Home » Posts tagged 'qe'

Tag Archives: qe

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

US Money Supply – The Pandemic Moonshot

US Money Supply – The Pandemic Moonshot

Printing Until the Cows Come Home…

It started out with Jay Powell planting a happy little money tree in 2019 to keep the repo market from suffering a terminal seizure. This essentially led to a restoration of the status quo ante “QT” (the mythical beast known as “quantitative tightening” that was briefly glimpsed in 2018/19). Thus the roach motel theory of QE was confirmed: once a central bank resorts to QE, a return to “standard monetary policy” becomes impossible. You can check in, but you can never leave.

Phase 1: Jay Powell plants a happy little money tree to rescue the repo market from itself (from: “The Joy of Printing”).

It is easy to see why. Any attempt to seriously reduce outstanding central bank credit will bring about the very situation QE was intended to prevent, i.e., falling asset prices and an economic bust. Seemingly no-one in officialdom ever stops to ask why that should be so. What happened to “self-sustaining recoveries” and “achieving escape velocity”? Could it be the economy is neither a perpetuum mobile nor a space ship?

Before we consider this question, here is what has happened since then: shortly after the double-plus-uncool novel SARS-2 corona-virus traversed several ponds and made landfall in the US, Mr. Powell and his fellow merry pranksters decided to water the money tree with super-gro. Or maybe it was hyper-gro:

The “QE” roach motel, illustrated by the history of the Fed’s balance sheet.

That is a rather noteworthy bout of inflation. Readers may have noticed that in the realms of finance and economics there has also been an inflation of verbiage describing never before seen extremes.  By its very nature, one would normally not expect to hear the term “unprecedented” very often, but it has become disconcertingly commonplace in connection with monetary pumping, deficit spending and debt growth.

…click on the above link to read the rest of the article…

What Horrified Fund Managers, Banks & UK’s Pension Minister Said About the Bank of England’s Sudden “We Don’t Rule Out” Negative Interest Rates

What Horrified Fund Managers, Banks & UK’s Pension Minister Said About the Bank of England’s Sudden “We Don’t Rule Out” Negative Interest Rates

“The stimulus the country urgently needs is not experimental and dangerous monetary policy.”

Andrew Bailey, the recently appointed governor of the Bank of England (BoE), is considering going where no other BoE governor has ever gone in the central bank’s 325-year history: into negative interest rate territory. On May 20, Bailey told British MPs that the BoE is refusing to rule out cutting the benchmark interest rate below zero in response to the virus crisis.

“We do not rule things out as a matter of principle. That would be a foolish thing to do,” Bailey told MPs. “But that doesn’t mean we rule things in either.”

That statement came just six days after Bailey had told FT readers that negative interest rates are “not something we are currently planning for or contemplating.” Since then, Bailey says he has “changed [his] position a bit.”

Bailey, who replaced Mark Carney as BoE governor just two months ago, is not the only senior BoE official who’s apparently warming to the idea of foisting negative interest rates on the British economy.

So, too, has the central bank’s chief economist Andrew Haldane, who last week said: “The economy is weaker than a year ago and we are now at the effective lower bound, so in that sense it’s something we’ll need to look at – are looking at – with somewhat greater immediacy. How could we not be?”

In the wake of the virus crisis, the Bank of England has already slashed interest rates by 0.65 basis points to 0.1%, its lowest level ever. It has also revved up its swap lines with the Federal Reserve and other central banks, offered billions of pounds of fresh liquidity support to banks, and expanded its QE program by £100 billion to £745 billion and extended what it buys to include corporate bonds.

…click on the above link to read the rest of the article…

“We Print It Digitally”: Futures, Gold Soar After Powell Vows “Lot More We Can Do”

“We Print It Digitally”: Futures, Gold Soar After Powell Vows “Lot More We Can Do”

It took Jerome Powell just two days to confirm what we said late on Friday, namely that with the Fed expected to boost QE by over $3 trillion (assuming Powell doesn’t cut rates negative), the Fed chair said that “there’s a lot more we can do” and just so everyone, including Ben Bernanke understands what the Fed does, he added “We print [money] digitally… we have the ability to create money digitally and we do that by buying Treasury Bills or bonds or other government guaranteed securities.” Of course, traders ignored the “other” part of Powell’s message, namely that the recovery would take at least until the end of 2021, or the implication that stocks first need to crash before the Fed unleashes more QE, and as a result S&P futures surged more than 2% overnight, rising above 2,920, with the last 30 points in that burst coming after news out of biotech company Moderna which reported it may be getting closer to a coronavirus vaccine.

