SERVING THE QUANTITATIVE FINANCE COMMUNITY

farmer
Posts: 13477
Joined: December 16th, 2002, 7:09 am

### Helicopter Ben

Never mind, you just hold onto your cash dollars t4a. Good luck.

farmer
Posts: 13477
Joined: December 16th, 2002, 7:09 am

### Helicopter Ben

QuoteOriginally posted by: Traden4AlphaThe banks, companies, and even a fair number of individuals have enough cash, but they don't see enough attractive opportunities to invest or spend that cash.QuoteOriginally posted by: Traden4AlphaWhy would they be "forced out of their stacks of cash"? Banks didn't buy stocks. This sort of evasive polemics - switching from "banks, companies, and individuals" to just "banks" in order to keep an argument going at the expense of actually making sense - proves my point that you don't actually care about economics. It is all about abortion, that is the only thing people claim to want that Democrats/liberals actually deliver on.You don't give a fuck if banks invest or lend or whatever, just so long as sodomy is off the topic.

Posts: 23951
Joined: September 20th, 2002, 8:30 pm

### Helicopter Ben

QuoteOriginally posted by: farmerNever mind, you just hold onto your cash dollars t4a. Good luck.Thank you, farmer. But who said I was holding dollars?

Gmike2000
Topic Author
Posts: 801
Joined: September 25th, 2003, 9:49 pm

### Helicopter Ben

So now the numbers are out. What is the implication of this FED decision? They want to buy all those bonds by Q2 2011. How long are they going to hold them for? Wouldn't they need to sell them at some point to shrink their balance sheet? So, knowing there is going to be a HUGE seller of treasuries, wouldn't the Russians want to sell first? Or the Chinese? Or the Brazilians? Or the Japanese? Or all of them at the same time? And what is the implication for the FED funds rate. Clearly, they cannot hike before they start selling their bonds. Unless the curve steepens a lot...but then the FED will incur losses on their bond portfolio. I would argue the final outcome is a FED that will NEVER be able to sell its bonds without creating a total stampede in the markets. And a treasury that will at some point have to roll over its debt at a time when nobody will be stupid enough to bid for US govies. How is the US then going to roll over its debt? Either the FED agrees to a restructuring or it keeps buying bonds with new money: QE3, QE4, QE(N), QE(N+1),....N-->very large number.America, alea jacta est.

halik
Posts: 104
Joined: December 15th, 2009, 1:59 pm

### Helicopter Ben

QuoteOriginally posted by: Gmike2000So now the numbers are out. What is the implication of this FED decision? They want to buy all those bonds by Q2 2011. How long are they going to hold them for? Wouldn't they need to sell them at some point to shrink their balance sheet? So, knowing there is going to be a HUGE seller of treasuries, wouldn't the Russians want to sell first? Or the Chinese? Or the Brazilians? Or the Japanese? Or all of them at the same time? And what is the implication for the FED funds rate. Clearly, they cannot hike before they start selling their bonds. Unless the curve steepens a lot...but then the FED will incur losses on their bond portfolio. I would argue the final outcome is a FED that will NEVER be able to sell its bonds without creating a total stampede in the markets. And a treasury that will at some point have to roll over its debt at a time when nobody will be stupid enough to bid for US govies. How is the US then going to roll over its debt? Either the FED agrees to a restructuring or it keeps buying bonds with new money: QE3, QE4, QE(N), QE(N+1),....N-->very large number.America, alea jacta est.Where is the fed gonna find the new money? At some point you'll run out of member bank assets to borrow against.

