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The Debate Is Over: In Two Months “Not QE” Officially Becomes QE 4
The Debate Is Over: In Two Months “Not QE” Officially Becomes QE 4
While Neel Kashkari may be theatrically appealing to the intellect of “QE conspiracists” – which as of today in addition to Robert Kaplan, Larry Kudlow and James Gorman also includes as per the chart below Bank of America, in addition to any other person with an even modest understanding of monetary policy…
… to explain to him how the Fed is moving prices with its $60BN in monthly purchases of T-Bills (something we did last week), an key development is coming that will make all such debates moot: in a few months the Fed’s “Not QE” will officially become “QE 4.”
The reason: following an update to BMO’s bill supply forecasts, the bank’s rates strategist Jon Hill sees a great likelihood that the Fed will need to reduce its “demand burden” on the bill market, i.e., there won’t be enough Bills available for the Fed to monetize without it distorting the market, and will extend the purchase program to include short coupons in the process officially ending any debate whether the Fed’s manipulation of the market under the guise of saving repo, is “Not QE”, because it is limited to Bills and thus no duration is taken out of the market, or is “QE 4”, in which the Fed purchases at least some coupon securities in addition to Bills.
Once the Fed makes the shift, BMO expects the monthly sizes of $60 bn, or $30 bn post assumed taper, would be composed of both bills and short coupons, “helping to reduce expected pressure in the bill market. “
At this point, Hill puts 75% odds on this change occurring by mid-March, meaning that any farcical “debate” whether the Fed’s injection of anywhere between $60 and $100BN in liquidity each month into the equity market, is or isn’t QE, will very soon be mercifully over.
Opinion: The Federal Reserve is stuck in quantitative-easing hell
Opinion: The Federal Reserve is stuck in quantitative-easing hell
The central bank’s short-term buying of securities could morph into long-term easing
Imagine doing the same thing over and over again, with little progress and no relief. Sounds like most people’s vision of hell — or the Federal Reserve’s current predicament.
Since September, the central bank, through the Federal Reserve Bank of New York, has been purchasing securities hand over fist to alleviate short-term pressures in the overnight money markets. It has used repurchase (“repo”) and reverse repurchase (“reverse repo”) agreements to provide liquidity and keep overnight borrowing rates from spiking.
But these complex money market operations already have caused the Fed to buy a net $400 billion worth of securities, after Chairman Jerome Powell shrank the Fed’s balance sheet by $700 billion. That “normalization,” which also included raising the federal funds rate through late 2018, is now effectively dead and the Fed’s balance sheet is growing again.
Powell and the Fed have repeatedly denied this is a new phase of “quantitative easing (QE),” three rounds of which added $3.6 trillion to the Fed’s balance sheet in the years after the financial crisis. And indeed, in the earlier rounds of QE, the central bank bought Treasuries and mortgage-backed securities of various maturities. The current buying has been focused on Treasuries with maturities of 12 months or less.
On the way: QE4
But that may not continue, says Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence, a Dallas-based boutique research firm. Booth, who worked on both Wall Street and in the Federal Reserve Bank of Dallas, has been a critic of Fed policies since the central bank pushed fed funds down to near zero and launched its three rounds of QE after the financial crisis. (She also was one of the few people to connect the dots between the housing bust and Wall Street before the crisis hit.)
