So, the latest FOMC policy announcement is here. A new mortgage-backed securities buying spree of $40B per month — but it seems to be open ended, so before you do the math, its either $480 billion over the next 12 months, or its appreciably higher.

Get some refi papers and take advantage of our new low low rates.

Also as part of the announcement (as expected) the period of accommodation is extended to 2015. So on second thought, there is little need to hurry those refi papers after all.

As we continue reading, its noteworthy that this $40 large is on top of the existing twist operations of $45 billion per month til the end of the year. That’s $85 billion per month in September, October, November and December.

Those of you who insisted that September was too close to the election for more Fed action, here is some humble pie for you.

I want to see clarification as to whether this is truly open-ended (it appears to be). That is potentially a significant upgrade to liquidity, a bold spark for equities, Gold and commodities.

The fundamentals are not particularly appealing to me as an asset manager. The economy, as the Fed acknowledged   appears to be weakening. That seems to be continually trumped by Fed action.

Category: Federal Reserve

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

82 Responses to “QE Wheeeeeee!

  1. PeterR says:

    Gather round the feed trough, all ye whores and swine!

    Hard to imagine that the (now larger) House of Cards will fall down gracefully.

  2. TLH says:

    More government manipulation. Do you really believe the public will buy into a manipulated market? More financial repression. The greatest robbery in history continues.

  3. SteveC says:

    As soon as certain Republican lawmakers became vocal about their desire to replace Bernanke if Romney won the White House, I knew QE3 was going to happen BEFORE the election.

  4. AnnaLee says:

    Can’t resist putting a Scott Burns in here:

    “Building the Next Financial Crisis, One Loan at a Time
    Scott Burns The foundation for our next financial crisis is being laid right now. The question isn’t whether we will have another, but when. The biggest clue can be found on websites where you can search for mortgages to purchase or refinance a house.

  5. jeff in indy says:

    TLH queries: “do you really believe the public will buy into a manipulated market?”
    to which PeterR had gracefully pre-supposed: “Gather round the feed trough, all ye whores and swine!”

    “hey doc, can you increase the frequency of that morphine drip?” asks the guy who shot himself in the ass with his own weapon.

  6. Through the Looking Glass says:

    I wonder how long the home buying movement will last till the rates go up to slow the home buying movement.
    Isn’t that the teeter totter effect we’ve been hearing about or is it Cinderella story time from now on till the Ben’s helicopter lands and turns back into a pumpkin ?
    I can whisper in your ear ” houses are still overpriced” pass it on. And count on a new campaign from the NAR to extoll their usual drivel.
    Correct me if Im off but if the public starts buying the overpriced inventory, and the banks and mortgage companies have been on the bailout dole for 4 years doesn’t that mean they are getting paid back double for their losses ? Like the housing crash didn’t even happen to them , just destroyed everyone else?
    The penthouse effect, sh*t doesn’t flow uphill.

  7. george lomost says:

    My heating bills are now guaranteed to go way up. Oh well, no Xmas gifts for anyone this year.

  8. DiggidyDan says:

    Heh, looks like my stops won.t get triggered today, now to use the extra cash in mbs etfs!

  9. joinvestor says:

    The press conference this afternoon at the Fed should hopefully clear up whether this is truly open-ended or not.

    In the larger view, I believe history will vindicate Bernanke and the Fed. I also believe that Bernanke has a plan for avoiding the runaway inflation so many fear as a result of the historically unprecedented monetary easing.

    On a related side topic of choosing professionals to lead the crisis cleanup, it strains credulity that the President could have been so naive as to have put Geithner in to any position within his administration, but maybe in all the smoke and rubble of the financial meltdown, it was inevitable that the President mistook one of the enablers of the crisis for a member of the crises clean-up crew. As for Summers, the fact that he cannot see the world as it really exists (To theorize why there is a lack of women in advanced positions: how about thousands of years of objectification and role suppression? Clueless.), must have snowed the President also. In both these cases to the President’s credit, he understood the problem and did what he could to ease out both of these folks as soon as he understood that there was a problem.

    Back to the topic at hand, in picking Bernanke, the President chose the ideal person for the job. Someone who is apparently unmoved by emotion or personal political agenda. Someone whose only agenda is to fulfill the Fed’s dual mandates with data about the world as it really exists. Someone who has studied previous financial meltdowns like the Great Depression and like Japan’s lost decade and who understands the mechanics well enough to translate them to the present day and develop new economic mechanisms to help get us dug out of this financial collapse. Someone who is shockingly good at his job at the Fed, as well as outstandingly good at keeping at arms length others withing the government who are snakes with selfish intentions rather than the good of the economy at heart.

