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Michael Parmar  

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  • Taking A Look At The Fed's Latest Round Of Quantitative Easing [View article]
    Is this the Fed "policy plan?"

    http://bit.ly/12qYZBg
    Dec 15, 2012. 03:13 AM | Likes Like |Link to Comment
  • Taking A Look At The Fed's Latest Round Of Quantitative Easing [View article]
    QE 4 was a massive monetary stimulus and it hardly made the news.
    I share your concern. IF velocity pick ups when consumer spending picks up, this will lead to inflation. Right now however, easy money accelerates the paying down of debt. this could be as deflationary as it is inflationary.


    What made the news was the "threshold" signal of 6.5% unemployment subject to inflation below 2.5% which is being reported/understood as a "target".

    not +$40bn/month to money supply
    Dec 15, 2012. 03:12 AM | Likes Like |Link to Comment
  • Breadth Getting Stronger [View article]
    good article. would be good to see first chart plotted against S&P 500 index
    Dec 12, 2012. 11:50 AM | Likes Like |Link to Comment
  • Why The U.S. Is Europe: Central Bank Deficit Funding Thinly Veiled [View article]
    Colin, the politics of the similarities between the Fed and ECB (CB has to look independent) and both support govt deficits is spot on.

    Thanks for article


    Asbytec/Colin/other commentors

    Asbyec made an earlier comment on Treasury spending and its impact on bank reserves - i got the checking account bit but didn't understand about the receivers demand deposit. Please explain or point me in the direction where I can find out.

    I have general query: US debt (bonds) is like money especially in banking system so it doesn't really count as risk weighted assets and is/should be part of the denominator in money supply (core tier 1 assets). So the Fed bond buying programme was operating on swapping cash in site deposits for interest earning "cash" (ie. treasury bonds) and total cash not really changing so deleveraging has continued and velocity has fallen and the extra cash is just sitting in the ER accounts in banks.

    Whereas for MBS, the fed is now operating on the "top bit" of the money supply ratio: they are helping banks to offload some of their RWAs which, for a given ratio of RWAs/core tier 1 assets makes room for more lending - the banks will either delever faster or replace those offloaded MBS with more MBS (i.e start to write more mortgages, especially if Fed is buying them) or lend on something else... what are your views on this and how it relates to the mechanics/intricacies of the money supply (banking) transmission mechanism?

    I thought of sending you a personal message but then I suspect others might be interested to hear you comments as well, hence this post
    Sep 29, 2012. 10:06 AM | 1 Like Like |Link to Comment
  • European Sovereign Debt Crisis: Up Next, German Real Estate Bubble? [View article]
    As the first comment noted, there is a difference between a "recovery" - reverting to long run trend, and rising way above trend.

    Nevertheless, the article has some interesting points and I enjoyed reading, thanks.
    Sep 24, 2012. 11:54 AM | 1 Like Like |Link to Comment
  • Paltry Fixed Investment Ringing Alarm Bells [View article]
    Good review of data was going through that myself you saved me the trouble!

    In all recoveries there are bumps in the road. This one is slow.

    your conclusions that PCE has driven this recovery has been true for some time - this is why QE3 is focused on MBS: trying to slow the rate of deleveraging.

    With PCE up, productivity up, interest rates low, investment is cheap and IF QE3 promotes investment it could substitute for employment.

    That raises productivity for those in employment, but means a higher rate of long term unemployment so fed target of reducing employment may take longer than it expects.
    Sep 16, 2012. 06:40 AM | Likes Like |Link to Comment
  • By 2015 Hard Commodity Prices Will Have Collapsed [View article]
    Wow - an eye opener!

    Well argued and your article has changed my view - makes a lot of sense.
    Sep 16, 2012. 05:06 AM | 18 Likes Like |Link to Comment
  • La Fed Aux Folles [View article]
    As for your "fed will make a loss" point; the MBS it could take on include some % of impaired valuations and non-performnig loans which, if the housing market picks up, could recover....

    ... any way ,the fed is on thin ice with this one and has definitely gone into the house price management business..

    if you are interested i can tell you about my views on alternative exit strategies and scenarios
    Sep 16, 2012. 04:49 AM | Likes Like |Link to Comment
  • La Fed Aux Folles [View article]
    That's the first article I've seen actually focussing on what the Fed did and questioning what it is about.

