• Tag Archives Quantitative Easing
  • $1 Trillion In Liquidity Is Leaving: “This Will Be The Market’s First Crash-Test In 10 Years”

    In his latest presentation, Francesco Filia of Fasanara Capital discusses how years of monumental liquidity injections by major Central Banks ($15 trillion since 2009) successfully avoided a circuit break after the Global Financial Crisis, but failed to deliver on the core promise of economic growth through the ‘wealth effect’, which instead became an ‘inequality effect’, exacerbating populism and representing a constant threat to the status quo.
    Fasanara discusses how elusive, over-fitting economic narratives are used ex-post to legitimize the “fake markets” – as defined previously by the hedge fund – induced by artificial flows. Meanwhile, as an unintended consequence, such money flows produced a dangerous market structure, dominated by both passive-aggressive investment vehicles and a high-beta long-only momentum community ($8 trn and rising rapidly), oftentimes under the commercial disguise of brands such as behavioral Alternative Risk Premia, factor investing, risk parity funds, low vol / short vol vehicles, trend-chasing algos, machine learning.
    However as Filia, and many others before him, writes, only when the tide goes out, will we discover who has been swimming naked, and how big of a momentum/crowding trap was built up in the process. The undoing of loose monetary policies (NIRP, ZIRP), and the transitioning from ‘Peak Quantitative Easing’ to Quantitative Tightening, will create a liquidity withdrawal of over $1 trillion in 2018 alone. The reaction of the passive community will determine the speed of the adjustment in the pricing for both safe and risk assets.

    This post was published at Zero Hedge on Oct 18, 2017.


  • New York, New York! New Foreclosures in NYC Up 79% in Q3 2017

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    Both New York City and Washington DC have been the slowest growing cities in terms of home prices of the Case-Shiller 20 metro index. In fact, New York City home prices are only back to where they were when The Fed started their quantitative easing (QE) program and crammed their target rate down to 0.25% in 2008.

    This post was published at Wall Street Examiner by Anthony B Sanders ‘ October 10, 2017.


  • Can We Blame the New iPhone’s Mediocrity on Inflation?

    Apple held its 10th anniversary iPhone press event on 9/12. As expected, the tech giant released new iterations of their decade-old smartphone as well as the new iPhone X. Whereas the media has focused on innovation and technology, the event also tells another story: how the company uses the perception of innovation as a strategy for dealing with inflation.
    Yes, inflation. This is despite the fact the consumer tech market generally – and accurately – is characterized as deflationary: new generations of improved and innovative devices are released at a rapid pace and sold at unchanging or even falling prices. In other words, we get better and cheaper computers and other tech gadgets. But even though price deflation accurately describes this industry, it is not unaffected by inflationary pressures on prices due to the Fed’s quantitative easing.
    Consequently, Apple needed to find a way to jack up prices for their devices to maintain profitability. But with the consumer tech market being extremely competitive, even a market leader cannot simply raise prices without potentially losing market share. Being Apple, they find a solution in marketing.
    The Marketing The iPhone set a standard ten years ago both in terms of the look-and-feel of the smartphone and the pricing. Throughout the past decade, the dollar price of premium smartphones, including the annually updated iPhone, has remained basically the same. With only very few exceptions, premium smartphones sell at a standard $700-800.

    This post was published at Ludwig von Mises Institute on Oct 10, 2017.


  • Understanding The Results of Financialization – Part II – “Mationalization”

    WHY A NEW FORM OF ‘NATIONALIZATION’ WILL OCCUR
    The extended period of Quantitative Easing (QE) and ZIRP have now left the major global central bankers in an untenable position because of the Era of Unlimited Leverage which it has fostered. According to the Bank for International Settlements, central banks’ combined asset holdings in the major advanced economies (the US, the eurozone, and Japan) expanded by $8.3 trillion over the past nine years, from $4.6 trillion in 2008 to $12.9 trillion in early 2017. Yet this massive balance-sheet expansion has had little to show for it. Over the same nine-year period, nominal GDP in these economies increased by only $2.1 trillion.

    This post was published at GoldSeek on Sunday, 8 October 2017.