  10. DeDude says:

    The question is what about collateral damage from this policy (pun intended). Yes the economy will get a boast when lower mortgage rates allow some people to purchase a home or to refinance and lower their monthly payments. It will also give a boast to house prices, which already had or were about to turn on their own – and that will have multiple direct and indirect positive effects.

    But what about the negative effects? The small savers will find it even more difficult to get any return on safe investments and some of them pretty much use every penny of their investment returns on consumption. Pension funds and insurance companies that are restricted to safe investments will increasingly get into trouble as they no longer can find safe investments that will even keep up with inflation. In both cases, if they decide to get out of their problems by getting into more risky investments they will simply help blow new bubbles, since there is already way to much risk money available for the few productive investment opportunities in this slow economy.

    Economic growth is 100% driven by growth in consumption. QE3 will increase available consumption money for a small group who can lower their monthly housing cost. It may also increase house prices and induce more consumption from people who get more optimistic. But the flip side of that is people who keep pension funds or get spending incomes from safe investments. They will lose optimism when their pension funds cannot keep up with inflation or curtail their spending as their investments cannot produce much. Does anybody have hard data on these things to support the idea that QE3 will indeed stimulate growth more than it hampers growth?

  11. VennData says:

    Sorry your cash is doing awful, still.

    I wonder what on earth made you think this wouldn’t happen, and the resultant market action wouldn’t happen? Oh let’s not quibble with what-ofs and where-fors…

    I guess it’s good to feel angry at the Fed for keeping interest rates low. I guess you are justified at wanting high rates, and high long-term rates so your securities of choice will rise. Good plan. Well executed.

    Hey guys, let me know what you’re planning so I can continue to do the opposite. Thanks. And keep that anger flowing… That will get you a lot.

  12. joinvestor says:

    Here is the link to the live stream at the Fed to watch the press conference this afternoon. Hopefully they should answer whether this truly is as open-ended as they vaguely seemed to imply with their statement earlier today.

  13. newulm55 says:

    Sweet more QE!!!!!!! Look like the fed want Obama 2nd term (the likely result anyway, Mittens is about a big a joke as BHO). Or more likely Big Ben just wants to keep the market looking good until he can bail out next year and head back to the school room where his actions look much better on paper and in theory than in the real world.

    The ramp in gas prices, food and energy are going to be great for the working poor and middle class, but hey the fed only cares about banks and the top 1%, so this is a real positive overall.

  14. BuildingCom says:

    This announcement confirms three certainties.

    1) Housing prices are grossly inflated an falling

    2) They will do anything to keep housing prices grossly inflated

    3) This too will fail

    Get what you can get for your house today because it’s going to be much much less tomorrow for many many years to come.

  15. dead hobo says:

    BR decided:

    The fundamentals are not particularly appealing to me as an asset manager. The economy, as the Fed acknowledged appears to be weakening. That seems to be continually trumped by Fed action.

    This is one of those hold your nose and buy times. I My criteria is upward trend with no discernible end in sight, or a defined end, such as when QE2 ended and a month or two later the markets fell. I finally believe the cattle that reads tea leaves.

    Long terms treasuries will sell off and help fuel the rally. I expect to see that algo ‘grind up’ starting soon. I don’t know what else to call it, but the S&P goes up at a 30% angle for a few months, then resets for another grind or falls a little before another grind-up starts. I’m back in with a buying program that will last a few weeks, then hold until the end appears. Given the infinite put just placed by the Fed, I don’t think even Greece failing will be more than a little blip.

    The odd thing is this money dump will cause oil prices to jump, causing the economy to stagnate, causing more QE to be pumped in, probably at increasing scale just to overcome the oil drag introduced by QE3.

  16. mpappa says:

    You’re love is like Bad Mortgages, bad mortgages is what I need…oh oh oh…

  17. slowkarma says:

    I think one key to QE is that each episode must be shown to accomplish something — at this point, with the markets, it’s confidence that’s lacking as much as anything. IF QE3 isn’t seen to do much, and the investing public becomes convinced that the FED is out of ammo — that there IS no help coming — then things could get ugly.

    joinvestor said, “I believe history will vindicate Bernanke and the Fed. I also believe that Bernanke has a plan for avoiding the runaway inflation so many fear as a result of the historically unprecedented monetary easing.”