…click on the above link to read the rest of the article…
944 Trillion Reasons Why The Fed Is Quietly Bailing Out Hedge Funds
944 Trillion Reasons Why The Fed Is Quietly Bailing Out Hedge Funds
On Friday, Minneapolis Fed president Neel Kashkari, who just two months earlier made a stunning proposal when he said that it was time for the Fed to pick up where the USSR left off and start redistributing wealth (at least Kashkari chose the proper entity: since the Fed has launched central planning across US capital markets, it would also be proper in the banana republic that the US has become, that the same Fed also decides who gets how much and the entire democracy/free enterprise/free market farce be skipped altogether) issued a challenge to “QE conspiracists” which apparently now also includes his FOMC colleague (and former Goldman Sachs co-worker), Robert Kaplan, in which he said “QE conspiracists can say this is all about balance sheet growth. Someone explain how swapping one short term risk free instrument (reserves) for another short term risk free instrument (t-bills) leads to equity repricing. I don’t see it.“
To the delight of Kashkari, who this year gets to vote and decide the future of US monetary policy yet is completely unaware of how the plumbing underneath US capital markets actually works, we did so for his benefit on Friday, although we certainly did not have to: after all, the “central banks’ central bank”, the Bank for International Settlements, did a far better job than we ever could in its December 8 report, “September stress in dollar repo markets: passing or structural?”, which explained not just why the September repo disaster took place on the supply side (i.e., the sudden, JPMorgan-mediated liquidity shortage at the “top 4” commercial banks which prevented them from lending into the repo market)…
Peter Schiff: The 20’s Will Be An Explosive Decade for Gold
Peter Schiff: The 20’s Will Be An Explosive Decade for Gold
In 2019, gold had its best year since 2010. Peter Schiff appeared on the RT Dec. 31 and said he thinks the yellow metal should have done even better. And given the current economic conditions, he believes the 20’s will be an explosive decade for gold.
You know, the reason the US stock market went up this year is because the Fed surprised everybody by doing exactly what I had been predicting they would do. They aborted their feigned attempt to normalize their interest rates and shrink their balance sheet. They went back to rate cuts and quantitative easing. This is extremely bullish for gold.”
Peter emphasized that gold should have been up a lot more in 2019, but he thinks it will catch up over the next several years — probably next year in particular.
Gold is going to be one of the best-performing assets classes, if not the best-performing asset class on the planet.”
Peter noted that gold made significant gains in 2019 despite a dollar that was relatively flat.
But the dollar is going to fall through the floor. That means gold prices are going to go through the roof.”
Peter said we are about to enter a new decade of stagflation – low economic growth and increasing inflation. He said it’s going to be even worse than the stagflation we saw in the 1970s.
This is going to be more like an inflationary depression. So, this century, the depression is going to come a decade early. It’s not going to be the roaring 20s. It’s going to be a decade of inflationary depression in the United States.”
…click on the above link to read the rest of the article…
The Fed Is on High Alert
The Fed Is on High Alert
It’s hard to believe the end of the year is upon us and 2020 is right around the corner.
In many ways, it went by very quickly. For economies and markets, it was a year marked by uncertainty over economic slowdowns, trade wars and a complete pivot in “dark money” policy initiated by the Federal Reserve and subsequently followed by other central banks around the world.
Notably this year, it wasn’t just the major nations that engaged in copycat monetary policy easing. It was a plethora of emerging-market central banks jumping on the same dark money bandwagon.
So as we head into the final FOMC meeting of the year next week, we know one thing for certain: The Fed won’t be cutting rates this time. And it’s recently used some fairly hawkish language.
But reinforcing the dovish outlook it adopted at the start of the year that precipitated three 2019 rate cuts, the Fed remains on high-alert mode.
There are two clear signs why…
First, the Fed keeps creating and dumping money into the front end of the U.S. yield curve through repo operations that it initiated in September.
How healthy is the banking sector overall?
The Board of Governors of the Federal Reserve System recently published their annual Supervision and Regulation Report.
The report measures the financial condition of major U.S. banks, including loan growth and liquidity in the banking system.
Overall, 45% of U.S. banks with more than $100 billion in assets received a supervisory rating of “less than satisfactory.”
That’s not good. As we learned during that crisis, the stability of these large banks is essential to the health of our banking system.
Tellingly, the Federal Reserve report does not say which banks have these less-than-satisfactory ratings.
