Can the Fed stop QE?

[blazespinnaker]

http://www.chrismartenson.com/marten...d-stock-market

The fed is literally keeping the US limping along to the tune of 30B a day.

When the fed pauses QE, the DJ starts to dive.

How can the fed stop this?

[blazespinnaker]

Re: Can the Fed stop QE?

One thing I dn't get though is why Chris & Crew think this money is going directly into the markets. That seems a bit inane. The money is going directly to the treasury from what I can tell.

[jtabeb]

Re: Can the Fed stop QE?

One thing I dn't get though is why Chris & Crew think this money is going directly into the markets. That seems a bit inane. The money is going directly to the treasury from what I can tell.

I gather the idea is from ZH.

It's the new triangle trade. TARP or Treasury Auctions to Fed Cash for the primary dealers to UP points (on decreasing volume) on the exchanges.

At least, that's what I gather.

[jtabeb]

Re: Can the Fed stop QE?

One thing I dn't get though is why Chris & Crew think this money is going directly into the markets. That seems a bit inane. The money is going directly to the treasury from what I can tell.

I think that money is going TWO places at once. First it goes to the treasury in the form of proceeds for bond sales. Then When the Fed Does POMOs, it ALSO goes to the primary dealers.

Two "POOMS" with one debt issuance, if you will.;)

[blazespinnaker]

Re: Can the Fed stop QE?

But the primary dealers have to first BUY from the treasury, and then the fed buys it from them.

The most the primary dealers can be making is the spread, and in some cases they are actually selling it for *less* to the fed.

I see the market going up because rates are being artificially kept down. I don't see the money going directly into the markets.

Maybe some foreign nations are selling off their reserves to Fed here and then putting the money into the markets.

[marvenger]

Re: Can the Fed stop QE?

i'm with you a bit blake, there's been a few articles claiming that the QE has been going directly into increased purchasing power in the equity markets. Mike Whitney was saying there'd been x billion in QE and now the markets have gone up by x billion. Don't know how on earth you can claim that, and I haven't seen any elaboration in these articles.


Zero Hedge: "Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts!
Where, may we ask, did the balance of $2.3 trillion in purchasing power come from? Why the Federal Reserve of course, which directly and indirectly subsidized U.S. banks (and foreign ones through liquidity swaps) for roughly that amount. Apparently these banks promptly went on a buying spree to raise the all important equity market, so that the U.S. consumer whose net equity was almost negative on March 31, could regain some semblance of confidence and would go ahead and max out his credit card. Alas, as one can see in the money multiplier and velocity of money metrics, U.S. consumers couldn't care less about leveraging themselves any more."
So, the magical "Green Shoots" stock market rally was fueled by a mere $400 billion from the money markets. The rest ($2.3 trillion) was main-lined into the market via Bernanke's quantitative easing (QE) program, of which Krugman and others speak so highly.

Maybe the the QE going to treasury is a small proportion of the overall amount. I still don't get why QE going direct to banks should result in a proportional increase in the purchasing power in the equity markets. Maybe if you assume the demand to hold cash is unchanged by all the cash given to banks and put into circulation when equities bought, coz if people want to hold more cash they'll just be willing to sell at similar price and increase cash holdings.

[nero3]

Re: Can the Fed stop QE?

They have to stop and some point, and then probably raise rates to do something about inflation.

[sunskyfan]

Re: Can the Fed stop QE?

The Fed can stop it anytime it wants. The problem is that it is the only valid money creator in the economy at a time when money destruction is happening at a breath-taking rate. If the Fed stopped the economy would stop.

[derelict54]

Re: Can the Fed stop QE?

i'm with you a bit blake, there's been a few articles claiming that the QE has been going directly into increased purchasing power in the equity markets. Mike Whitney was saying there'd been x billion in QE and now the markets have gone up by x billion. Don't know how on earth you can claim that, and I haven't seen any elaboration in these articles.

Here's one chart that might help

[rjwjr]

Re: Can the Fed stop QE?

One thing I dn't get though is why Chris & Crew think this money is going directly into the markets. That seems a bit inane. The money is going directly to the treasury from what I can tell.

Maybe because their question is not so much "where is this new money going" as it is "what the hell is driving this stock market"?! Since no rational explanation exists for the market rally, any explanation is being considered.

