Liquidity 01 incl QE, Twist, LTRO, APP etc (Oct 10 - May 14)

[winston]

QE halt must consider US economic pulse

The hottest topic moving markets last week was speculation on when the US Federal Reserve will end its quantitative easing program.
Minutes from the Fed's January meeting showed some officials are worried about its balance sheet surpassing US$3 trillion (HK$23.4 trillion).

If the yields on Treasuries start to rise, the US government must pay vast sums as interest - between US$50 billion and US$75 billion - to domestic financial institutions.

But this is not the only factor that should guide the Fed's next move. It must also make certain that there has been sufficient economic rebound.

Some officials suggested that when the jobless rate is at or below 6.5 percent, the Fed can start winding down its program of buying US$85 billion worth of Treasuries and mortgage-backed securities every month.

US unemployment now stands at 7.9 percent and the job market is still weak.

But even with high unemployment, the Fed's bond-buying program is debatable.

However, the US central bank should not abruptly halt the monthly security purchases. Any action in this regard must be gradual.

As the asset quality of US financial institutions continue to improve, their reliance on the Fed will decline and its balance sheet will stop expanding.

As such, the Fed should look at the overall economic situation instead of bond yields when figuring out the right moment to end QE3.

http://www.thestandard.com.hk/news_deta ... 30225&fc=1

[winston]

How the Fed Controls the Stock Market By Dr. Steve Sjuggerud

I don't think of myself as a conspiracy wacko…

But I do believe that the U.S. Federal Reserve controls the stock market… at least, to some degree.

Our True Wealth Systems computers fully back me up on this one… to the point where you could make a lot of money.

Don't get me wrong… I DON'T think Federal Reserve Chairman Ben Bernanke is sitting on his throne pulling levers to make certain stocks go up or down.

But I DO think that what the Fed does matters to stock prices… a lot.

History proves it. Let me explain…

I know this idea might seem crazy. You might think I'm a wacko just for bringing it up. But based on our findings, the Fed's policies absolutely do affect stock prices, as I'll show.

To test this idea, we used our True Wealth Systems computers to look at interest-rate data over the last 50 years. Specifically, we looked for times when the Fed "manipulated" interest rates…

How did we test when the Fed is "manipulating" interest rates? It's simple… We compared short-term interest rates (which the Fed controls) to long-term interest rates (which are more market-driven). Whenever these were out of balance, the Fed was trying to manipulate the economy.

For example, when the Fed wants to give the economy a boost, it cuts short-term interest rates. That makes this spread between long-term and short-term interest rates wider.

Going back to 1962, when this spread is wider than 1.5 percentage points (which it is about half the time), you make about 9% a year in stocks (not counting dividends). That's versus buy-and-hold of 6% (also not counting dividends).

On the flip side, when the Fed wants to slow the economy down – when the spread is lower than 0.5 percentage points (which it is about 25% of the time) – you LOSE money in stocks. The full details are below…

Annualized Gain
All Periods 6.2%
Spread > 1.5% 8.9%
Spread < 0.5% -0.5%

We have sliced and diced this data further. But the gory details probably aren't as interesting as the big conclusion: When the spread between long-term and short-term interest rates is wide, you want to own stocks. And when it's tight, you lose money in stocks… so you don't want to own them.

Today, we're deep in what I call the Bernanke Asset Bubble. The Fed has cut short-term rates to nearly zero and created a large spread of around 1.9%. So we're clearly in "boosting the economy" mode.

No, Ben Bernanke isn't behind the scenes pulling levers causing certain stocks to go up or down. But he IS trying to boost the economy.

And historically, that boosts the stock market.

You want to own stocks now.

Source: Daily Wealth

[winston]

The Waning Effect of QE? by Cullen Roche

Here’s an interesting point via SocGen that I haven’t seen many people discuss.

Notice in the chart below how commodities have stopped responding to the QE effect while equities have not:

http://pragcap.com/the-waning-effect-of-qe

[winston]

The Fed’s Magic Number May Signal The End Of The Dividend Boom

By David Sterman


Source: StreetAuthority


http://www.thetradingreport.com/2013/05 ... dend-boom/

[Chinaman]

QE is still on-going latest in Japan, now ordering high speed printing press...hehe actually no need just key how as many zero as they want...digital money got no limit.....currently still no solution to fix the ailing world economy, other than easier way out..win win situation everybody love to see their asset inflated...