Positive sentiment was boosted by ongoing reopenings with California’s economy is now three-quarters open after virus restrictions were eased, while Apple said it will open more than 25 U.S. stores this week, adding to almost 100 globally, and helping push Apple stock 1.5% higher.

“With the worst of the pandemic likely behind us, central bank supported equity markets are unlikely to re-test their lows,” said Seema Shah, chief strategist at Principal Global Investors. “Yet, while reopening momentum may well carry risk assets a bit higher over the near term, the tepid economic recovery and deep uncertainty over the virus outlook argue against a pivot to more risk-on positioning.”

…click on the above link to read the rest of the article…

Panic Sets In: Fed Promotes More Free Money

Panic Sets In: Fed Promotes More Free Money

Lawmakers need to do more says Minneapolis Fed President Neel Kashkari.

Free Money for 18 Months

The Fed cannot directly give money away so that burden falls on Congress. Kashkari follows Fed Chair Jerome Powell in seeking Congressional Action.

“They are going to need more. If this is a slow recovery, the way I think it is — I think we’re in this for months, a year, 18 months — there are going to be a lot of families that are going to need direct financial assistance,” Kashkari said Thursday during a virtual event with CBS. “I think a V–shaped recovery is off the table.”

“Putting money directly in the hands of laid-off Americans is, I think, the most direct way to get assistance, and then they will spend the money where they need it,” Kashkari said. “I just think money in the pockets of people who have lost their jobs is what we need right now until we can get the health care system to catch up and get control of this virus.”

I case you were wondering what sent the S&P in a huge 70-point S&P 500 U-Turn today, that reason is as good as any.

Powell’s Message

Yesterday, Powell made similar statements, just not as forceful. 

Recall that the Fed has lending powers, not spending powers. A loan from a Fed facility can provide a bridge across temporary interruptions to liquidity, and those loans will help many borrowers get through the current crisis. But the recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems. Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.

…click on the above link to read the rest of the article…

“A Legal Nightmare”: In Latest European “Freakshow”, EU Threatens To Sue Germany Over QE Ruling

“A Legal Nightmare”: In Latest European “Freakshow”, EU Threatens To Sue Germany Over QE Ruling

In the latest European farce, the European Commission threatened to sue Germany after the country’s top court questioned the legality of the ECB’s bond-buying program, Bloomberg reported over the weekend. In what Nordea’s Andrewas Steno Larsen dubbed the “ongoing freakshow in the Euroarea”, the EC president – a German no less – Ursula von der Leyen said that “The final word in EU law is always spoken in Luxembourg. Nowhere else.”

In other words, following last week’s shocking decision by Germany’s constitutional court which found that some aspects of the ECB’s QE are not constitutional and gave the ECB a 3 month ultimatum in which to demonstrate that QE was a proportional response, “we are gearing up for a remarkable legal stand-off between EU and Germany” writes Larsen, who adds that “the German head of the EU Commission, Ursula Von Der Leyen, is now openly battling her mother country’s constitution as she hinted that Brussels is considering taking legal steps that could result in Germany being sued in Europe’s highest court over the ruling from its constitutional court on ECB bond buying in a letter to the German Press Agency. Never underestimate the arrogance of EUR-crats!”

And here is the German European who is tasked with leading the onslaught on the German constitution.

German head of the EU Commission, Ursula Von Der Leyen.

And just to make sure the Germans are really pissed off, the ECB has tasked its staff to study if they should consider buying junk corporate bonds according to Reuters, “as if the ECB hasn’t manipulated credit prices enough already” as Nordea helpfully adds, noting that “ultimately, we think the EUR-ship will be glued together again – but markets are rightfully pricing in a risk of an ugly political showdown for the time being (wider spreads, relatively low EUR/USD etc).”

