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February 23, 2011

What happens when Quantitative Easing (QE2) ends in June?

Filed under: Uncategorized — bigcapital @ 1:12 am
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What happens when Quantitative Easing (QE2) ends in June?

Wednesday, February 23, 2011 – http://marketpin.blogspot.com/

The Congress : “There is no need for us to support Quantitative Easing Part 3” confirmed by the Senate last week.

I remain surprised that in the business press there is little if any discussion about what will happen when Quantitative Easing II expires in June.

From a congressional standpoint, there has been discussion designed to force an early end to the program. Others have gone in the opposite direction mentioning a possible QE3.

In my view, the economy is slowly picking up. Deflation is less an issue, manufacturing activity is up, and consumers are spending a bit more. Corporate profits have exceeded expectations for Q4 2010.

On the downside, the housing market shows no signs of improving and might not have yet bottomed. Trouble in the middle East could disrupt oil shipments. China appears to be experiencing uncontrolled inflation and an asset bubble that is about to burst. Europe is experiencing continued sovereign debt issues. Some analysts believe that the UK is in stagflation. Commodity prices are increasing rapidly. Corporations have no pricing power. The US labor market will take years to repair. And finally, US Budget deficit is out of control!!!

This all points to a tenuous financial environment at the time of QE2 expiration. For 2011, YTD stock prices might be negative.

Any yet the business press seems quiet on this issue …

Read more: Count Down to Quantitative Easing Removal ends in June.

For 2011, YTD stock prices might be negative.

Which would be unlike the quantitative easing that the CABAL (Fed) have been subjecting our economy to… The CABAL chairman told us when he implemented QE1 and Q2, that it was for the good of the economy, to spur economic growth, job creation, and keep interest rates down… Well… That’s strike one, two and three… Go grab some bench, Mr. CABAL Chairman! And that’s all I can say about that right here, right now, as this is the kinder

Since the CABAL introduced quantitative easing in March of 2009, inflation has taken off, just as I told you back almost two years ago that it would… No, we’re not seeing wage inflation, or housing inflation… But get a load of these things that have increased phenomenally since March 2009.

The average price of gas is up 69%… The price of oil is up 135%… Corn is up 78%… Sugar is up 164%… And I could go on, but I think you get the picture. Now, on the other side of the employment that was supposed to improve with QE, the number of unemployed people is up 25%… The number of food stamps recipients is up 35%… The national debt is up 32%… And then the last thing they told us would improve or remain steady was interest rates… Hmmm… Well, the 10-year Treasury is up 100 basis points in the past three months alone! Sorry to be the one that had to tell you these things, but if you only watched cable media, you wouldn’t know about these things, and when the Conference Board called to survey you about how confident you were about the economy, you would be singing the praises of the CABAL for all they had done for you!

Dollar May Appreciate to 1.0067 Swiss Francs

Dollar May Appreciate to 1.0067 Swiss Francs: Technical Analysis

The dollar may reverse last week’s decline and rally 6 percent to its December high against the Swiss franc, Commerzbank AG said, citing technical indicators.

“Longer-term, we target 1.0067” Swiss francs per dollar, Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank in London, wrote in a report today. The exchange rate reached that level on Dec. 1.

The dollar strengthened 0.3 percent to 94.78 Swiss centimes at 12:30 p.m. today in London. The greenback slumped almost 3 percent against the franc last week and sank to 94.25 earlier today, the weakest level since Feb. 3, Bloomberg data show.

“We would allow the slide to continue to 0.9425, from where we would favor recovery,” Jones wrote. That’s the 78.6 percent Fibonacci retracement of the rally seen in February, Jones wrote.

The dollar may test resistance at around 97.74 centimes, she said. Those levels represent the 61.8 percent Fibonacci retracement of the move down from December and the high from Jan. 11, according to data compiled by Bloomberg.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Resistance and support levels are areas on a chart where technical analysts anticipate orders to sell or buy, respectively, a currency and its related instruments

Fed’s Fisher Says More Stimulus Unnecessary

Fed’s Fisher Says More Stimulus Unnecessary

(RTTNews) – A top Federal Reserve official declared on Thursday that we would not back more monetary easing when the Fed’s $600 billion quantitative easing program winds to a close.

Richard Fisher, President of the Federal Reserve Bank of Dallas, was quoted as saying that he could not foresee any circumstances that would warrant more stimulus and suggested that the central bank should turn its attention to unwinding support.

Fisher’s comments contrast with those made by the Chicago Fed President Charles Evans, who backed the Fed’s extremely loose monetary policy and assured that it had the tools to tighten quickly if needed should inflation rise faster than expected

November 12, 2010

Dubai Loves Bernanke’s Latest Quantitative Easing

Filed under: Uncategorized — bigcapital @ 8:46 am
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Dubai Loves Bernanke’s Latest Quantitative Easing

 

 

So now we know the Fed’s plans. It will be pumping $600 billion more into the US economy through investing in  medium-term US government bonds.

 

The Gulf is licking its chops. Here’s a quote from the article below (from the Gulf News) … “The new surge in liquidity with international banks and fund managers is expected to result in increased demand for bond issues from the region. This [quantitative easing] should have most positive impact on Dubai.”

 

Sure, let US dollars flow into Dubai and lift asset prices. Let it flow into other emerging markets so the big-moneyed investors can make out. Now, remind me, how does that exactly benefit us? While the sheiks rejoice, we fall deeper into debt. From the Gulf News…

 

Quantitative easing is a way of pumping money into the economy by central banks to encourage banks to lend. The US Federal Reserve is expected to announce a new round of monetary easing later today.

 

In the context of the weak private sector credit growth in the UAE and the Gulf Cooperation Council (GCC) region analysts say the new liquidity boost from quantitative easing will increase access to international funding.