    You may be right, but I’d like to know what the answer is. In the past, in episodes of heavy inflation, the answer has turned out to be a crushing recession. Giving from where we’re starting, a crushing recession doesn’t seem like the best idea.

    I would like to see some numbers on spending by the baby boomers. Is it possible that the biggest, fattest generation in history has gotten scared about things like possible long-term care, shrinking returns on savings, shaky pensions funds, etc., and has simply stopped spending?

  18. dead hobo says:

    Look, if I make some money off of this, I will spend a lot at XMAS. So it might work this time.

  19. Concerned Neighbour says:

    In other news, stocks will never, ever, ever, ever go down again. Ever.

    I feel sorry for all of us, but especially for folks like Barry who are face with advising their clients to gamble (the fundamentals be damned) or stay in fixed income and lose to inflation.

    Bernanke is accelerating the middle class’ demise. Thank you, Ben Bernanke.

  20. Concerned Neighbour says:

    And BTW, once again, it appears QE was miraculously not priced in. Funny how that works.

  21. joinvestor says:

    Here is the link to the live stream at the Fed to watch the press conference this afternoon. Hopefully they should answer whether this truly is as open-ended as they vaguely seemed to imply with their statement earlier today.

    The press conference should be starting in a few minutes — 2:15pm EST.

    To comment on the original article, it’s my belief that trying to make investment decisions based on the economy alone is risky because there is more to markets than simply the economy.

  22. lburgler says:


    That’s my political slogan.

  23. joinvestor says:

    If you’re listening now, Bernanke addressed pretty thoroughly every concern expressed by comments on this blog topic.

    And yes, Bernanke said the bond buying is open-ended. Furthermore, the low interest rates will be here even AFTER the jobs recovery takes off.

    As you can hear from the Q&A some of the questions are getting a bit politically emotional. Bernanke is having to repeat himself. Repeatedly.

  24. nickthap says:

    Unfortunately, this is just going to drive up the price of houses in already over-heated markets like Austin. Oh well, I guess I can kiss buying a house here goodbye.

  25. brianinla says:

    In 3 years there will be 50 million on food stamps thanks to Fed policy. All the Fed’s moves are purely to funnel money to their financial overlords.

  26. AHodge says:

    cool glad i waited to refi my mortgage at 2.8%
    and get out from under B of A
    helping just the right people

  27. contrabandista13 says:

    Open-ended, qualitative, MBS… I like this… I like this a lot…! Ben…. You go girl….! Now let’s see if we can get the policy makers to do their job…

  28. AHodge says:

    im a borrower
    i push all my chips into a manipulated market
    please please manipulate me
    but there is always envy
    if i had $50 mio net worth or a bank
    i could borrow short tem at zero, or lower.

  29. Global Eyes says:

    You can hear stockbrokers calling grandmothers and offering dividend-paying common stocks to increase their yields. The Greenspan put has become the Bernanke binge.

  30. nickthap says:

    Sorry to seem like such a dingbat, but is this the strategy: By buying MBSs, the Fed is basically encouraging lenders to make more mortgages available, because the lenders know they can sell the securities to the Fed. And they way you do this is by lowering rates so more potential buyers enter the housing market?

  31. AHodge says:

    so fannie and freddie will take all this in at 2.8%
    all the fraud at the margin /prepaying/bad collateral/ 14 other flaws mortgage paper
    at prob less than 100 bps over treasuries
    these are future $100billion plus losses for FF or whoever holds the bag
    the fed makes fannie pay??
    lets remember the ultimate buyside guarantor of mortgage paperwe have met the guarantor
    and he is us
    to quote paul volcker on this 4 years ago
    QUOTEthe federal reserve founders are rolling over in their graves UNQUOTE
    Paul Volcker FORMER presidential advisor

  32. bear_in_mind says:

    Barry sez: “The economy, as the Fed acknowledged appears to be weakening. That seems to be continually trumped by Fed action.”

    Bear in Mind sez: A minor quibble, but ‘Fed action’ may be impacting equities, but is sure doesn’t seem to be strengthening the economy. So, I would question Fed action = trumping weakening economy. But I acknowledge the take-away message is: “risk on” in equities for the foreseeable future.