…click on the above link to read the rest of the article…

Blain’s Morning Porridge – May 11th 2020 – Bond Triggers Tumble

Blain’s Morning Porridge – May 11th 2020 – Bond Triggers Tumble

“When this baby hits 88 miles per hour, you’re going to see some serious…. “

After last night’s Boris announcement on not reopening the economy, it clearly doesn’t need any further explanation.. (US Readers – complex sarcasm alert.)

Over the course of the lockdown, I’ve been brushing up on Quantum Entanglement Theory and almost accidently I’ve created a time machine. I’m not quite sure how it works – so I reckon that qualifies me a job in Whitehall – but I was able to download The Morning Porridge from May 2021….. 

*********************

Blain’s Morning Porridge – May 2021

“Sell in May – oh don’t bother – you are already away…” 

It’s just over a year since 20mm Americans lost their jobs in a single month and United Airline’s failed $2 bln bond issue in the first week of May 2020 became the unstable pebble that triggered the most devasting landslide in financial market history. 

All around the globe, bond investors woke up to their doubts on just how much government QE programmes, miniscule yields, and the value of their collateral of unproductive obsolete economic assets could be. Equity holders caught the whiff of panic – figuring out rising P/E’s in a crashing global economy meant nothing – even if central banks were promising to intervene. Sovereign debt buyers went on immediate strike, citing concerns on debasement, inflation, and the implausible promises being made. 

The result was the most precipitious tumble in history – everyone tried to exit the markets and discovered the truth: “there are many ways to buy, but only one exit marked sell.” 

…click on the above link to read the rest of the article…

Eurozone Breakup Risk at New High

Eurozone Breakup Risk at New High

The German Constitutional Court made an unexpected and significant ruling last week against the ECB and Quantitative Easing.

QE Deemed Illegal

In the midst of a pandemic and an important presidential election, it is very easy  to miss globally significant events. 

Here is one that is way under the radar: The German Constitutional Court ruled the ECB’s QE Program Could be Illegal.

That is a landmark ruling that challenges the independence of the ECB and the authority of the Court of Justice of the European Union (CJEU).

In announcing the ruling, German Chief Justice Andreas Voßkuhle said the CJEU had approved a practice that “was obviously not covered” by the ECB’s mandate. Voßkuhle spent months crafting the 77-page decision, announcing the ruling just a day before his official retirement on Wednesday. “

Dismissing a 2018 CJEU decision to allow the bond purchases, the German court ordered the ECB to provide Germany with adequate justification for the program within the next three months. Should it fail to do so, the Bundesbank, Germany’s central bank, would no longer be permitted to participate in the program.

What it Means for the Future of the EU

Eurointelligence explains What it Means for the Future of the EU.

The ruling raises complex and potentially troubling issues for the EU as a whole. The German constitutional court has accused the ECB and the CJEU, the court of Justice of the European Union, of abusing their power, and of acting beyond their assigned competences. That concept is known in German constitutional law as acting ultra viresIn the German legal interpretation of European integration, all sovereignty still rests with the member states. The EU is clearly not a federal state, but a deferred power.

…click on the above link to read the rest of the article…

Fed Cut Back on Helicopter Money for Wall Street & the Wealthy

Fed Cut Back on Helicopter Money for Wall Street & the Wealthy

Tapered QE-4 Further, Still Hasn’t Bought Junk Bonds or ETFs, Was Just Jawboning.

Total assets on the Fed’s balance sheet rose by $205 billion during the week ending April 22, to $6.57 trillion. Since the week ending March 11, when the bailout of the Everything Bubble and its holders began, the Fed has printed $2.26 trillion.

But the $205 billion increase was the smallest increase since the mega-bailout began with its Sunday March 15 announcement. The Fed is tapering its purchases of Treasury securities and mortgage-backed securities (MBS). Repurchase agreements (repos) are falling into disuse. Lending to Special Purposes Vehicles (SPVs) has leveled off. And foreign central bank liquidity swaps, after having spiked initially, only ticked up by a small-ish amount.

The sharply reduced increases confirm that the Fed is following its various announcements over the past two years that during the next crisis – namely now – it would front-load the bailout QE and after the initial blast would then taper it out of existence, rather than let it drag out for years.