Is A Global Crash Just Around The Corner? Central Banks Are Cutting At The Fastest Rate Since The Financial Crisis
Is A Global Crash Just Around The Corner? Central Banks Are Cutting At The Fastest Rate Since The Financial Crisis
There is something very fishy about the world’s economic situation. On one hand, US president Trump keeps repeating that the US economy is the strongest it has ever been, with global strategists, economists and officials parroting as much they can, repeating that the world economy is also set to rebound sharply any minute now. And yet, two things stand out.
As we pointed out first last month, and as Convoy Investments echoed last week, with the US economy allegedly doing very well, the Fed’s balance sheet is now expanding at a rate matched only briefly by QE1, and faster than QE2 or QE3, in the aftermath of September’s repo fiasco which provided Powell with an extremely convenient scapegoat on which to hang the return of “NOT QE” (which, we now know, is in fact QE.)
The Fed’s unprecedented balance sheet expansion in a time of alleged economic stability and solid growth is a handy explanation why the S&P has been soaring in the past two months, and as we pointed out, a remarkable correlation has emerged whereby the S&P is up every week the Fed’s balance sheet is higher, and down whenever the balance sheet has declined.
And so, while helping us understand what has been the fuel for the market’s recent blow-off top meltup, the Fed’s emergency intervention does beg the question: is there something amiss more than just the repo market, and is Powell telegraphing that a far more serious crisis may be looming.
It’s not just Powell, however. It’s everyone.
…click on the above link to read the rest of the article…
Ex-BOJ Chief Regrets Not Hiking, Hated QE, Says Sub-1% Interest Rates Don’t Work
Ex-BOJ Chief Regrets Not Hiking, Hated QE, Says Sub-1% Interest Rates Don’t Work
Things are going from bad to worse in Japan: 7 years after BOJ chief Kuroda launched QQE (subsequently with yield curve control) while monetizing tens of billions in ETFs, the central banks has failed to boost either Japan’s economy or its inflation, both a dismal byproduct of Japan’s record debt load. So now that the BOJ has failed to remedy what was the consequence of massive debt loads, Japan has a cunning plan: unleash another tsunami of debt.
According to the Japan Times, Japan is set to “re-embrace the power of public spending” – because apparently the country with the world record setting 250% debt/GDP somehow did not embrace public spending before – with one of its biggest ever stimulus packages. Pointing to slowing global growth, a higher sales tax and a string of natural disasters, policymakers in Tokyo are the latest to join the worldwide shift toward a double-barreled approach of supporting the economy through fiscal measures and ultraloose monetary policy, which as we have noted before is a preamble to MMT and full-blown debt monetization by the government.
That’s good news for the Bank of Japan, which has “appeared” (but only appeared, because it now owns so many of Japan’s ETFs it has to start lending them out to prevent a market freeze) reluctant to ramp up its own massive stimulus program, as it strains at the limits of effectiveness.
As a result, in less than a month, expectations in Japan for a “modest” stimulus package with a face value of ¥5 trillion ($46 billion) have quadrupled to ¥20 trillion, despite having the developed world’s largest public debt load. And there is much more to come.
…click on the above link to read the rest of the article…
GOLD & SILVER UPDATE: Setting Up For The Next Leg Higher In 2020
GOLD & SILVER UPDATE: Setting Up For The Next Leg Higher In 2020
The Day of Reckoning is coming, and it won’t be pretty for the overall markets. While the Fed liquidity has pushed the major U.S. indexes to new highs, the underlying fundamentals in the economy continue to deteriorate. Without the record amount of Fed QE and Repo Operations, the market and economy would have gone into a tailspin in 2019.
Now, to give credit where credit is due, the term, “The Day of Reckoning” was the title from the Northman Trader’s most recent public article. What I like about Sven Heinrich’s work (the Northman Trader), is his ability to use technical and fundamental analysis to provide “PRICE DISCOVERY” in the markets.
