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Will There Be a QE3?

Posted by Larry Doyle on March 28, 2011 7:56 AM |

Is there really any doubt that virtually all our markets, especially commodities and with the exception of real estate, have been propped higher as a direct or indirect result of the Federal Reserve’s policy of quantitative easing? I have no doubt.

The question remains outstanding just how far the Fed, in concert with its banking friends on Wall Street, has gone and will go to further manipulate our markets. That question may never be fully answered. What a shame! For those who believe a preponderance of truth, transparency, and integrity are the cornerstones for long term fiscal health and financial well being our markets remain a decidedly challenging arena.

In light of this reality and with the end of QE2 on the horizon this June, where do we go from here? A reader posed that very question the other day.

LD, ZH (Zero Hedge) recently reported that 2 large macro funds in Europe recently went “super-long” on the S&P around the time you were over there, do you know anything about this? This would seem to imply that Chairman Bernanke is preparing QE3 for June and that there is hedge-fund/institutional knowledge about this? Do you know anything about this? What are your thoughts regarding potential QE3 in June? Will we have QE3 in June and if-so how large will it be? We all need our fix, man.

Yes, we do all need our fix. The markets need to be fixed. Our government needs to be fixed. Our pension system needs to be fixed. Our fiscal deficit needs to be fixed. Is quantitative easing the right approach to go about fixing these problems or merely a charade to disguise our real underlying issues? Once that charade is complete, then what?

Over the last few months I have heard diametrically opposed opinions on whether Ben Bernanke will continue to provide further ‘juice’ via quantitative easing to maintain a negative real interest rate policy. At an industry conference just a month ago, a highly regarded Washington insider said in no uncertain terms that the ‘word about town’ was that the end of QE2 in June would be the end for quantitative easing as a whole. On the other side of the coin, in speaking with senior executives at a number of money managers, they believe a continuation of the ‘quantitative easing juice’ is a foregone conclusion.

What do I think? Based upon my travels in Europe, it is very apparent that the economies of the peripheral nations remain under real duress. We already know that the Fed has previously provided a backdoor bailout for selected European institutions and effectively the continent as a whole. That precedent and the fact that selected European economies remain on the brink would support a continuation of quantitative easing. The fact that housing prices here in the States seem poised for another leg down would also be reason for Bernanke to keep the QE juice flowing.

On the contrary, the fact that the Fed has announced a timetable to sell $10 billion in mortgage securities per month is an indication that the Fed may be looking to move to the next phase in managing our ‘walking pneumonia’ economy.

My ‘sense on cents’ take is that Bernanke will try to thread the needle and buy further time with QE2. How so? I think he will announce in the next month or so that he plans to extend the end date and accompanying implementation of QE2 for another few quarters. In doing so, he will provide a wink and a nod to those on Wall Street that the Fed’s easy money is there if and when they need it.

Rock on!!

What do others think? Opinions and comments always encouraged and appreciated.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • michaelD

    LD … what keeps someone [who knows what they’re doing] from filing a FOIA request with the federal reserve corporation asking for all info they have on the subject of market manipulation? their interactions with the PDs wrt HFTs and so forth would be pretty illuminating … as would their holdings [past/present] of /es contracts, SPY shares, whatever.

  • LD

    How does it go? It might be easier to get into Fort Knox? Look at the issues Ron Paul had in Congress in his attempt to get the Federal Reserve to open its books. Died in committee if I am correct.

    Death and taxes are two great certainties in life. Not knowing what the Fed is “REALLY” doing is a very close cousin to these aforementioned realities.

    • michaelD

      not to dis you but thats not technically true. just a couple of months ago they were compelled by that [admittedly lame] ‘audit the fed’ bill to release a bunch of their lending records. and bloomberg just won a case against them requiring them to detail their emergency lending activities. i’m not saying that prying their secrets out is easy or even always successful. i’m just wondering out-loud, with you as my involuntary listening post, as to why someone with the means and know-how couldn’t challenge them with a FOIA? they’ve clearly lost cases before and given the anti-fed sentiment running rampant it might be possible to get them to fess-up to more of their misdeeds. and if they have to reveal that they HAVE been manipulating … well … everything … AND they then have to concede that they’ve been sharing their plans with other entities [PDs perhaps] giving them an edge over everyone else … well … it might just get bloody for them. and deservedly so.

      or maybe not.

  • LD

    Do not worry about dissing me. No harm no foul.

    In my opinion, though, the Fed’s actions in the market are and would be much more difficult if not impossible to discern than the borrowings from the discount window or loans made directly to banks. I view those activities as direct while I think the fed’s activities in the markets can be disguised and hidden via accounts held in their name at other institutions. In this era of high frequency electronic trading, dark pools, et al, I think it would be virtually impossible to decipher indirect activities along these lines.

    Just my take.

    Thanks for raising and pushing the topic. It deserves more attention and discussion.

  • Mike

    How about PIMCO dumping all their treasuries? Could only mean good things expected for the dollar right?

  • coe

    short answer – yes, there will likely be a QEIII..banks still are not lending, and the “costs” of capital compliance, Dodd-Frank implementation, and the protracted dance around the housing sector/GSE reform can only mean the Fed must artificially spur profitability through low rates and tight spreads..if only those suddenly militant regulators would get off the high horse about interest rate risk and let the banks milk the carry trade a little longer…

  • cloudshe

    in march 705.3 billion in debt came due and 786.5 billion was sold to meet federal outlays.

    how much did Bernanke buy?

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