This concept was further confirmed by Fed Chair Jerome Powell on April 10 when he said that the Fed would pack away its emergency tools when “private markets and institutions are once again able to perform their vital functions of channeling credit and supporting economic growth.”

Overall, the Fed has cut the big QE purchases by 65% since the peak week (week ending April 1, $586 billion), to $205 billion:

Purchases of Treasury securities get slashed.

The Fed added $120 billion of Treasury securities to its balance sheet, the smallest amount since this began, down 67% from the $362 billion it had added during the peak week:

…click on the above link to read the rest of the article…

Credit Markets – The Waiting Game

Credit Markets – The Waiting Game

Everything and the Kitchen Sink

After the first inter-meeting rate cut in early March, we opined that further rate cuts were a near certainty and that “not-QE” would swiftly morph into “QE, next iteration” (see Rate Cutters Unanimous for the details). As it turned out, the monetary mandarins did not even wait for the official FOMC meeting before deciding to throw everything and the kitchen sink at the markets. Not only were rates insta-ZIRPed, but “not-QE” became “QE on steroids, plus”.

The federal debt monetization machinery goes into orbit. Moon landing next?

The “plus” stands for the alphabet soup of additional support programs for various slices of the credit markets, ranging from money markets to commercial paper to corporate bonds (investment grade only – for now). Alan Greenspan once said in Congressional testimony that if need be, the Fed would one day even “monetize oxen” – he may well live to see it.

What spooked the central bank was clearly the fact that corporate credit markets froze in response to the stock market crash and the lockdown measures. The latter have left a great many companies bereft of cash flows, not an ideal situation considering that trillions in corporate debt have to be refinanced in coming months and years. We have long argued that burgeoning corporate debt was the Achilles heel of the bubble, and this remains the case.

When the stock market crash started, money initially continued to flow into investment grade corporate bonds. LQD (investment grade corporate bond ETF) still made new highs in early March, while stocks were already in free-fall. But that didn’t last, and in less than two weeks LQD not only joined the crash, but began to trade at unprecedentedly large discounts to its NAV.

…click on the above link to read the rest of the article…

Bank of Canada Announces Provincial, Corporate QE

Bank of Canada Announces Provincial, Corporate QE

While the Bank of Canada kept its overnight rate at 0.25% as expected – as the alternative after three consecutive rate cuts would have been to cut below its effective lower bound of 0.25% and go NIRP – the central bank – which announced that the outlook is too uncertain at this point to provide a complete forecast – did surprise markets by joining the unprecedented QE bandwagon, when it announced that just like the Fed it would launch $10BN corporate QE (just investment grade for now, thank you, junk bonds coming next), while throwing in $50BN provincial QE to boot. It also

Some details, from the report:

The Bank is also announcing today the development of a new Provincial Bond Purchase Program of up to $50 billion, to supplement its Provincial Money Market Purchase Program. Further, the Bank is announcing a new Corporate Bond Purchase Program, in which the Bank will acquire up to a total of $10 billion in investment grade corporate bonds in the secondary market. Both of these programs will be put in place in the coming weeks. Finally, the Bank is further enhancing its term repo facility to permit funding for up to 24 months.

These measures will work in combination to ease pressure on Canadian borrowers. As containment restrictions are eased and economic activity resumes, fiscal and monetary policy actions will help underpin confidence and stimulate spending by consumers and businesses to restore growth. The Bank’s Governing Council stands ready to adjust the scale or duration of its programs if necessary. All the Bank’s actions are aimed at helping to bridge the current period of containment and create the conditions for a sustainable recovery and achievement of the inflation target over time.

…click on the above link to read the rest of the article…

“Down The Rabbit Hole” – The Eurodollar Market Is The Matrix Behind It All

“Down The Rabbit Hole” – The Eurodollar Market Is The Matrix Behind It All

Summary

  • The Eurodollar system is a critical but often misunderstood driver of global financial markets: its importance cannot be understated.
  • Its origins are shrouded in mystery and intrigue; its operations are invisible to most; and yet it controls us in many ways. We will attempt to enlighten readers on what it is and what it means.
  • However, it is also a system under huge structural pressures – and as such we may be about to experience a profound paradigm shift with key implications for markets, economies, and geopolitics.
  • Recent Fed actions on swap lines and repo facilities only underline this fact rather than reducing its likelihood

What is The Matrix? 

