After yesterday’s “Bid Wanted” close and a down 20 point SPX pre-market, it is an amazing fantasy that the SPX has reversed over 50 points from the pre-market lows.
The buying began in Australia and worked its way around the world, so when we awoke, futures were up 20 SPX points. It is certainly a welcome relief from the endless hitting of the bids, but there is something very “tin foil hat” about it all.
With Bernanke and the FED meeting today, many expect that they will go “all in” after the last few weeks of market action. My friend, Fargojim pointed out today that the Fed has truly failed their mandate of price stability and employment. Yet they control the world and everyone waits on their decision.
2:15 looms especially large today.
There is no doubt that many stocks are very cheap. But I would err on the side of caution in this highly volatile market
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Scott,
you think its too obvious for a QE annoucement, seems to be, but you never know. it better be a nuclear response or the markets fooked.
if we do get the nuclear response, commods will fly off and kill any hope of a recover as oil hits 100+.
I thinking its just accomodative language, more pain to come, then nuke the market with QE.
just thinking out loud.
“Just when I thought I was out…………… they pull me back in” : Ben Bernanke August 9, 2011
– Godfather III, Michael Corleone
Nice.
Carlitos Way
Come on, they don’t call him helicopter ben for nothing. QE3 will be insane. Another “brilliant” move. Whatever the case, I believe that Bernanke will continue to find ways to create more money and make it rain like Rick Ross because that’s what these people do. They do it out of occult origins for “rain man” who is mentioned dozens of time in hip hop, and is a reference to Ahriman most likely, the one they believe is giving them the power. But I’ll put away the tinfoil hat and just say that Bernanke’s intentions are clear, his solution hasn’t changed, and his gameplan hasn’t changed. How much can the bond market handle? Personally I think they crashed the markets simply by focusing their resources on the bond market and keeping it higher because that is what the game is about first, stock market second, derivatives are the wildcard shadow market that is much larger but more elusive and cancels itself out.
This correction was coming and the response is QE3 and it likely involves the housing market (unless that’s QE4). Lee Adler had this pegged perfectly. I’ll give a brief quote and a link in the next comment.
http://www.zerohedge.com/article/bernankensteins-monster
Ilene: You’ve concluded this game is going to stop in June?
Lee: Well, I always figured it would because commodity prices were getting out of control. The more Bernanke denied it, the more troubling it seemed he knew it was. It’s the old “[he] doth protest too much, methinks.” Every time Bernanke claimed the inflation was transitory, the more clear it became that he knew it was a serious problem. But they didn’t do anything about till recently.
Ilene: So what is going to happen with the stock market? Will it sell off as QE ends? At what point will the Fed start a QE3 to stop the stock market from dropping – would it let stocks drop 10%, 20%…?
Lee: Oh yeah. The Fed’s job one is to preserve the Treasury market. With this enormous mountain of debt which the government is on the hook for, they can’t afford to pay 5% interest, or even 4%. They can’t afford any increase in Treasury yields. So, if necessary, they’re going to force a liquidation of stocks and spark a “flight to safety” panic again, as they did in 2008. Then, they needed to get the yields down, and they were also thinking it would help the housing market.
Ilene: But it didn’t really get to the housing market.
Lee: The problem in the housing market had nothing to do with mortgage rates but they didn’t understand that. It’s amazing how when you put all these smart people together how stupid they can be. It’s the problem with group think. When the FOMC gets together, it’s like having all these geniuses in the room coming up with idiotic decisions. They all have the same motivation – to become the next Fed Chairman. The way to do that is to comply with the mad scientist running the show. Bernanke’s whole life has been an ongoing doctoral dissertation in which he tries one experiment after another, based on the crap he wrote when working on his PhD.
The problem we’re experiencing now is that the system is imploding. It’s a slow motion implosion.
Elliott: When QE2 ends in June, will the pain of that ending be extreme enough cause the Fed to resume some form of QE3?
Lee: Yep. I don’t think it will take long. We’re in bad shape, as bad as Greece. The only way we can pay our bills is if other countries and investors continue to lend us $100 Billion every month, and that could jump to $150 Billion a month in the summer. So we can’t pay our bills unless people lend us more money. That’s not paying bills. That’s creating a bigger problem.
“Lee: Oh yeah. The Fed’s job one is to preserve the Treasury market. With this enormous mountain of debt which the government is on the hook for, they can’t afford to pay 5% interest, or even 4%. They can’t afford any increase in Treasury yields. So, if necessary, they’re going to force a liquidation of stocks and spark a “flight to safety” panic again, as they did in 2008. Then, they needed to get the yields down, and they were also thinking it would help the housing market.”
bingo.