    That said, I’m sure I’m not the only one who’s going to be keeping some powder dry for the next blast of turbulence or the showdown over the oncoming fiscal cliff.

  33. AHodge says:

    to be clear make that additional $100 bio PER YEAR losses
    additionalto the say half billion fannie and freddie are in the hole already..
    YEE HAH we are all Slim Pickens ridin the BIG ONE down

  34. AHodge says:

    oops dr evil says make that a $1/2 Trillion

  35. lburgler says:

    Barry, what happened to your best blog followers? It seems like all the posts these days barely make any sense. They could be generatedby web bots for all I know. And it seems like the post volume is dwindling.

  36. willid3 says:

    but even if the Fed raised their rates would it matter? cause unless some one wants a loan, bank rates will stay low. unless we rearrange how banks operate, rates will stay low.

    there is no demand for loans now. raising rate will lower what demand there is even lower.
    and bonds are related to demand for loans too. their rates wouldnt rise just because fed increased their rates

    and how is this time different than it was in 2001-2007? seems like we had low rates back then too. and we didn’t hear complaints about them then did we?

    oddly enough its been more than a decade since banks paid any thing for deposits. thats not their business any more.

  37. BuildingCom says:

    All this does is merely prolong the pain by slowing the housing price declines. They’re still going to decline to early 1990′s levels. The Fed has extended the duration of the price decline, not the depth.

    Wouldn’t it be much less painless to allow housing to crater to its’ intrinsic value?

  38. WallaWalla says:

    I’m trying so hard not to be a doom and gloomer from news like this, but it’s becoming quite difficult.

    I’m young, have got just about no assets, and joined the workforce in 2011. Could somebody please reassure me that this is not just kicking the can down the road so things blow up bigger ten years from now? I need to continue educating myself on finances obviously, but it appears that this will help 1) middle age people who stupidly bought a house they couldn’t afford, 2) the bankers and FIRE swindlers that peddled mortgage based products, 3) those with access to credit (unfortunately, I’m not a part of this group as I’ve struggled to pay off an unexpected and unavoidable medical bill on top of car insurance, rent, and school loans).

    Quite simply, the unknowns inherent to these Quantitative Easing measures terrify me, and I’m still trying to figure out how they will help me in the short or long term.

  39. b_thunder says:

    Bernanke and FOMC just signed a death warrant for the economy and for the Fed itself.
    From 2009-2011 the top 1% got 93% of all income gains. What did Ben do? Ensured a moonshot in asset prices. So, in the next 24 month I expect the top 1% to get 193% of all income growth… All jokes aside, does he really think that by FORCING people to pay more for gasoline, heating/cooling, and food would somehow cause the employment to grow? No, it will cause the exact opposite, which in turn will cause more “stimulus”, until such time that it won’t make sense to go to work at all!

  40. Moss says:

    Print to inflate, and more free money to the banksters is the only way they can deal with the debt overhang and support the banks. The natural market tendencies are for massive deflation, they simply will not allow that. How will it all end? Is an exit even possible?

  41. Futuredome says:

    Sorry Moss, but “natural market tendacies” are what the market wants, not your intellectual beliefs. The market does not want to deflate, but reduce debt commitment which this policy is for.

    This move is not really “QE3″. This is about as close to a “NGDP” target as you will get from these people. If Obama gets back in there and the Kochs lose the house, I suspect that may end the purchases as Obama will spend like mad. Hence, the Kochs are gonna want to keep the House at all costs now.

  42. Through the Looking Glass says:

    Iburgular sez: Barry, what happened to your best blog followers? It seems like all the posts these days barely make any sense.

    Well boss its like this: You can speak of all of this manipulation in loftier terms , juxtapose the European crisis against the China demise and put it financial speak that few understand but thats just to play with your monkey. We’ve all been in this too long and the concepts are boiled down so that now its all understandable drawn on a Big Chief tablet in crayon. I suggest that you buy a big economics book and read it for enjoyment but as it reads on the bathroom wall :
    “What are you looking up here for? The joke is in your hand”

  43. BuildingCom says:

    “The natural market tendencies are for massive deflation, they simply will not allow that. How will it all end? Is an exit even possible?”

    You are quite correct. But their efforts are failing. Look out below.

  44. MayorQuimby says:

    Anyone who thinks this is anything but horrific has rocks in their head. Americans should be panicking right about now.

    But they won’t – until things are completely out of control. I think markets were given a green light to make exactly that happen (massive inflation). We shall see.

