Liquidity 02 incl QE, Twist, LTRO, APP etc (Jun 14 - Dec 24)

[winston]

End of QE1 & QE2 saw markets correct 15-20%

When QE1 and QE2 ended markets corrected 15-20%

That is probably why we have tapering to cushion the end effect of QE3 but expect a similar correction later this year when QE3 ends probably in Aug-Sept 2014

[winston]

We all lost

By Tim Price

Source: Sovereign Man

http://www.thetradingreport.com/2014/06 ... 5-91746477

[winston]

For the last five years, this is the only chart that's mattered for stocks

The FOMC has continued to “taper” the monthly amounts of its purchases of Treasury bonds and mortgage-backed securities (MBS), but the Federal Reserve is still pumping money into the banking system at a high rate. Purchases in June are to total $45 billion, and it goes down to $35 billion in July 2014.

But $35 billion a month is still a large number. And the injection of this money is still pushing up the stock market.

This week’s chart is one that I showed back in November 2013, calling it “perhaps the only chart that matters for now”. The slope of the Fed’s balance sheet continues upward, and so does that of the stock market.

The FOMC under Dr. Yellen is betting that it can slow the pace of these purchases in just the right way so as to avoid the problems that the Fed created when ending previous programs of “quantitative easing” (QE). When QE1 ended in April 2010, we saw the “Flash Crash” in the very next month. The Fed realized it stopped too soon, and so we got QE2, which was great until it ended on June 30, 2011. The very next month, July 2011, saw another sharp decline, and so the Fed had to restart more QE which is what we are still left with today.

The Fed actually tried to shrink its holdings of Treasury bonds back in 2007 and 2008, a move which contributed to the severity of the financial crisis 2008. So the members of the FOMC understandably don’t want to risk doing THAT again. But even when they just bring the QE purchases to a halt, the stock market crashes and banks are in danger. How they are ever going to unwind their $4 trillion (and climbing) balance sheet is a question I just cannot answer, and I do not think that many in the FOMC have a good answer either.

But for our purposes now as stock market investors, it is sufficient to note that the Fed’s balance sheet is still getting larger, and that is still bullish for the stock market. It may not be as bullish as when it was $85 billion a month, but it is still an upward slope. When the Fed gets down to zero again later this year, we can start to worry.

Source: Tom McClellan’s Chart in Focus

http://thecrux.com/the-most-important-c ... right-now/

[winston]

How much Central Bank money is needed to keep stocks from crashing

By estimating that zero stimulus would be consistent with a 10 percent quarterly drop in equities, they calculate it takes around $200 billion from central banks each quarter to keep markets from selling off.

Source: Bloomberg

http://thecrux.com/new-report-reveals-h ... 37gMXBU%3D

[winston]

Let’s See How The Market Does After This…

By Michael Snyder

Source: The Economic Collapse Blog

http://www.thetradingreport.com/2014/10 ... fter-this/

[winston]

In the first policy change since Governor Haruhiko Kuroda began record asset purchases in April last year, the BOJ boosted its annual target for expanding the monetary base to 80 trillion yen from 60 to 70 trillion yen before, according to a statement in Tokyo today.

Source: Bloomberg

[winston]

Forget the Federal Reserve’s quantitative easing… Japan just made it look like child’s play

Source: Zero Hedge

http://thecrux.com/what-todays-big-news ... 37gMXBU%3D

[winston]

Central banks are now panicking

by Chris Martenson

Source: Peak Prosperity

http://thecrux.com/controversial-post-t ... 37gMXBU%3D

[winston]

TOL:-

If things are ok then why the following:-
1. US Feds keeping interest rates so low for so long. And they dare not even discuss the first hike in interest rates
2. Draghi still yapping about doing whatever it takes. Is his "whatever it takes", going to be enough ? If you have substance, why do you need to constantly yap ?
3. Abe's three arrows ( falling yen, corporate reform and tax hikes ) not leading to anything. And why is he having an unnecessary election ?
4. China dropping interest rates

Do you have that funny feeling that something is not that right ?

[winston]

What If No One Borrows?

The real money machine in our economy is credit. We deposit money, the bank keeps a small percentage of it around to cover withdrawals and the rest is lent out. This double counting doesn’t stop with the first loan. That money gets deposited somewhere and the process starts all over again.

Eventually, $1,000 of new money deposited in a bank will grow to represent $10,000 in deposits elsewhere through credit creation. What happens when people stop, or even significantly slow, their borrowing? The economy fails to grow, inflation falls, and wages flat-line…

Does this sound familiar?

To be sure, some forms of consumer credit are expanding, as every parent with a kid in college knows. Student loan debt grew 57% from 2009 through October 2014, while car loans increased by 31% over the same time frame.

Cars and student loans can almost be viewed as necessities of life in America, so growth in these areas is not surprising. However, credit card debt is still 8% lower than it was at the end of 2009 and mortgage debt is growing at a snail’s pace.

Then there’s the small business side…

The National Federation of Independent Business reports that only 28% of their survey respondents use credit on a regular basis, which is a record low. They also report that only 4% said that all their credit needs were not met and that is another historic low.

Meanwhile, the Federal Reserve’s third-quarter survey of senior loan officers reflected that banks are on average keeping their lending standards the same, or slightly easing them, which makes credit easier to get. Among the reasons for easing lending standards, 80% of respondents cited increased competition from other banks or non-banks as a very important reason for the change.

So people are not borrowing as much to fund daily purchases, small businesses aren’t using as much credit as they have in the past and don’t want more and banks are starting to fight over clients.

All of this falls in line with our view of where we are today — basically the midway point of the economic winter season.

We’re in a sluggish period marked by moderate consumption as we live through the transition of the boomers from big spenders to savers. While the savings rate of the country doesn’t reflect a tremendous shift, the first step in this direction is to quit spending on credit.

Of course, one man’s spending is another man’s income. As we’ve ratcheted down our spending a bit, overall economic growth has slowed which decreased job opportunities and led to flat wages.

The path forward relies on the next generation of big spenders — the millennials — to ramp up their own spending on credit for homes, more cars and daily living as they establish households and start their families.

This trend should already be established and starting to ramp up but this process is currently held back. Millennials are struggling to make a good living and yet many already have a mountain of (student loan) debt.

This isn’t the type of borrowing and spending that leads to a sustained recovery.

Eventually the Federal Reserve will try to slowly allow excess bank reserves to flow into the economy, which will only increase the competition among banks to get more clients (our upcoming December Boom & Bust covers excess reserves in depth). Many people expect this move to unleash the inflation genie that has been kept in the bottle, even while the Fed printed trillions of new dollars.

But what happens if, instead of being lent out, the extra money just sits there for lack of demand for loans?

Our estimate is that the economy will remain slow for several more years and interest rates will continue to freefall.


Source: Economy & Markets