    This QE3 = open ended MBS purchase. So that means, unlike AAA treasury purchases (part of tier 1 bank assets) it is now offloading the risk weighted assets.

    QE1-2 was there to replace the cash drained from core 1 because of interbank wholesale market liquidty problems, but it didnt stop deleveraging: banks have too much crap on their balance sheets still so cant lend out: their RWA /teir1 ratios are stretched.

    So helping them offloading some of their RWAs makes space in the top to bring in some new ones.

    Now if i were a bank with a customer in the market buying 40bn MBs per month, i'd start writing more to flip to the Fed. This creates a moral hazard problem. But it also opens the possibility to lending more to something other than more mortgages.

    This one has been branded QE1 but it is, I believe, VERY different in the incentives it creates for banks.

    They may well flip their mortgages and invest in other types of RWAs... but the incentive is there.
    Sep 16, 2012. 04:46 AM | Likes Like |Link to Comment
  • 1 Small Step For Macro Policy, 1 Giant Leap For The Fed [View article]
    MBS is aimed at letting banks offload some risk weighted assets from balance sheets whereas previous QE was aimed at providing liquidity/cash in the hope that the cash would prevent a liquidity crisis in the banks (which it did at the time).

    But that hasn't stopped deleveraging and reduction in velocity of money.
    So this time they are aiming for the velocity itself.

    if banks offload their crappy MBS to the Fed it makes space on their balance sheets for more.. that is the theory
    Sep 16, 2012. 04:11 AM | Likes Like |Link to Comment
  • Exactly How Much Can We Expect From Stocks On QE3? [View article]
    I disagree, The Fed has moved the market, the smart money is already looking beyond the QE3 and asking what next?
    Sep 16, 2012. 04:05 AM | 4 Likes Like |Link to Comment
  • Exactly How Much Can We Expect From Stocks On QE3? [View article]
    Marking a bottom........??
    Sep 16, 2012. 04:03 AM | 1 Like Like |Link to Comment
  • Updating Market Expectations: Fed Raises Its GDP Forecast [View article]
    Thanks for your comments!

    The idea behind open-ended MBS is that because QE1 and QE2 focused on treasury buying which is high quality bank assets it provided liquidity in the face of deteriorating asset quality and deleveraging but as you rightly point out, it did not affect velocity.

    It prevented a multi-bank solvency crisis by un-freezing the inter-bank lending market - too many banks were depending on wholesale lending to each other for short term funding. Ultimately, the banks and individuals have been deleveraging (the credit crunch turned into a deleveraging trend)

    Lack of lending from banks is hampering credit to the real economy, particularly the housing market.

    This time, the Fed is aiming to shore up velocity directly by offering to buy MBS directly from bank balance sheets. This reduces their risk weighted assets which is the top bit of the ratio they have to maintain in their assets/cash ratios.

    By doing this, they are hoping banks will offload their existing MBS to the FED, and start lending more direct to homebuyers.

    This also creates a moral hazard problem which will be interesting to see how it gets solved, because, if I were a bank and now had a customer (the Fed) looking to buy $40bn per month of mortgages, I would look to lend more, not being too worried about the quality of who I am lending to, since the Fed has my back.

    I think this will be a significant boost to the US housing market, but for the wrong reasons.

    Inevitably, later down the road, the Fed will have to deal with the moral hazard issues it is creating.
    Sep 16, 2012. 03:54 AM | Likes Like |Link to Comment
  • There's No Longer A Bernanke Put [View article]
    Good article.
    The wealth transmission effect was outlined as a the target in the Jackson hole speech for both the stock market and housing market.

    Hence the emphasis on MBS this time. The effect of that is profound: banks will have a chance to offload their crappy MBS onto the Fed, free up their burden of their cash to risk weighted asset ratios and begin lending to households again. There is a moral hazard issue here, which will become apparent in due course.
    Sep 15, 2012. 06:18 AM | 1 Like Like |Link to Comment
  • Exactly How Much Can We Expect From Stocks On QE3? [View article]
    Good article. Indeed as you say "This leads us to the critical question. What more can we expect from the stock market from here?"

    Markets will be putting QE3 into context and look at to other indicators of economic performance and the likely effect of issues of the coming weeks
    Sep 15, 2012. 05:42 AM | 4 Likes Like |Link to Comment
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