  • Who Will Be the Next Fed Chair? The 3 Most Likely Candidates

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    Ladies and gentlemen, place your bets. U. S. President Donald Trump announced last week he will name the next Federal Reserve Chair in the next two or three weeks.
    And there are three leading candidates for the job, who we’ll detail for you in just a minute…
    Since the financial crisis in 2008, the Fed has exercised enormous power over the economy through interest rates and the supply of money available for the economy. Market pundits were left scrambling for legitimacy as ZIRP (zero interest rate policy) and QE (quantitative easing) stomped out the efficacy of traditional forms of investment analysis.

    This post was published at Wall Street Examiner by Money Morning Staff Reports ‘ October 4, 2017.


  • Stock Investors Should Brace for the Fed’s October Tightening Gambit

    September’s Federal Reserve meeting left interest rates unchanged but sounded a hawkish tone. The Fed seems intent on hiking interest rates again come December.
    Following Fed chair Janet Yellen’s remarks this Tuesday, interest rate futures markets bumped up the odds of a year-end rate hike to 81%.
    The more immediate – and perhaps more important – policy move pending from the central bank is its plan to gradually reverse its Quantitative Easing bond buying program starting in October.
    Yellen calls it ‘balance sheet normalization.’ She is right in acknowledging that there’s nothing normal about the $4.5 trillion balance sheet the nation’s currency custodian has built up following the financial crisis of 2008.
    Whether the Fed’s bond portfolio ever will get ‘normalized’ to pre-crisis levels will depend on how markets react to the Fed’s attempt at Quantitative Tightening beginning next month.
    The Fed technically won’t sell bond holdings into the market. Instead it will let bonds mature without rolling them over. The effect on the market will be as if a regular, reliable, very big customer stopped buying.
    Initially, the Fed will allow $10 billion in Treasuries and mortgage-backed securities to mature off its balance sheet per month. Over the next year, the pace of ‘normalization’ will accelerate. It is slated to eventually reach $50 billion per month.

    This post was published at GoldSeek on 29 September 2017.


  • Global Equities Mostly Up On Ideas Of Better World Economic Growth

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    (Kitco News) – World stock markets were mostly firmer overnight, on hopes that a U. S. corporate tax-reform plan will boost economic growth not only in the U. S. but around the globe. U. S. stock indexes are pointed toward slightly lower openings when the New York day session begins.
    Gold prices are slightly lower and hit a six-week low overnight. Better risk appetite in the marketplace this week, as well as a rallying U. S. dollar index, are bearish for the safe-haven metal.
    World bond market yields are on the rise this week, on ideas that better world economic growth will prompt the major central banks to become less accommodative on their monetary policies. Odds are rising (now about 75%) that the Federal Reserve will raise U. S. interest rates in December.
    In overnight news, the Euro zone economic sentiment indicator rose to 113.0 in September from 111.9 in August. The September reading was the highest in over 10 years. This report falls into the camp of the Euro zone monetary policy hawks. European Central Bank President Mario Draghi said Thursday the ECB will decide later this year specifically when to start winding down its quantitative easing of monetary policy (bond buying).

    This post was published at Wall Street Examiner by Jim Wyckoff ‘ September 28, 2017.


  • Week in Review: September 23, 2017

    Almost a decade later, the Federal Reserve this week announced it will begin reversing quantitative easing. Slowly. Very slowly. The balance sheet currently stands at $4.5 trillion and they will begin allowing $10 billion in assets to roll off their sheets next month. Given the unprecedented nature of QE, even this modest reduction has many market observers on edge. Of course, the fallout from the Fed’s actions are still being felt, while the Trump Treasury is making threats that it would have disastrous consequences if acted on.

    This post was published at Ludwig von Mises Institute on September 23, 2017.


  • The forthcoming global crisis

    The global economy is now in an expansionary phase, with bank credit being increasingly available for non-financial borrowers. This is always the prelude to the crisis phase of the credit cycle. Most national economies are directly boosted by China, the important exception being America. This is confirmed by dollar weakness, which is expected to continue. The likely trigger for the crisis will be from the Eurozone, where the shift in monetary policy and the collapse in bond prices will be greatest. Importantly, we can put a tentative date on the crisis phase in the middle to second half of 2018, or early 2019 at the latest.
    Introduction
    Ever since the last credit crisis in 2007/8, the next crisis has been anticipated by investors. First, it was the inflationary consequences of zero interest rates and quantitative easing, morphing into negative rates in the Eurozone and Japan. Extreme monetary policies surely indicated an economic and financial crisis was just waiting to happen. Then the Eurozone started a series of crises, the first of several Greek ones, the Cyprus bail-in, then Spain, Portugal and Italy. Any of these could have collapsed the world’s financial order.