Ben has no beard today. Does it mean anything.
what? he shaved his beard? no way!
What, his wife left him!?
metaphor for “taking a haircut”?
fuck zerohedge
i have a feeling we finish down on the day when QE3 isn’t announced…
its my hope that the announcement is vast and sweeping. liquidity facilities for europe, QE to buy european bonds, do what the europeans won’t do for themselves (remember, QE isn’t actually inflationary, as it doesn’t put dollars actually into the economy. Thats also why its limited in effectiveness) and just let the world get on to a better day. I realize thats not a professional or investing related sentiment, but the time I have spent in the marmkets, both during rallies and crashes, has a meaningful negative impact on my psyche. Reading doom and gloom blogs and posts and comments all day probably isn’t the recipe for delayed aging. lol
YOUR HELICOPTER IS HERE.
Egregious headline misspelling alert!
Unless, of course, you were making a sotto voce subtle pun on the Helenes (Greeks).
If so, Bravo, sir.
_________
I didn’t think anyone would notice. bravo to you!
nerds!
I was right on my “down because of no qe3” prediction for like 8 minutes.
But… it does have QE3. Its keeping the balance sheet size stable so as mortgages refinance it frees cash to buy new treasuries, and as treasuries come due the fed has pledged to reinvest them in more treasuries. That is QE3, essentially literally, and it should be hundreds of billions of dollars over the next year or two.
A mortgage at 3.9% -vs- 5.5% of $200k (probably pretty typical) is a difference of about 200 bucks a month, which if you multiply it by about 30 million mortgages (wild guess) is 70 billion a year (for a long time) of actual fiscal stimulus. Say it works out to be 20 or 30 billion, it still helps.
Second, and contrary to the popular belief about QE, is it is monetarily deflationary (it reduces the number of dollars in existence) because on those $1T or whatever of government bonds, interest was paid to the government and not into the population. QE actually reduces the number of dollars existing in the private sector. If it reduces interest rates it reduces them further, so by not expanding the balance sheet we will actually wind up with more dollars in circulation in, say, a year or 2. WHICH IS GOOD.
Third, this is not beneficial to banks trying to earn a carry profit. It harms the carry trade. A bank can’t spend its spare reserves (current value 0.25%) on 10 years and sit pretty, if yields on 10 years are 2.2%. They are reincentivized to loan.
Fourth, they gave clarity on how long rates will stay super low (it is my assumption that it will be forever, as we have a substantial deflationary backdrop, too much debt, and its detrimental, ultimately, to the economy to pay high rates… it’d benefit ME, but not the “many”)
Fith, the pledge to keep the balance sheet as big as it is may alleviate concerns on financial institutions about convexity (http://en.wikipedia.org/wiki/Bond_convexity) which may be assistive, according to another writer (I haven’t ever owned a bond)….
that
Anyway, its also interesting to note that some MMT scholars point out ways that the FED could actually create fiscal stimulus, including
1. become a lender, at very low rates, to municipalities (this is what I’ve been saying for days that europe needs to do for EVERYBODY over there until things just stabilize. its not inflationary, its not money printing, its not some wild “moral hazard get out of jail free” thing, but it could stabilize markets immediately and permanently, eliminating the european crisis. It wouldn’t even have to be monetizaation of debt (although that would be preferable) it could just be supply of low interest rates). That would save state budgets, state jobs, and help a great deal.
2. it has a couple other options
Ppoint being its the world against politicians. China aside (and frankly, china is working hard to weaken its currency right now, which gives it some significant printing abilities, which gives it some leeway to navigate a disaster)…. we can fix this easily. ECB just sets rates for all its countries, the FED loans to states at some stupidly low rate like 2 or 3% or 1%, who cares.
How much does that help? 100,000 US payrolls a month and the end of the crisis in Europe? The inflationary effects should be nearly zero (think of this form of fiscal stimulus as anti-deflationary).
Further the FED could loan to states for infrastructure improvements, a fine investment in a society, and again at extremely low rates.
ETC, this is cimpletely dealable with. And NOT BY PRINTING MONEY AND BEING RECKLESS, JUST BY SETTING INTEREST RATES FOR SPECIFIC PARTIES. Parties which, by the way, benefit all, and doing this harms nobody (except hugh hendry).
May god help us all, we have all the swords we’d ever need, just need to swing them.