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Frustrated with the lack of substantial job gains, the Fed is likely to continue buying both MBS...

Frustrated with the lack of substantial job gains, the Fed is likely to continue buying both MBS and Treasurys in 2013, says the WSJ's Jon Hilsenrath, meaning he believes a new QE is soon to be imposed to replace the expiring Operation Twist. Stocks move to new highs for the day, the S&P 500 +0.7%. Beige Book earlier.
Comments (15)
  • Duhhhh ! Does the Fed think that those actions will produce job gains? Certainly they won't. They may save some banks from going under - but they will NOT produce job gains.
    28 Nov 2012, 03:50 PM Reply Like
  • Not new news. Perhaps Hilsenrath was looking for more spending money to buy a new suit.
    28 Nov 2012, 03:55 PM Reply Like
  • Jan 2028 - Fed announces that since they have now bought all known publicly available assets they will begin a new program to buy them again!


    In other news Democrats announce that they won't stand for anything less than 65% tax rates on the rich, now defined as anyone that has any income from the private sector. Speaker Nancy Pelosi says "Its not right and its not fair that some people in this country continue to try to live better than the 67% dependent on government programs. The only people that should are those caring individuals that work for the government and help people. You would think that the last twenty years of elections results would show the Republicans that people aren't going to stand for income inequality and these new tax rates will ensure the government is able to confiscate enough to ensure there are few rich people".
    28 Nov 2012, 03:57 PM Reply Like
  • Perhaps Ms. Pelosi would like to donate those South Seas to a worthy cause. But I guess not. More likely she will continue to collect her booty and consign others to pay up.
    28 Nov 2012, 03:58 PM Reply Like
  • david wrote: "... now defined as anyone that has any income from the private sector"




    Your post made my day.
    28 Nov 2012, 04:21 PM Reply Like
  • Why is this big news? i thought QE in 2013 was a forgone conclusion. Big Ben's QE infinity program. What did i miss?
    28 Nov 2012, 04:15 PM Reply Like
  • The current QE is the Fed buying mortgage backed securities to the tune of $40B/mo. They are also doing operation Twist which involves them selling short dated treasuries and buying long dated treasuries to the tune of $45B/mo. Operation twist expires on Dec31. So the new news would be if they embark on a new QE involving outright purchases of long dated Treasuries to replace operation Twist. This would be "unsterilized" and therefore more powerful. if they do this they will be buying a cumulative amount of about $1 Trillion over the course of 2013.
    28 Nov 2012, 04:23 PM Reply Like
  • This really isn't new news, though. The doves in the FOMC have been suggesting as much since the last QE announcement.


    I wonder out loud, however, if "powerful" really means what you think it means.


    I think we are going even deeper into uncharted waters, where the powers that be have no idea on the unintended consequences of cumulative QE actions and extended ZIRP.


    In that respect, I agree that this next round of added QE will indeed be more powerful.


    On the other hand, it is becoming painfully clear that each new round of unsterilized QE has resulted in diminishing returns to overall economic growth.


    It will be effective in cheaply financing next year's government deficit, however. And it will bring back some jobs in the housing sector that would have otherwise disappeared due to structural imbalances.
    29 Nov 2012, 02:19 AM Reply Like
  • Continuing: All these Fed actions are potentially quite significant - the Fed Balance sheet has been essentially flat to down over the past year until about now. If they expand their balance sheet by $1T over 2013 - in the face of an improving global economy - that would be quite stimulative, possibly inflationary.
    28 Nov 2012, 04:27 PM Reply Like
  • Knee jerk stock price increase is simply in reaction to the weakening dollar; more bond buying with printed money just makes everyone poorer and your savings go to zero faster.


    But, belief that investors will flock to stocks as a hedge against inflation is outweighed by poor earnings and weak demand. It's a bit like a last drag on a last cigarette before quitting cold turkey.
    28 Nov 2012, 04:32 PM Reply Like
  • The Dollar Index (DXY) was around 72 -in mid 2008 before the crisis. Since then the Fed had bought $3 Trillion of bonds. The DXY is at 80.3 today ( so the Dollar has gone UP about 11% since mid 2008 against a basket of currencies). Your theory may be correct - but the evidence so far does not show any great Dollar weakening due to te Fed's extraordinary expansion.
    28 Nov 2012, 04:38 PM Reply Like
  • Sorry, I kinda condensed those sentences a bit. Other nations currencies have declined as well in terms of purchasing power, the DXY reflects that. The "weakening" of the dollar is more about its value overall.


    In terms of the DXY, the dollar decline vs the rest of the world went hand in hand with a long rise in stocks till 2008, at which point the dollar bottomed and markets subsequently crashed. Since then the premium paid for stocks (compare spx:dxy) has risen to peak in 2011, still lower than the 2008 premium for sure, and is once again on the slide down, since 2011.


    While the immediate value of the dollar vs foreign currencies can be used for short term calculations, the market is very forward looking when it comes to expanding the money supply. Its quite obvious that, on paper, a $100 stock today will be worth (or "cost") $200 if that dollar's buying power is cut precisely in half. While there are other implications, the inflationary (dollar weakening) aspect of this relationship is valid. Inevitably, this speculation leads to price bubbles (like I would hazard to call the entire rise in the stock market since 2009) which burst when the underlying causes of the inflation come to the surface to be dealt with.


    We've shuffled the reliance on a propped housing market over to a lunatic spending binge by the federal government to save the same banks that propped the markets. They tried to "boost" the economy that was lagging with the absence of the private sector's growth combined with over lending.


    The Fed's efforts to reduce borrowing rates haven't fixed anything, neither have they created jobs. They've simply enable a different mix of deficit spending and over-indebtedness.


    With the status quo, we are on a clear un unalterable path to a Greece situation. The day we move to actually and materially fix that, the markets will crash and the dollar will spike. There's no middle ground here; this is one market scenario that can be clearly predicted.


    The only way around this "doom" scenario is to keep borrowing forever.
    28 Nov 2012, 08:40 PM Reply Like
  • Just as an aside - all these glib pronouncements by the "hard money" crowd - tend to be mostly wrong and will not point you to profitable opportunities. Doom and gloom , similarly, has never been a wining strategy. The facts are that we will have negative real rates on cash and treasuries for another few years. Selected stocks and some hard assets are pretty much the only game in town.
    28 Nov 2012, 04:43 PM Reply Like
  • Just a waste of money, puttying off what eventually will happen. People flocked back to the markets to make a quick trade, housing is also down as well.


    Tell us something we don't know!!
    28 Nov 2012, 05:39 PM Reply Like
  • Then what do we make of this?/


    I am confused as how it affects commodities if it is true!!



    29 Nov 2012, 05:04 AM Reply Like
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