    It won’t stop until the USA stops spending more than it takes in. inflation and printing are cheats used to bypass this at the expense of everyone. Eventually – the water will reach everyone’s feet. Right now – those at the “top” are protected but you will know when they start to feel it!

  45. gordo365 says:

    So – maybe this is a stupid question – but how does putting pressure on long term rates help the economy?

  46. Futuredome says:

    They aren’t putting pressure on long term rate. The hope is long term rates rise.

    The goal now is to buy up as much agency MBS to enough debt is written off to get corporate and other private interest rates down which are to high according to the market.

  47. kek says:

    BuildingCom Says:

    September 13th, 2012 at 3:11 pm
    All this does is merely prolong the pain by slowing the housing price declines. They’re still going to decline to early 1990′s levels. The Fed has extended the duration of the price decline, not the depth.

    Wouldn’t it be much less painless to allow housing to crater to its’ intrinsic value?

    What to $50 per square foot in Westchester County?

  48. dead hobo says:

    The more I think about this, the better it looks. There’s something for everyone and over the 12 to 24 months there may even be significant economic improvement. The stock market might even discount actual earnings pretty soon. The big deal is the floor. I don’t have to worry about liquidity induced collapses now. Europe has hit bottom or soon will and China is skimming along the bottom. They have nowhere to go but up and probably will over the next 12 – 24 months. I’m in and buying more tomorrow and more later.

    People feel safe in the markets if they believe they can wait out a correction within a few weeks, or months if it’s a bad one. The least trustworthy people are the financial pundits on tv and blogosphere (sorry, BR but, as I wrote, an asset manager’s motivations and business model is 100% different from the individual investor who only makes money if their assets increase in value while asset managers earn based on a percentage of value under investment) .

    This comfort zone is probably back. How end of year is handled will firmly define it. A successful transition from operation twist to something that feels as good or better plus continued mbs buying will bring back the retail trade and new cash.

  49. Petey Wheatstraw says:

    Lord have mercy, BR — 45 comments before 5:00. Haven’t seen that kind of action since the last time we melted down, psychologically.

    I still believe that credit/debt is not going to fix this. It might slow the descent, but the bottom is nowhere in sight.

    The consumer must be bailed out, directly (making the banks whole, in the process, in order to reset the game.

    If this keeps up, 1% of the heads will roll.

  50. Pantmaker says:

    @ Gordo- in theory lowering long term rates cuts borrowing costs for consumers and businesses. With interest rates already in the gutter this might seem like a ridiculous policy…it is. Their intention now is to encourage investment in the equity markets by removing the ability to make a decent return in safer investment vehicles.

    This is not sustainable.

  51. BuildingCom says:

    Hey “Kek”,

    You said you were in the construction biz. I asked you to demonstrate your experience yet you seem only capable of responding with insults.

    Why is that “kek”? Did you lie to the reading public about your “construction experience”?

  52. VennData says:

    GOP Says Fed Move Marks Obama Failure

    So anytime anyone in gov’t tries to do anything to help, that proves that the prior actions were failures. That’s an interesting theory.

    Is that why the GOP doesn’t allow Obama’s jobs bills to pass? Because that just proves that everything in the past has been a failure? So why do tax cuts for the rich, again? If they’ve been a failure? Why GOP mavens, why? ROFL! Republicans, you guys are clowns.

  53. RW says:

    The economy is not a morality play and is only a political play to the degree dollars are votes for or against consumption: Those who predict lightning will strike us all dead for some collective violation of Catholic/Protestant morals or conservative/liberal principles are unlikely to get things right either in terms of direction or in terms of timing; e.g., that which is unsustainable will stop …eventually …if it really is unsustainable.

    “I respect faith, but doubt is what gets you an education.” – Wilson Mizener

    Those in the mood to make some money as well protect themselves but who feel the need for an accessible framework — AKA not academic and not highly complex — to understand the larger economy as well as the main effects of Fed action (monetary) vs. government spending (fiscal) could do a lot worse than studying this interview with Ray Dalio* of Bridgewater Associates; it’s fairly lengthy and not exclusively devoted to macroeconomics but his framework is not hard to understand with a bit of study and it appears quite consistent with heterodox macroeconomic models such as Minsky’s which is to say, models that actually work.

    *Those unfamiliar with Dalio and/or Bridgewater should do a search; the man knows what he is talking about (but I wouldn’t want to work for him).