A new world-class golf course in an Asian country financed with a USD bank loan. A Mexican property developer buying a hotel in USD. A European pension company wanting to hold USD assets and swapping borrowed EUR to do so. An African retailer importing Chinese-made toys for sale, paying its invoice in USD.

All of these are small examples of the multi-faceted global Eurodollar market. Like The Matrix, it is all around us, and connects us. Also just like The Matrix, most are unaware of its existence even as it defines the parameters we operate within. As we shall explore in this special report, it is additionally a Matrix that encompasses an implicit power struggle that only those who grasp its true nature are cognizant of.

Moreover, at present this Matrix and its Architect face a huge, perhaps existential, challenge.

Yes, it has overcome similar crises before…but it might be that the Novel (or should we say ‘Neo’?) Coronavirus is The One.

So, here is the key question to start with: What is the Eurodollar system? 

For Neo-phytes

…click on the above link to read the rest of the article…

Takeover

Takeover

We can’t print ourselves out of this crisis again, but that isn’t stopping the Federal Reserve from trying. Thursday’s intervention program, the latest in a string of panic moves to keep the financial system afloat, constitutes a complete takeover attempt of the market ecosphere, only the buying of stocks directly is last missing piece of eventual complete central bank control of equity markets. But seizing control of the bond market is the nearest equivalent step.

Not only that, the Fed is buying junk corporate debt propping up companies that should be let to fail as Chamath Palihapitiya pointed out poignantly this week. But not this Fed, no, with its actions it is again setting up the economy for yet another slower growth recovery, financed by even more debt.

QE doesn’t produce growth, that is the established track record:

Nobody wants to talk about the consequences to come following this crisis, but that doesn’t mean the consequences won’t be a real and present reality.

No, the Fed, while trying to save the world, is once again engaged in vastly distorting asset prices from the fundamental reality of the economy. It is in essence again laying the foundation for the next bubble, while the bursting of this bubble has yet to be fully priced in.

Even the Wall Street Editorial Board has made it perfectly clear what this is all about:


The @WSJ Editorial Board tells you what the new price distortion is all about: Save Wall Street and the top 1% and hope for trickle down economics later:https://www.wsj.com/articles/the-feds-main-street-mistake-11586474912 …

View image on Twitter

Asset price inflation to save markets in the hopes of trickle down growth to come.

Absurd.

The message the Fed is again is sending is to invite reckless behavior on the side of investors, the same reckless, TINA, fueled behavior that got us the bubble blow-off top in February.

…click on the above link to read the rest of the article…

#MacroView: Is The “Debt Chasm” Too Big For The Fed To Fill?

#MacroView: Is The “Debt Chasm” Too Big For The Fed To Fill?

Over the last month, the Federal Reserve, and the Government, have unleashed a torrent of liquidity into the U.S. markets to offset a credit crisis of historic proportions. Here is a list of programs already implemented which have already surpassed all programs during the “Financial Crisis.”

  • March 6th – $8.3 billion “emergency spending” package.
  • March 12th – Federal Reserve supplies $1.5 trillion in liquidity.
  • March 13th – President Trump pledges to reprieve student loan interest payments
  • March 13th – President Trump declares a “National Emergency” freeing up $50 billion in funds.
  • March 15th – Federal Reserve cuts rates to zero and launches $700 billion in “Q.E.”
  • March 17th – Fed launches the Primary Dealer Credit Facility to buy corporate bonds.
  • March 18th – Fed creates the Money Market Mutual Fund Liquidity Facility
  • March 18th – President Trump signs “coronavirus” relief plan to expand paid leave ($100 billion)
  • March 20th – President Trump invokes the Defense Production Act.
  • March 23rd – Fed pledges “Unlimited QE” of Treasury, Mortgage, and Corporate Bonds.
  • March 23rd – Fed launches two Corporate Credit Facilities:
    • A Primary Market Facility (Issuance of new 4-year bonds for businesses.)
    • A Secondary Market Facility (Purchase of corporate bonds and corporate bond ETF’s)
  • March 23rd – Fed launches the Term Asset-Backed Security Loan Facility (Small Business Loans)
  • April 9th – Fed launches several new programs:
    • The Paycheck Protection Program Loan Facility (Purchase of $350 billion in SBA Loans)
    • Main Street Business Lending Program ($600 billion in additional Small Business Loans)
    • The Municipal Liquidity Facility (Purchase of $500 billion in Municipal Bonds.)
    • Expands funding for PMCCF, SMCCF and TALF up to $850 billion.