[winston]

Is the Fed’s Punchbowl Running on Empty?

By Mike Burnick


Source: Money and Markets


http://www.thetradingreport.com/2013/05 ... -on-empty/

[winston]

Ben Bernanke confirms: "QE Infinity" will continue

Federal Reserve Chairman Ben S. Bernanke said the U.S. economy remains hampered by high unemployment and government spending cuts, and raising interest rates or reducing asset purchases too soon would endanger the recovery.

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said today in testimony to the Joint Economic Committee of Congress in Washington.

Monetary policy is providing "significant benefits," he said.


Source: Bloomberg

[winston]

What would the Fed's policy "step down" look like?

A number of economists are trying to read into the meaning of Bernanke's statement last week. The comment that put a damper on the relentless equities rally and sent prices of treasuries lower. In particular the comment "we could take a step down in our pace of purchases" at the next FOMC meeting is causing angst in the investor community (see post).

But what would such "tapering" in monetary expansion look like? The most likely outcome is a shift from $85 billion of purchases a month to something closer to $60 billion. Here is the impact such a policy would have on the central bank's portfolio of securities.

The Fed is unlikely to do anything more dramatic, given the central bank has bet its reputation on this program. Reducing monetary expansion sharply just to return to it later will clearly be problematic.

The outright holdings will therefore comfortably go above $3.5 trillion by the end of the year in spite of this policy pace "step down".

http://soberlook.com/2013/05/what-would ... -look.html

[winston]

How the Bernanke Asset Bubble Ends By Dr. Steve Sjuggerud

Yasushi Mieno made it his personal mission to pr**k the largest bubble in financial history.

He succeeded.

You may not know his name… but you need to understand his story. It will help you understand exactly when to get out of this incredible stock-market and real-estate boom before it busts.

Let me explain…

Stocks continue to soar – up 16% so far this year. U.S. home prices are up 12% in the last 12 months.

Longtime readers understand why asset prices are moving higher. It's the Bernanke Asset Bubble.

Remember, this is the simple idea that asset prices – like stocks and real estate – can soar to unimaginable heights, thanks to the Federal Reserve's commitment to printing money and keeping interest rates at zero for years.

Of course, this won't end well. But we need to hold on as long as possible. Based on history, we need to hang on until we see the next Mieno…

Mieno took over Japan's central bank on December 17, 1989. At the time, Japan was in an insane stock-market and property bubble…

To give you an idea of how extreme Japan's asset bubble was, the real estate grounds of the Imperial Palace in Tokyo were supposedly worth more than the entire real-estate value of California.

Mieno thought Japan's asset bubble had gotten ridiculous. So he made it his personal mission to pr**k Japan's bubble in stocks and real estate.

Just one week after taking office – on Christmas Day 1989 – he raised interest rates. Four days later, Japan's benchmark stock index – the Nikkei – reached its all-time peak. It then started falling.

But the property market didn't fall…

So Mieno raised rates again. And again… and again. He raised them a total of six times until they reached 6% in August 1990.

That did the trick. Property prices started to collapse, too.

Japan has never recovered… Property prices and stock prices are still dramatically lower today – 23 years later – than they were in 1990.

So will the same thing happen in the U.S.? When is it time to start worrying that the current boom will end?

In the past, I've answered those questions with a number… The boom will end "when inflation rises above 5%."

But we also need to look out for the next Mieno in the U.S. – the next government official who is powerful enough to change things… and decides that stocks and real estate must come down.

Just as Fed Chairman Ben Bernanke has single-handedly pumped up the U.S. stock market and real-estate market today, Mieno single-handedly brought down Japan's stock and property markets in 1990.

Bernanke is our Bubble Man. His policies are putting money in our pockets through the stock and real-estate markets.

But who is the next Mieno? Who is the person who will take it all away from us?

I try to have the answers for you here in DailyWealth – or at least give you my best guess – but I don't know yet.

I CAN tell you he or she likely won't get here before 2015. As I've explained before, the Bernanke Asset Bubble will continue at least that long.

And until the next Mieno arrives, we have the opportunity to make a lot of money…

Source: Daily wealth

[winston]

This One Thing Matters More Than Ever in Investing World Gone Wild By Douglas Davenport

Source: Money and Markets

http://www.thetradingreport.com/2013/06 ... gone-wild/