    This post was published at GoldMoney on September 21, 2017.


  • Fed QT Stocks, Gold Impact

    This week’s landmark Federal Open Market Committee decision to launch quantitative tightening is one of the most-important and most-consequential actions in the Federal Reserve’s entire 104-year history. QT changes everything for world financial markets levitated by years of quantitative easing. The advent of the QT era has enormous implications for stock markets and gold that all investors need to understand.
    This week’s FOMC decision to birth QT in early October certainly wasn’t a surprise. To the Fed’s credit, this unprecedented paradigm shift had been well-telegraphed. Back at its mid-June meeting, the FOMC warned ‘The Committee currently expects to begin implementing a balance sheet normalization program this year’. Its usual FOMC statement was accompanied by an addendum explaining how QT would likely unfold.
    That mid-June trial balloon didn’t tank stock markets, so this week the FOMC decided to implement it with no changes. The FOMC’s new statement from Wednesday declared, ‘In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.’ And thus the long-feared QT era is now upon us.
    The Fed is well aware of how extraordinarily risky quantitative tightening is for QE-inflated stock markets, so it is starting slow. QT is necessary to unwind the vast quantities of bonds purchased since late 2008 via QE. Back in October 2008, the US stock markets experienced their first panic in 101 years. Ironically it was that earlier 1907 panic that led to the Federal Reserve’s creation in 1913 to help prevent future panics.
    Technically a stock panic is a 20%+ stock-market plunge within two weeks. The flagship S&P 500 stock index plummeted 25.9% in just 10 trading days leading into early October 2008, which was certainly a panic-grade plunge! The extreme fear generated by that rare anomaly led the Fed itself to panic, fearing a new depression driven by the wealth effect. When stocks plummet, people get scared and slash their spending.

    This post was published at ZEAL LLC on September 22, 2017.


  • Questions Remain as the Fed Finally Begins to Reverse QE

    Today the Federal Reserve announced that it will finally begin the process of reversing quantitative easing. Following the process it outlined earlier this year, the Fed will start allowing assets (Treasurys and mortgage-backed securities) to mature off its balance sheet, rather than re-investing them as had been its prior policy. The current plan is to start with a $10 billion roll off in October, and increasing quarterly until it reaches $50 billion by October of next year. Considering the Fed’s balance sheet currently stands $4.5 trillion, the Fed is envisioning a slow, multi-year process. As Philadelphia Fed president Patrick Harker described it earlier this year, the goal is for it to be ‘the policy equivalent of watching paint dry.’
    Of course the old saying about the ‘best laid plans of mice and men’ also applies to central planners, and as Janet Yellen once again noted today, ‘policy is not on a pre-set course.’ Should markets react negatively, as they did when Bernanke hinted at reducing their purchases in 2013, the markets have reason to expect the Fed to act. In fact, when asked, Yellen kept the door open to both lowering interest rates and stalling its roll off should market conditions worsen. In fact, it appears that markets are already betting on the Fed to not follow through on its projected December rate hike.
    As the Fed has been signaling for months now that a taper was in the works, the mainstream narrative suggests that tapering has been priced in (though stocks dropped on the news.) There are still major questions left unanswered.

    This post was published at Ludwig von Mises Institute on September 21, 2017.