Here is the Fed’s balance sheet through this past Wednesday (estimated at time of writing)

It is currently expected that over the course of the next several quarters, the Fed’s balance sheet will grow to $10 Trillion in total. Such would be a $6 Trillion expansion from the previous levels.

…click on the above link to read the rest of the article…

This Curve Will Never Flatten Again: Fed Balance Sheet Hits $6.1 Trillion, Up $2 Trillion In 1 Month

This Curve Will Never Flatten Again: Fed Balance Sheet Hits $6.1 Trillion, Up $2 Trillion In 1 Month

Here is an example of a curve that everyone wants to flatten.

And here is an example of a curve that while some  – namely the bears – also wants to see collapse, it will never do so  as that would mean the end of western civilization – which is now entirely contingent on the level of the S&P500 – as we know it. We are talking of course, about the Fed balance sheet which is now well above $6 trillion to make sure stocks and bonds don’t crash.

With that in mind here is all you need to know about this particular “curve”:

Total Fed assets grew by $293Bn to $6.08 trillion as of close, April 8, with the increase primarily driven by $294bn of Treasury securities added to the SOMA portfolio. Through its credit facilities, the Fed also extended $680bn in temporary liquidity to various counterparties, a decline of $61bn from last week.

In the past month, the Fed balance sheet has increased by $2 trillion, more than all of QE3, when the balance sheet increased by $1.7 trillion over the span of a year. The balance sheet increase has also been faster on a weekly basis than anything observed during the financial crisis, increasing as follows:

  • April 8: $$272BN
  • April 1: $557BN
  • March 25: $586BN
  • March 17:$356BN

Since the Fed needs to monetize all debt issuance this year, and probably every other year now that the Treasury and Fed have merged and helicopter money has arrived, the pace of the current QE is like nothing ever observed before:

And since we know what the Fed’s POMO schedule is for next week: an increase of $225BN in TSYs and MBS…

…click on the above link to read the rest of the article…

QE-4 Cut in Half this Week. Fed’s Helicopter Money for Wall Street & the Wealthy Hits $1.8 Trillion in 4 Weeks

QE-4 Cut in Half this Week. Fed’s Helicopter Money for Wall Street & the Wealthy Hits $1.8 Trillion in 4 Weeks

Regular folks need not apply.

Total assets on the Fed’s weekly balance sheet jumped by $272 billion in one week, to $6.08 trillion, according to the Fed’s release Thursday afternoon. Since the Fed started this spree of Wall Street and asset-holder bailout programs four weeks ago, total assets have exploded by $1.77 trillion.

But note: This increase of $272 billion is less than half of the increases in the prior two weeks. You can see this in the chart as the distance between the two markers this week shrank by half compared to the prior two weeks:

The assets on the Fed’s balance sheet are mostly composed of Treasury securities, mortgage-backed securities (MBS), repurchase agreements (repos), “foreign central bank liquidity swaps,” and “loans.” We’ll go through them one at a time.

Treasury securities.

The Fed added $293 billion in Treasury securities during the week of the balance sheet. But the total balance sheet increased by “only” – so to speak – $272 billion. So some of the other assets actually declined. And we’ll get to them.

This $293 billion spike in Treasury securities this week was also lower than the spikes in the prior weeks which averaged about $350 billion. This is one factor in the cut-in-half QE-4. For now, the Fed is sticking to its announcement that it would drastically cut QE from the prior weeks.

The Fed is now adding only Treasury securities with maturities of over one year (coupon Treasury securities, TIPS, and Floating Rate Notes). The balance of T-bills (non-coupon securities with maturities of one year or less) has remained roughly flat for four weeks, at $326 billion, and the Fed has only bought enough to replace T-bills that matured.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase