to keep stocks from crashing, setting in motion a still-inflating stock market bubble to replace the collapsed 2002-2007 real estate bubble that revived markets after the 2000 dot.com crash.
    After the 2008 crisis, unprecedented central bank efforts to prevent the bankers’ endgame temporarily delayed its inevitable resolution. Today, however, the banker’s edifice of debt has reached such levels that systemic dangers, e.g. speculative bubbles, low inflation, low growth, etc. increasingly threaten global markets. The bankers’ endgame is accelerating.

    This post was published at GoldSeek on 10 July 2017.


  • Why Quantitative Tightening Will Fail

    This is a syndicated repost courtesy of The Daily Reckoning. To view original, click here. Reposted with permission.
    After nine years of unconventional quantitative easing (QE) policy the Federal Reserve is now setting out on a new path for quantitative tightening (QT).
    QE was a policy of money printing. The Fed did this by buying bonds from the big banks. The banks would then deliver bonds to the Fed, and the Fed would in turn pay them with money from thin air. QT takes a different approach.
    Instead, the Fed will set out policy that allows the old bonds to mature, while not buy new ones from the banks. That way the money will shrink the balance sheets ahead of any potential crisis.
    For years leaders at the Federal Reserve have been rolling over the balance sheet to keep it at $4.5 trillion.

    This post was published at Wall Street Examiner by James Rickards ‘ June 30, 2017.


  • When “Whatever It Takes” Ends

    Via Global Macro Monitor,
    On Tuesday, June 27th, Super Mario said this,
    ‘Deflationary forces have been replaced by reflationary ones.’ – Mario Draghi
    And here is how global 10-year bond yields reacted,
    The German 10-year Bund yield increased 77 percent – OK, from a low base – and bonds across the world from Canada to Australia to the United States were tattooed.
    Change In Fundamentals?
    Absolutely not!
    Bond yields haven’t been trading on economic fundamentals for several years due to central bank financial represssion via quantitative easing (QE), ZIRP and NIRP. We have been pounding the table on this point,
    Lot’s of hand wringing these days about the flattening yield curve. We still maintain our position that the signal from the bond market is significantly distorted due to the global central bank intervention (QE) into the bond markets. See here and here.
    Most of what is happening with the U. S. yield curve is technical. – Global Macro Monitor, June 22, 2017

    This post was published at Zero Hedge on Jun 30, 2017.