  54. Futuredome says:

    If it works and short term rates respond, long term rates say the 10 year bond will be back over 2 heading toward 3 by Christmas and then back toward 4 by spring.

  55. rktbrkr says:

    Ben Shalom has joined O’B tag-teaming Willard.

    Lots of irony here with Wall street soaring under the stewardship of O’B while the Repub investment banker grinds his teeth. Maybe the $4 gas this produces going into the November vote will help Willard more than the rally helps O’B.

    The Fed will never be able to get out of their positions, a quick spike in (LT) int rates wipes them out. Time for a new currency & new central bank.

    Ron Paul retired too soon

  56. Futuredome says:

    Uh, rktbrkr, a quick spike in LT int rates is what they want. Shalom Paul would be destroyed by the deflationary spiral he would cause.

  57. rootless says:

    VennData wrote:

    Sorry your cash is doing awful, still.

    So what? The prospective return from equities is quite low, even though it is somewhat higher than the one from cash, as long as it works out well. But it is coming with high valuations at the current time, and therefore high risk. Is the small prospective return worth the current high risk that comes with equity investments?

    I wonder what on earth made you think this wouldn’t happen, and the resultant market action wouldn’t happen? Oh let’s not quibble with what-ofs and where-fors…

    I think it is foolish to feel one’s own views vindicated just because of some psychologically driven short-term “market action”.

    Hey guys, let me know what you’re planning so I can continue to do the opposite.

    I’m planning to totally stay out of the equity market for long-term investement, since it is too risky for my taste at a PE10 ratio of about 23. The probability of large losses due to a likely market crash within a few years is very high at such valuations. On the other hand, I’m happily speculating with stocks on a short-term horizon, using a mathematical-statistical quantitative algorithm that works whether the market is going up or down.

    Now, please do the opposite.

  58. TLH says:

    Bernanke will be known as Bubble Ben in history books.

  59. rootless says:

    WallaWalla wrote:

    I’m young, have got just about no assets, and joined the workforce in 2011. Could somebody please reassure me that this is not just kicking the can down the road so things blow up bigger ten years from now?

    Sorry, no can do. Because I think that is exactly what Bernanke & Co. are doing. Trying to kick the can down the road even more. They don’t know what else to do. Hoping for some “wealth effect” from their actions. It smells like desperation to me.

    Economic indicators are downtrending again, globally. I doubt increasing the cash reserves of the banks even more will change that, stuff off the global recession, or decrease the unemployment rate. I don’t think we will have to wait for another ten years.

  60. Syd says:

    There are markets for financial assets, as for other types of goods. In markets prices are determined by buyers and sellers. When the Fed habitually jumps in on the buy side, markets become distorted; prices of financial assets are driven higher than they otherwise would be.

    These pumping operations, for at least a decade, have caused bubbles in equities, commodities, and real estate. Meanwhile Treasury and Agency securities are essentially under price controls. This is de facto socialism and central planning for financial markets.

    Monetary policy is a means to an end. The Fed says the goal is to reduce unemployment. I doubt that, or if it will work. I also think the Fed recklessly encourages bubbles in financial assets, which cause price distortions in markets for real goods, like houses, food, and fuel.

    I would be willing to support monetary easing, to help those suffering most from the weak economy, if the funds were dispersed more broadly. For example, let the Fed cover payroll taxes and food stamps. Current monetary policy is just another form of trickle down, and a risky one at that.

  61. TomL says:

    QE 3: the Mother of all Poison Pills, aka Bernanke’s going-away present if Willard is elected president.

  62. iamtheonepercent says:

    Monetary base will expand by $800 billion with QE3, through end of next year. Compared to the >$100 trillion in the national balance sheet between households and corporations, this is quite small. In terms of the stock market, we will see a substitution effect at the margin between cash and other securities to account for this increase in money supply, but it will run out of steam pretty quickly, as this money will be absorbed quickly.

    In terms of achieving the Fed’s employment mandate, the effect will be somewhat muted. The wealth effect will support consumption a little bit. But because this liquidity goes to where the market wants it to go, much of it is being channeled into commodity markets, which will reduce disposable income due to higher gasoline prices. Net effect might be zero or negative on GNP and employment which will take a few months for the market to absorb.

    Short-term (next 2-4 weeks), the market wants to run up. Longer term (next 4-12 weeks) it will be looking for confirmation in GNP and employment numbers – and most likely will be disappointed. Not a good time to get longer equities if you are “buy and hold” type, though short-term traders will find it profitable on the long side for now.