  • Federal Reserve Will Continue Cutting Economic Life Support

    I remember back in mid-2013 when the Federal Reserve fielded the notion of a “taper” of quantitative easing measures. More specifically, I remember the response of mainstream economic analysts as well as the alternative economic community. I argued fervently in multiple articles that the Fed would indeed follow through with the taper, and that it made perfect sense for them to do so given that the mission of the central bank is not to protect the U. S. financial system, but to sabotage it carefully and deliberately. The general consensus was that a taper of QE was impossible and that the Fed would “never dare.” Not long after, the Fed launched its taper program.
    Two years later, in 2015, I argued once again that the Fed would begin raising interest rates even though multiple mainstream and alternative sources believed that this was also impossible. Without low interest rates, stock buybacks would slowly but surely die out, and the last pillar holding together equities and the general economy (besides blind faith) would be removed. The idea that the Fed would knowingly take such an action seemed to be against their “best self interest;” and yet, not long after, they initiated the beginning of the end for artificially low interest rates.
    The process that the Federal Reserve has undertaken has been a long and arduous one cloaked in disinformation. It is a process of dismantlement. Through unprecedented stimulus measures, the central bank has conjured perhaps the largest stock and bond bubbles in history, not to mention a bubble to end all bubbles in the U. S. dollar.

    This post was published at Alt-Market on Wednesday, 20 September 2017.


  • EURUSD Dumps’n’Pumps After ECB QE Decision Delay, Inflation Cut Leaks Reported

    Last week Reuters provided the outlet for leaked comments from The ECB (regarding QE) that sparked chaos in EURUSD. This week it is Bloomber who reports sources suggesting The ECB will cut inflation outlooks (pouring cold water on Draghi’s “reflationary forces” hoopla) and seemingly confirming The ECB will kick the can on the decision to taper QE into 2018.
    As Bloomberg reports, ECB Governing Council has been presented with documents outlining multiple scenarios for adjusting quantitative easing, according to euro-area officials familiar with the matter.
    Papers were put together by the ECB’s technical committees for the two-day meeting that starts Wednesday, and include different combinations for the size and duration of asset purchases, the people say

    This post was published at Zero Hedge on Sep 6, 2017.


  • ECB – Draghi & Tapering

    The European Central Bank (ECB) is expected to begin reducing its bond purchases gradually tampering its stimulation program of Quantitative Easing (QE). Nevertheless, reliable sources tell of the ECB being extremely cautious fearing what will happen if buyers do not appear and rates begin to rise sharply. The difference between the ECB and the Fed is stark. The ECB owns 40% of Eurozone government debt. The Fed does not even come close.
    Obviously, the European financial markets have become addicted to the unprecedented inflow of cheap money even though there has been no appreciable rise in economic growth or inflation as was expected. This raises the question only asked behind the curtain: Will the economy spiral downward if QE ends? The Fed never reached the levels of ECB’s QE program so there is no comparison with the States.

    This post was published at Armstrong Economics on Sep 4, 2017.


  • Warren Buffett Reveals His Biggest Fear

    Bloomberg’s David Westin spoke with Berkshire Hathaway Chairman Warren Buffett on his 87th birthday before his charity auction lunch at Smith & Wollensky’s in New York.
    Among the topics discussed was the Fed’s upcoming balance sheet normalization: Buffett told Westin that the Federal Reserve will be ‘very careful’ with how they handle quantitative easing as the Fed may have to find buyers for “trillions” in assets. Predictably, Buffett argued in support of QE which added tens of billions to his net worth: ‘[QE] did wonders for us coming out of 2008. Without it we would have gone back to the economics of 100 years ago. If the Fed had not been there to ease, we would have had a far different recovery. I think the Fed has overwhelmingly done the right thing. Now, we’ve never gone through a period like this and how it will all work out, we will find out. I think they will be intelligent about it but they’ve never played this game yet either.’

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


  • How Much Is Too Much?

    The amount of monetary stimulus increasingly imposed on the financial system creates false signals about the economy’s true growth rate, causing a vast misallocation of capital, impaired productivity and weakened economic activity.
    To help quantify the amount of stimulus, please consider the graph below.
    ***
    Federal Reserve (Fed) stimulus comes in two forms as shown above.
    First in the form of targeting the Fed Funds interest rate at a rate below the nominal rate of economic growth (blue).
    Second, it stems from the large scale asset purchases (Quantitative Easing -QE) by the Fed (orange).
    When these two metrics are quantified, it yields an estimate of the average amount of stimulus (red) applied during each post-recession period since 1980.