Unfortunately, we don’t have price discovery anymore due to the Fed and Central bank decade-long propping up of the markets. This chart from the Northman Trader shows how the Fed’s interventions have come in to support the markets at key technical levels:
What is quite interesting more recently (2019) is the substantial Fed’s rate cuts, QE, and Repo Operations at a time when there isn’t a downturn in the U.S. economy. When the Fed started QE1 in 2009, the stock market had crashed to a low, and the economy was in a severe recession. The Fed continued to support the economy and markets with QE2, TWIST, and QE3 into 2013. Again, these Fed interventions took place during a struggling economy.
Today, the Fed is pulling out all the FIREPOWER when the markets are at new highs, and the economy is still rolling along nicely. This is a recipe for DISASTER at some point. Furthermore, the energy market that is one of the driving forces of the U.S. economy is in serious trouble.
…click on the above link to read the rest of the article…
If Not-QE Is QE, then is Not-a-Blowoff-Top a Blowoff Top?
If Not-QE Is QE, then is Not-a-Blowoff-Top a Blowoff Top?
Can $300 billion, or $600 billion, or even $1 trillion continue to prop up an increasingly risk-riddled, fragile $330 trillion global bubble in overvalued assets?
When is “Not-QE” QE? When Federal Reserve Chairperson Jerome Powell declares QE is not QE. We can constructively recall the story that Abraham Lincoln famously recounted in 1862
:‘If I should call a sheep’s tail a leg, how many legs would it have?
”Five.
”No, only four; for my calling the tail a leg would not make it so.’
Calling QE not-QE doesn’t make it different than QE, but it does communicate the Fed’s panicky desire to mask its stupendous injection of financial cocaine into the financial system. The Fed’s level of panic is noteworthy, as is the absurd transparency of its laughable attempt to conceal its panic.
In the same fashion, the financial media is loudly declaring the current blowoff top in stocks is not a blowoff top. The delicious irony here is these denials are reliable markers of blowoff tops: the louder the denials, the greater the odds that this is in fact the blowoff top that many pundits have been expecting for some time, but always in the future.
Garsh darn it, maybe the future has arrived. The financial media denied the Q4 1999 – Q1 2000 blowoff top was a blowoff top, and it repeated its denial of a blowoff top in housing in 2006-2007. The pundits of 1929 also denied the Q3 blowoff top in stocks was a blowoff top.
If you want a reliable signal that the blowoff top has peaked, listen to the screechy adamance of the deniers. The list of reasons why blowoff tops can’t be blowoff tops is practically endless: sentiment isn’t bullish enough, there’s a Wall of Worry for stocks to climb (overlooking the inconvenient reality that there is always a Wall of Worry)…
…click on the above link to read the rest of the article…
The Federal Reserve Is Directly Monetizing US Debt
The Federal Reserve Is Directly Monetizing US Debt
In a very real way, MMT is already here
Sure, it’s not admitting to this. And it’s using several technical jinks and jives to offer a pretense that things are otherwise.
But it’s not terribly difficult to predict what’s going to happen next: the Federal Reserve will drop the secrecy and start buying US debt openly.
At a time, mind you, when US fiscal deficits are exploding and foreign buyers are heading for the exits.
How It’s Supposed to Work
Here’s how it’s supposed to work when the US government issues new debt:
- If the US Treasury needs to raise new funds, it announces an upcoming auction of US Treasury bills/notes/bonds.
- A date for the auction is set.
- Various participants bid for those bills/notes/bonds (including ‘regular folks’ like you and me if we’re using the government’s Treasury Direct program).
- At a later date, the Fed can buy those US Treasury bills/notes/bonds. The various holders of that debt submit offers to sell, and the Fed (presumably) selects the best offers on the best terms.
The Federal Reserve, under no conditions, buys Treasury paper directly. The Federal Reserve’s own website still maintains that this is the case:
There are two important claims plus one assertion I’ve highlighted in there, each in a different color:
- Yellow: Treasury securities may “only be bought and sold in the open market.”
- Blue: doing otherwise might compromise the independence of the Fed.
- Purple: the Fed mostly buys “old” securities.
So according to the Fed: it’s independent, it follows the rules set forth in the Federal Reserve Act of 1913, and it mostly buys “old” Treasury paper that the market has already properly priced in a free and fair system.
But that’s not really what’s going on…
…click on the above link to read the rest of the article…
Blain’s Morning Porridge – Nov 15th 2019
Blain’s Morning Porridge – Nov 15th 2019
“Liberty, equality, fraternity, or death; the last, much the easiest to bestow, O Guillotine!”
As it’s a Friday I am contractually entitled to have a rant and whine about whatever I want to write about. Which, today, isn’t really the cut and thrust of markets.
To be brutally frank – we all know what the problems are: Too much money in the markets pushing up the prices of market assets. The fact is too much of that too much money is owned by too few people who use their too much money to buy all these financial assets. These too few people who own all the financial assets get richer everyday as their too much money makes their too many financial assets even more valuable. And these too few people get even richer by getting even more too much money to put into the already too expensive financial markets by “persuading” central banks to keep rates low, to buy financial assets through QE, and get their in-the-pocket politicians to enact tax cuts so their too much money is even more too much money…
With me so far??
Meanwhile, politicians pay for the too much money they give to too rich people, by taking it away from the much more numerous too many too poor people through Austerity. The too many people who don’t have any assets and owe any money they have to the people who have too much money and too many assets – aren’t happy. They blame society, they blame governments and as they get even more unhappy they get angry. These too poor too angry people then get very angry and start blaming people. which is what is happening across the globe..
Still there?…
…click on the above link to read the rest of the article…
“Not QE”, Monetization, & “Definitely Asset Inflation”
“Not QE”, Monetization, & “Definitely Asset Inflation”
Chart below shows the Federal Reserve holdings of Treasuries, a weekly change (black columns) and total holdings (red line) during QE1, QE2, Operation Twist, QE3, QT, and “Not QE”. Got it?!? This current “Not QE” explosion in QE is like some kind of old time vaudeville act (like the old Abbott and Costello bit, “who’s on first, what’s on second, I don’t know’s on third”).
But looking more widely, the chart below shows the total Federal Reserve balance sheet (blue shaded area), bank excess reserves (red line), and the delta between the Fed’s balance sheet and excess reserves…also known as direct monetization. As the Fed restarted “not QE” but did not go through the façade of attempting to stock the new money away as “excess reserves”, this new money is flowing straight into assets, like monetary heroine.
Below, a close up of the components above solely in 2019 (through November 6th). Balance sheet soaring once again since the Fed’s sudden pivot, excess reserves continue falling…and the difference in freshly digitized cash in the hands of banks and the like…ready to be levered up.
So, monetization (yellow line) versus the Wilshire 5000 (green line) from 2014 through last week. For those not familiar, the Wilshire 5000 total market index, is a market-capitalization weighted index of the market value of all US stocks actively traded in the US.
And fascinatingly, since the beginning of 2018, the Wilshire 5000 and direct monetization are becoming more attuned to one another. And in mock shock, the new record close in the Wilshire just happens to be accompanied by a new record in direct monetization!?! Almost as if the addition of $320 billion in fresh digital cash since mid August Fed U-turn had something to do with the $2.2 trillion rise in US equities over the same period (a leverage ratio of about 7x). Hmmm.
…click on the above link to read the rest of the article…
How QE has radically changed the nature of the West’s financial system.
How QE has radically changed the nature of the West’s financial system.
Because they are so ensconsed in their little bubble and because they profit so much from maintaining the status quo, Western mainstream media pundits don’t – or perhaps can’t – admit how Quantitative Easing policies have so quickly and so radically changed the financial system of the West and their satellites.
I imagine that most everyone reading this is already aware of what has transpired economically across the West over the last decade:
- Elite-class asset (stuff rich people own – stocks, real estate, financial derivatives, luxury goods, etc.) prices have ballooned to pre-2008 levels.