 

“While a common theme has been a continued disappointment in private sector credit growth, particularly in the UAE, Kuwait and Saudi Arabia, an important thread going forward seems to be potential increased access to external funding,” said Turker Hamzaoglu, an economist with Bank of America Merrill Lynch.

 

The new surge in liquidity with international banks and fund managers is expected to result in increased demand for bond issues from the region. “This [quantitative easing] should have most positive impact on Dubai. However, as the demand for MENA credit is not growing as fast as the global peers, the issuance supply should become a major driver of performance in the region,” said Hamzaoglu.

 

Investment bankers and fund managers say Gulf entities have nearly $100 billion (Dh367 billion) in debts maturing over the next 18 to 24 months. This is a clear window of opportunity to refinance the short maturity debts with long term funding.

 

“The fresh dose of liquidity in the market is going to breathe life into the demand side of the Gulf fixed income market. We are likely to see more issuance from the region,” said Nadi Bargouti, managing director of Shuaa Asset management.

 

Analysts say the Fed’s new round of QE is likely to support the GCC recovery, even to a much lesser extent than the rest of the emerging markets through five channels, namely a weaker dollar; lower interest rates; higher commodity prices; higher asset prices and access to cheap and abundant capital.

 

The global backdrop for the MENA markets has largely turned positive lately with the weaker dollar, falling short-term real interest rates, higher oil prices, improved risk appetite and cheaper and more abundant external funding.

 

Let me be clear: All quantitative easing does is increase our debt. Bernanke is hoping (against hope, I suspect) that somehow it will spark growth. That’s not good enough. We’re going deeper into debt over a monetary remedy which has a 2% chance of succeeding.

October 19, 2010

The Federal Reserve has talked itself into a corner QE2

Filed under: Uncategorized — bigcapital @ 12:21 pm
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The Federal Reserve has talked itself into a corner QE2

By making it clear the next step for monetary policy will be further quantitative easing, the Fed has ignited a frenzy of market activity. Investors’ experience was that the original round of QE triggered a massive rally in risk markets from their lows in the spring of 2009. So another round of QE justifies yet more speculative demand for assets. Speculative demand begets speculative demand.

Which brings us to where we are now–market expectations for something in the region of $1 trillion to $1.5 trillion of additional quantitative easing by the Fed. It’s also worth noting that the Fed’s QE is expected to be followed by yet more Bank of England and Bank of Japan action as well.

This raises two not inconsequential problems for investors: what if the Fed fails to deliver as much QE as the market demands; or what if it does and either it doesn’t work or works too well.

Fed Chairman Ben Bernanke hinted at some of the reasons the central bank might be reluctant to do as much as the market expects in his speech last week. He accepted that “nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.”

Other central bankers, including the Bank of England’s Paul Fisher, have begun to think publicly about the mechanics of how, when the time comes, to extract central banks from the vast amounts of quantitative easing they have done.

The more QE central banks do, the more of a dominant position they take in the markets in which they operate. The Fed, for instance, has an overwhelming position in U.S. securitized mortgages, while in the U.K., the Bank of England owns more than half of some gilt issues outstanding and at least 20% of the majority of the rest.

There should be no problems getting more sovereign debt onto central bank books, after all, the U.S., the U.K. and Japan will be running large deficits for a long time, so supply isn’t an issue. But what happens a few years down the line when governments continue to pump out supply but central banks also need to sell their holdings? If they do, they run the risk of creating disorderly markets. If they don’t they run the risk of inflationary consequences of debt monetization.

So central banks are likely to be cautious about what they do. But even if they fulfil market expectations, there’s the risk they fail to ignite underlying aggregate demand because the problem with economies isn’t the lack of liquidity but rather the need to deleverage from a debt binge. In which case, more QE could fail in its intention. Indeed, it could more than fail, but actually be damaging by stimulating speculative demand for commodities. This jump in commodity prices then eats into consumers’ pocketbooks, dragging demand down even further.

On one or other count, investors seem destined to suffer disappointment with QE2. And there’s not a lot central banks can do about it

October 5, 2010

Fed boss: More securities buys could help economy

Filed under: Uncategorized — bigcapital @ 8:18 pm
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Federal Reserve Chairman Ben Bernanke said Monday that the economy could be helped by another round of asset purchases by the central bank.

Bernanke’s comment reinforces analysts’ beliefs that the Fed is likely to take action at its next meeting Nov. 2-3.

The Fed is considering launching a new program to buy government debt, a move aimed at driving down rates on mortgages, corporate loans and other debt. It’s wrestling with how much it should buy.

“I do think the additional purchases — although we don’t have the precise numbers for how big the effects are — I do think they have the ability to ease financial conditions,” Bernanke said during a town-hall style meeting here with college students.

During the recession, the Fed ended up buying a total of roughly $1.7 trillion of mortgage securities and debt, as well as government bonds. Bernanke called that “an effective program.”

At its Sept. 21 meeting, the Fed signaled that it stands ready to take additional action if the recovery weakens.

Bernanke and other Fed officials have suggested that the Fed’s next likely step to help the economy is buying more government debt. The goal: get Americans to boost their spending, which would strengthen the economy and make businesses more inclined to increase hiring.

An idea gaining favor is for the Fed to start with a modest amount — perhaps $100 billion or less — and then decide on a meeting-by-meeting basis how much, if any, additional debt should be purchased.

Brian Sack, executive vice president at the Federal Reserve Bank of New York, said in a speech Monday that he also sees a benefit in another round of asset purchases.

“The evidence suggests that the expansion of the securities portfolio to date has helped to foster more accommodative financial conditions, and further expansion would likely provide additional accommodation,” he said.

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