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


  • ROTHSCHILD JUST DUMPED MASSIVE AMOUNTS OF US ASSETS, SENDING AN OMINOUS SIGNAL

    In what is a sure signal to oligarchs across the globe, Lord Jacob Rothschild, founder and chairman of RIT Capital Partners, has substantially minimized his exposure to what he views as a risky and unstable U. S. capital market. In the half-yearly financial report for RIT Capital Partners, Rothschild explained the company’s aggressive moves to significantly reduce exposure to U. S. assets.
    ‘We do not believe this is an appropriate time to add to risk. Share prices have in many cases risen to unprecedented levels at a time when economic growth is by no means assured,’ Rothschild said in his semi-annual report.
    Additionally, Rothschild stated that he believes quantitative easing (QE) programs employed by central banks, such as the Federal Reserve Bank in the U. S. will ‘come to an end.’
    Rothschild was quoted in the report as saying, ‘The period of monetary accommodation may well be coming to an end.’

    This post was published at The Daily Sheeple on AUGUST 30, 2017.


  • ‘Stock Market?’ What Stock ‘Market?’

    ‘There are no markets, only interventions’ – Chris Powell, Treasurer and Director of GATA
    To refer to the trading of stocks as a ‘market’ is not only an insult to any dictionary in the world that carries the definition of ‘market,’ but it’s an insult the to intelligence of anyone who understands what a market is and the role that a market plays in a free economic system. By the way, without free markets you can’t have a free democratic political system.
    The U. S. stock is rigged beyond definition. By this I mean that interference with the stock market by the Federal Reserve in conjunction with the U. S. Government via the Treasury’s Working Group on Financial Markets – collectively, the ‘Plunge Protection Team’ – via ‘quantitative easing’ and the Exchange Stabilization Fund has destroyed the natural price discovery mechanism that is the hallmark of a free market. Capitalism does not work without free markets.
    Currently a geopolitically belligerent country is launching ICBM missiles over a G-7 country (Japan). In response to this belligerence, the even more geopolitically belligerent U. S. is testing nuclear bombs in Nevada. The world has not been closer to the use of nuclear weapons since Truman used them on Japan. The stock markets globally should be in free-fall if the price discovery mechanism was functioning properly.

    This post was published at Investment Research Dynamics on August 29, 2017.


  • Are You Prepared for These Potentially Disruptive Economic Storms?

    Here in San Antonio, grocery stores were packed with families stocking up on water and canned food in preparation for Hurricane Harvey, which has devastated Houston and coastal Texas towns. I hope everyone who lives in its path took the necessary precautions to stay safe and dry – this storm was definitely one to tell your grandkids about one day.
    Similarly, I hope investors took steps to prepare for some potentially disruptive economic storms, including this past weekend’s central bank symposium in Jackson Hole, Wyoming, and the possibility of a contentious battle in Congress next month over the budget and debt ceiling.
    As you’re probably aware, central bankers from all over the globe visited Jackson Hole this past weekend to discuss monetary policy, specifically the Federal Reserve’s unwinding of its $4.5 trillion balance sheet and the European Central Bank’s (ECB) ongoing quantitative easing (QE) program. Janet Yellen gave what might be her last speech as head of the Federal Reserve.
    As I told Daniela Cambone on last week’s Gold Game Film, there are some gold conspiracy theorists out there who believe the yellow metal gets knocked down every year before the annual summit so the government can look good. I wouldn’t exactly put money on that trade, but you can see there’s some evidence to support the claim. In most years going back to 2010, the metal did fall in the days leading up to the summit. Gold prices fell most sharply around this time in 2011 before rocketing back up to its all-time high of more than $1,900 an ounce.

    This post was published at GoldSeek on Tuesday, 29 August 2017.


  • “Today Is The Day” – One Trader Takes A ‘Dark Side’ Stab Ahead Of J-Hole

    Today is the day. Both Draghi and Yellen speak later at Jackson Hole. Although expectations for market moving news have been damped down, the market might be getting a little too complacent.
    Over the past month or so, bond markets have been drifting higher on the assumption the Fed would take a dovish wait-and-see approach to the introduction of quantitative tightening (widely expected to be started in September.) On the other side of the Atlantic, investors are increasingly pricing in a slower tapering to the ECB’s quantitative easing program, believing Draghi would rather overshoot than risk pulling a Trichet by tightening and then be forced to quickly resume easing.
    Have a look at the movement over the past three months of the Fed Funds futures’ curve:

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