[sn1p3r]

Re: Can the Fed stop QE?

sunsky, is there any way to quantify money destruction? i agree but am wondering what the signs are...

[nero3]

Re: Can the Fed stop QE?

Maybe because their question is not so much "where is this new money going" as it is "what the hell is driving this stock market"?! Since no rational explanation exists for the market rally, any explanation is being considered.

You can't possibly say that. there is plenty of economic indicators that are behaving as they have done at the end of past recessions, especially severe recessions. That people is negative at that point is just a part of the cycle.Therefore it's quite rational that stocks respond to that. You must also remember that the market conditions in march was extreme, and that valuations was at a very low level, on the individual company level.

I think it is likely that the fed will print as long they have to until private debt to GDP starts increasing again, if it is set to do that.

They might also print until private debt to gdp is deflated down to a level, it once again can start to rise from. That's what happened during the WW2 era.

I think it's still not certain if private debt to gdp will keep rising like in the seventies, or if there will be a trend shift, like after 29, or in the late 1890-s (the dow was flat from 1896 to 1920) I think there is a high, high risk of War in these periods where public debt to GDP goes down.

[Starving Steve]

Re: Can the Fed stop QE?

Maybe because their question is not so much "where is this new money going" as it is "what the hell is driving this stock market"?! Since no rational explanation exists for the market rally, any explanation is being considered.

To try to answer your question of "what the hell is driving this stock market" now, I will offer this response:

I am in the stock market now for four reasons, and maybe these four reasons are why other people are in the stock market as well:

1.) Banks and credit unions pay ZERO interest on our savings;

2.) We have losses to make-up on stocks like GE;

3.) We need dividends to live on because our money goes to pay bills every day;

4.) The central banks around the world are intent upon de-basing their currencies together, so owning stocks at least leaves us with owning something real--- a share of a company--- at least, in theory.

Perhaps, it might be better to look at what is going-on with people around the world rather than to study stock charts, economics theories, and attend to current rumours on Wall Street.

[jtabeb]

Re: Can the Fed stop QE?

To try to answer your question of "what the hell is driving this stock market" now, I will offer this response:

I am in the stock market now for four reasons, and maybe these four reasons are why other people are in the stock market as well:

1.) Banks and credit unions pay ZERO interest on our savings;

2.) We have losses to make-up on stocks like GE;

3.) We need dividends to live on because our money goes to pay bills every day;

4.) The central banks around the world are intent upon de-basing their currencies together, so owning stocks at least leaves us with owning something real--- a share of a company--- at least, in theory.

Perhaps, it might be better to look at what is going-on with people around the world rather than to study stock charts, economics theories, and attend to current rumours on Wall Street.

See, the Fed is doing fine, their reverse psy ops are working EXACTLY as intended.

[rjwjr]

Re: Can the Fed stop QE?

To try to answer your question of "what the hell is driving this stock market" now, I will offer this response:

I am in the stock market now for four reasons, and maybe these four reasons are why other people are in the stock market as well:

1.) Banks and credit unions pay ZERO interest on our savings;

2.) We have losses to make-up on stocks like GE;

3.) We need dividends to live on because our money goes to pay bills every day;

4.) The central banks around the world are intent upon de-basing their currencies together, so owning stocks at least leaves us with owning something real--- a share of a company--- at least, in theory.

Perhaps, it might be better to look at what is going-on with people around the world rather than to study stock charts, economics theories, and attend to current rumours on Wall Street.

I don't disagree with any of your reasons.

However, those are the reasons to enter the stock market when it is under valued or at least properly valued as measured by historical yardsticks such as p/e ratio, dividends, and the inflation-adjusted real return (or the performance vs a barrel of oil or an ounce of gold). Today's market, even at it's lows, was still over valued based on those historical benchmarks. Now that it has bounced up 40% (especially while corporate earnings have declined precipituously), I simply fear that it is, again, a very risky time to be long.

So, we agree on your reasons for using the market as an investing vehicle, but disagree on the timing and/or the risk of the investment at it's current levels. I simply believe the market will correct to more historical valuation norms (after a period of over correction, actually), especially in this recessionary and uncertain economic environment.