  63. carleric says:

    Same tired reactions from the same group for the most part. The funniest thing that happened today was Bennie and his Squirrels belief that their actions will increase the wealth effect and boost the economy. Hasn’t this moron tried this before? And how did that work out? Maybe we really need another “pay off your campaign contributors” stimulus package. Or how about a jobs spending bill? You folks are just too funny. If this is the best our “brightest minds” can do with all their fancy degrees, perhaps we should shut down the Department of Education because that is really money down a rathole.

  64. Moss says:


    By natural market tendencies I was referring to the general economy not just the stock market.
    The monetary policies are all geared to fight off deflation, which is what would happen on a large scale w/o the Fed and other Central Bankers buying assets. The battle is against deflation, has been and will continue to be. The question now is the efficacy of the latest action.

    It will be interesting to hear what Shilling, Rosenberg and Zulauf have to say.

  65. [...] per U.S. household figure set in 2008. It should be obvious, but note that these numbers are pre-QE3. Share this:TwitterFacebookLike this:LikeBe the first to like [...]

  66. RW says:

    @iamtheonepercent, agreed, but in making this an “open ended” operation rather than setting a target the Fed is clearly attempting to crank the expectations channel so results will depend on how ‘irresponsible’ the market decides the Fed is.

    In the meantime, good trading.

  67. Jim67545 says:

    Such rending of clothes and pulling of hair! If the sky truly is falling, it has been postponed for a while. I find this gives more certainty, of a sort.

  68. KmanNYC says:

    Can someone explain how this Fed action can, at least theoretically, help the economy? I’m at a lost. The way I see it, all this does is suppress already depressed interest rates. This is not going to cause people to run out of their houses and get a mortgage.

    Also, is it really the Fed’s intent to force investors into equities? It’s really unsettling that the steward of our economy believes the stock market can more than marginally sway the economy.

  69. danm says:

    Short-termism has been accelerating in the last 2 decades. We’re now seeing the hockey stick effect.

    We won’t get much long term investing in this environment. And this guarantees future inflation.

  70. About all I can say is I didn’t think the Fed would implement more QE, but am not the one in charge…so I’ll have to adjust my thinking accordingly…easier to do since I’m strictly a daytrader.

  71. bear_in_mind says:

    I don’t know much, but I can’t see this game ending well for anyone in the 99 percent. The whole QE enterprise seems like pushing on a macro-string, but didn’t today’s “open-ended” Fed language exhibit a whiff of panic? Or could The Bernank finally be suffering cognitive dissonance from the blind theft of lifelong savers he’s robbing of fixed-income to help reflate Wall Street casinos?

  72. evans says:

    Four points–

    1. This is good for anyone holding bank stocks and commodities. Make money and enjoy it.

    2. It confirms that the Fed thinks that helping the banks helps the economy.

    3. It confirms that the Fed believes that juicing the equity markets is now an instrument of sound Keynesian demand management. Good for AAPL, GOOG, AMZN and the other horsemen of the technological apocalypse.

    4. This is not good for Europe or Japan–the only way out of their shitstorm is through much weaker currencies.

    I fail to see why short and medium term traders are upset by any of this. Here is a heaven-sent opportunity to make money. In the long-run, we’re dead anyway.

    Final observation: lots of astute market observers now seem to let their obsessions about debt and their hostility to Obama to overwhelm any useful advice they might offer on how to make money in this market. I include here…well, I will leave out names … but BR is not one of them.

  73. algernon32 says:

    Ray Dalio took a questioner to task in yesterdays interview for the assumption that the unbridled creation of money invariably created inflation. His assertion is that creating new money is no different than creating new debt in order to balance the ongoing deflationary pressures of deleveraging.

    I guess time will tell if he and the Fed are correct in that thesis.
    All in all, ZIRP and non-retireable debt are now just another couple bricks in the wall.

  74. louis says:

    So is subprime contained ?

  75. [...] Q. Wheeeeeeee! Ritholtz has some humble pie for those who thought it couldn’t happen so close to an [...]