- Debt (which is, of course, another elite-owned asset), mainly to pay for banker bailouts and their usurious interest levels, has ballooned national accounts to incredible levels.
- The “real” economy has only weakened, as proven by endemic low economic growth across the West and Japan.
As a pro-socialist who has no faith that capitalism seeks anything but inequality, I believe that creating and compounding these issues has been the unstated goal of Western policy over the last decade. But that’s not the main point: what cannot be denied is that those ARE the economic results of the West’s “easy money” policies – i.e., QE and ZIRP (Zero percent interest rate policy) for the 1%, and austerity for the 99% (all coins have two sides).
Similarly, I imagine that everyone reading this is generally aware of what will happen should the West stop easy money: obviously, once artificial demand is no longer being fabricated then these assets will plummet in value, with huge ripple effects in the “real” economy. The West will be right back to dealing with most of the same toxic assets they had back in 2007, but now compounded by a decade of more debt, more interest payments, and a “real” economy which was made weaker via austerity.
…click on the above link to read the rest of the article…
The Fed is Lying to Us
The Fed is Lying to Us
“When it becomes serious, you have to lie”
The recent statements from the Federal Reserve and the other major world central banks (the ECB, BoJ, BoE and PBoC) are alarming because their actions are completely out of alignment with what they’re telling us.
Their words seek to soothe us that “everything’s fine” and the global economy is doing quite well. But their behavior reflects a desperate anxiety.
Put more frankly; we’re being lied to.
Case in point: On October 4, Federal Reserve Chairman Jerome Powell publicly claimed the US economy is “in a good place”. Yet somehow, despite the US banking system already having approximately $1.5 trillion in reserves, the Fed is suddenly pumping in an additional $60 billion per month to keep things propped up.
Do drastic, urgent measures like this reflect an economy that’s “in a good place”?
The Fed’s Rescue Was Never Real
Remember, after a full decade of providing “emergency stimulus measures” the US Federal Reserve stopped its quantitative easing program (aka, printing money) a few years back.
Mission Accomplished, it declared. We’ve saved the system.
But that cessation was meaningless. Because the European Central Bank (ECB) stepped right in to take over the Fed’s stimulus baton and started aggressively growing its own balance sheet — keeping the global pool of new money growing.
Let’s look at the data. First, we see here how the Fed indeed stopped growing its balance sheet in 2014:
And we can note other important insights in this chart.
For starters, you can clearly see how in 2008, the Fed printed up more money in just a few weeks than it had in the nearly 100 years of operations prior.
…click on the above link to read the rest of the article…
QE for the People
QE for the People
Myrmikan’s May letter discussed how the Fed had already begun to ease nancialconditions, though the method was so subtle that few understood what the central bank was doing.
Banks are required to keep required reserves at the Fed. Banks that nd themselves with a de cient reserve level have to borrow reserves from those with excess reserves,and the interest rate they pay is called the fed funds rate. The fed funds rate thereby sets the minimum level of funding for the banking system. The Federal Reserve used to set this rate through open market operations: buying Treasuries would add reserves to the banking system and lower the fed funds rate (and vice-versa).
Historically, reserves earned no interest, and so, before 2008, banks maintainedas few reserves as possible—they could always buy a Treasury bill with any excess cash. After the Fed ooded the banking system with reserves during the 2008 panic, banks found themselves with excess reserves, which peaked at $2.7 trillion. The Fedsets the general reserve requirement at 10%, which means the banking system couldhave added $27 trillion of credit to the economy. In fact, certain classes of assets (suchas Treasuries, mortgage-backed securities, etc.) have risk weightings that allow banks to hold as little as 2% reserves against them, which enables 50 times leverage on suchassets (which is how, for example, Citicorp was able to be levered up 48:1 in 2007).
In order to keep trillions of levered up credit from crashing into the economy, the Fed began paying interest on excess reserves (IOER). Given the level of excessreserves, the Fed could no longer use open market operations to manipulate the fedfunds rate.
…click on the above link to read the rest of the article…