  76. Finster says:

    “Can someone explain how this Fed action can, at least theoretically, help the economy? I’m at a lost. The way I see it, all this does is suppress already depressed interest rates. This is not going to cause people to run out of their houses and get a mortgage. ”

    While I do not agree with the FED action, I can make sense of it: What’s lacking is trust. Trust in bank balance sheets and trust in the assets underlying them. Essentially the money is not being printed by the FED now (no one of us pays their bills with central bank credit, banks do that), but was printed by banks during the real estate boom when they lent massively against bad assets. We now have the option of writing down the bad debt (forcing banks + fannie and freddie into receivership) or alternatively make enough highest tier liquidity available that the assets may recover from free fall and the securities held against them maintain value.

    The essential detail is: what happened with the money (bank credit) during the credit expansion and the real estate boom. Answer: it went to the previous owners of the assets and to the people who took out HELOCs (home equity withdrawals) to live a lavish lifestyle, consume more than the economy produced and than their paychecks warranted. Alongside an entire economy of realtors, bankers, investment bankers and homebuilders formed, which is now dead and must not live, because it was never sustainable or economically viable in the long run.

    The FED now makes liquidity available to make the debts of yesterdays party more servable and maintain trust in a hollowed out overleveraged banking system. It helps hide the losses of Fannie and Freddie, which otherwise would end up as enormous liabilities on the fiscal balance sheet of the US. To the tune that the FED prevents Fannie and Freddie insolvency and feeds money to them by taking overpriced assets of their hands it is actually conducting fiscal policy and running two deficient state owned enterprises by remote.

    In the end all of this is probably preferable to pretending that all the debts incurred during the real estate boom are real and have to be served in genuine earned dollars in a contracting economy, which would lead to a deflationary death spiral as Bernanke well understands. The credit created during the 2000s to 2007s now firmly sits as assets on the balance sheets of the PBoC and the 1% and they don’t want to pay taxes on their cash flows or assets to make the web of debt and credit viable.

  77. rktbrkr says:

    The way I see it the big mortgage banks are sitting on huge numbers of shadow inventory REO homes that they need to unload, Ben Shalom needs to create a huge pool of low cost,READILY AVAILABLE funding so the banks can offload these properties without creating a price plunge (a plunge that would lead to more strategic defaults in areas already hardest hit).

    The banks are hiding (in GAAP) their shadow inventory and not accounting for non performing loans or writing down these values. They can stick their heads in the sand about everything but the cash flow aspect of these bad mortgages, thats the squeeze that will force the sales. Bernanke’s chatter about jobs is a smokescreen – the prior QEs had little impact on jobs and this will have even less, any job increases due to new home construction are way down the road – and soaring commodity costs will offset minor additional savings in borrowing costs for new home buyers but there is no commodity cost element for existing home buyers, the price spread between new and existing (similar) homes will increase. How many jobs are created when a bank foreclosure is on the market now for $150K and a new home builder has to increase his price for a comparable home from $150K to $175K because of higher commodity costs?

  78. BuildingCom says:

    Well…. you are correct on the shadow inventory. It’s huge, it’s growing and they’re hiding it.

    However, right now, contractors are profitable at pricing that is double digit percentages lower that current asking prices of resale housing. The Fed’s action will further distort the housing price structure which is already twisted beyond recognition.

    There are massive losses to be taken on housing. If you plan to buy housing, you better be paying little to nothing for it. If you plan on selling housing, you better get to it quickly and get what you can get for it now because it’s going to be much much less over the coming years and decades.

  79. [...] QE Wheeeeeee! (September 13, 2012) [...]

  80. Message to Evan:

    I agree with you. You are on target. People seem to get mad and allow their feelings to interfere with sound market analysis. Being critical OK: We all have been endowed with brains and we can see than certain policy actions are not the best ones for the long term health of the economy. But we shouldn’t allow our emotions to cloud our judgment; especially when it comes to investing.

    Martin Zweig, who was not the village’s idiot, always said “don’t fight the Fed”. “Fundamentally” I may not like what I see, but “technically” I know that the markets started to hint the QE was coming. On June 29, the stock market; on August 22 gold and silver and finally on September 5 the miners. Too many hints given by the market. If inflation is coming, instead of complaining, we better study how to protect ourselves.

    Good comment Evan!!!

  81. ashpelham2 says:

    I still don’t see how mortgage refinancing is going to help all of the people who are seriously underwater or who’s credit has been damaged. THey will not qualify for lower rates. They won’t have the equity nor the scores required. End result=no benefit to them. And they still don’t have a job. The only jobs that I even see in the financial sector out there are mortgage underwriters.