frenchX
Posts: 5911
Joined: March 29th, 2010, 6:54 pm

So Ben gave a small press conference. To resume he said that he knows perfectly what he is doing that he is a genius and that people who don't understand him (the Germans, the French, the Chinese, the Brazilians and even some Americans) are just mentally disabled retarded morons .No seriously he said that it's not the first quantitative easing that he is doing (with a prodigious result in past Mr Bernanke ... ), that all the indicators show a lack of liquidity and a deflation since december 2007 and that the cleverest solution is to inject money.So while US government complain about the chinese Yuan being under evaluated, they inject 600b$and more or less say "We know that we are fucking you but you know what ?... WE DON'T CARE !!! MOUHAHAHA (evil laugh).It's just ridiculous to see that there were a lot of G20 summit for a global monetary policiy to obtain THIS result. Last edited by frenchX on November 6th, 2010, 11:00 pm, edited 1 time in total. Gmike2000 Topic Author Posts: 801 Joined: September 25th, 2003, 9:49 pm ### Helicopter Ben The bond market is selling off so hard it makes me think the FED is about to lose control over the intended effect of QE. And with that they are going to lose their credibility.The FED basically promised to sell free protection against higher yields in the front of the curve. But now they are defaulting on that promise. The 5yr has sold off more than 30bps since QE was announced.If the market perceives the FED as having no control and QE as having no effect on the yield curve, then there will be rape and pillage in the bond market. In fact the last 3 days qualify as rape and pillage already. But there is potential for much much worse.And QE only started 3 days ago....imagine all the other "unintended consequences". What is happening next is going to be in the history books...and it won't be a nice read. Get your seatbelts on. And pray. frenchX Posts: 5911 Joined: March 29th, 2010, 6:54 pm ### Helicopter Ben Do you think that there will be a QE(3) in a few years to save the US economy from the effect of this QE(2) ? frenchX Posts: 5911 Joined: March 29th, 2010, 6:54 pm ### Helicopter Ben So here a little article about 9-reasons-why-quantitative-easing-is-bad-for-the-u-s-economy#1 Quantitative Easing Will Damage The Value Of The U.S. Dollar#2 Inflation Is Going To Hit Already Struggling U.S. Consumers Really Hard#3 Once An Inflationary Spiral Gets Going It Is Really Hard To Stop#4 Inflation Is A Hidden Tax On Every American#5 The Solution To The Housing Bubble Is Not Another Housing Bubble#6 More Quantitative Easing Threatens To Destabilize The Global Financial System#7 Quantitative Easing Is An Aggressive Move In A World Already On The Verge Of A Currency War#8 Quantitative Easing Threatens The Status Of The Dollar As The World Reserve Currency#9 It Is Going To Become More Expensive For The U.S. Government To Borrow MoneyFor information, the advise of Goldman Sachs was to make a QE of 2000b$ instead of 600b$. I have also heard some that in June 2011, the council of the FED will change so maybe we will have some surprise.So maybe 2011 will be the year of a currency war ? After the Euro crisis, the dollar crisis ? TitanPartners Posts: 152 Joined: May 1st, 2009, 9:22 am ### Helicopter Ben I agree with your points. I think this is blatant currency depreciation. In the US they can still argue that their level of inflation is below target, so I guess the FED doesn't lose all credibility but ...Inflation for individuals whose wages don't move in line with it is very painful indeed. It is a choice to inflate away the importance of the debt while creating jobs in the US by depreciating the currency. The alternative, of significantly tightening belts and shrinking balance sheets would be extremely painful now, so it seems natural to me that those in debt are going to try and inflate and devalue. But this whole thing is just a big "experiment" (although not a reproducable nor a falsifiable one - i.e. one from which we may potentially learn nothing) with unintended consequences popping up all over the place. For example, the bailouts (implicit or explicit) of banks has led to a massive transfer of liability onto the taxpayer. This liability is threatening the peripheral Eurozone countries which is having heartbreaking consequence on the ground. The QE inflationary policies are just another way of socialising the losses via the backdoor in order to attempt to deal with these liabilities. I don't think we can separate QE and its long term consequences from the debt crisis itself, and the debt crisis cannot be separated from the massive trade imbalances which have built up over the 20-30 year debt fuelled housing boom in the west. Those in debt must earn money to pay it off in order not to live their precious lives in a dickensian debtors prison-like state. The only way to earn money is to export, and hence we have a currency war on all fronts. At the same time, politics in Europe is confused, and people have no idea whether those involved are going to do their duty, or even what their duty is or should be. This is all just shaping up to be an ongoing saga of the credit crisis, and our lives are so short! What a shame! Last edited by TitanPartners on November 10th, 2010, 11:00 pm, edited 1 time in total. farmer Posts: 13477 Joined: December 16th, 2002, 7:09 am ### Helicopter Ben I was of the opinion that we had a deflation problem a few months back. But these delayed policy reactions are ridiculous. He should have been buying bonds back when the dollar was making new highs, not new lows!By the time Bernanke capitulated to market demands for action - September 21 basically - the labor market was already showing signs of life. The dollar was already down a lot, but Bernanke still managed to surprise people with his talk of easier-than-expected money. You remember how the market spiked that day, people were surprised by his tone!In retrospect I think Hoenig may have been more right than me - big surprise - about giving the economy time. But inflation was too low, and back then is when Bernanke should have been buying bonds. It would have helped matters greatly by not having a dollar shortage at the same time as the euro panic, and it would even have helped euro borrowing costs. There may not have been a euro panic if he started buying bonds in April.This guy is behind the curve all the time. He does not need committees and survey responses. Just print money when stuff starts to contract, and stop when it starts running the other direction. A sustained campaign of inflation is the cure for the wrong problem; the problem is Bernanke is too slow. Next thing we will need sustained deflation, when we just needed smaller shorter amounts sooner.The delays are ridiculous, Greenspan used to lower target rates on the spot. He didn't even need to announce, though he did for extra effect, he just started buying the short end. Last edited by farmer on November 11th, 2010, 11:00 pm, edited 1 time in total. hamster Posts: 216 Joined: October 12th, 2008, 3:51 pm ### Helicopter Ben QuoteOriginally posted by: frenchXSo here a little article about 9-reasons-why-quantitative-easing-is-bad-for-the-u-s-economy#1 Quantitative Easing Will Damage The Value Of The U.S. Dollar#2 Inflation Is Going To Hit Already Struggling U.S. Consumers Really Hard#3 Once An Inflationary Spiral Gets Going It Is Really Hard To Stop#4 Inflation Is A Hidden Tax On Every American#5 The Solution To The Housing Bubble Is Not Another Housing Bubble#6 More Quantitative Easing Threatens To Destabilize The Global Financial System#7 Quantitative Easing Is An Aggressive Move In A World Already On The Verge Of A Currency War#8 Quantitative Easing Threatens The Status Of The Dollar As The World Reserve Currency#9 It Is Going To Become More Expensive For The U.S. Government To Borrow MoneyFor information, the advise of Goldman Sachs was to make a QE of 2000b$ instead of 600b$. I have also heard some that in June 2011, the council of the FED will change so maybe we will have some surprise.So maybe 2011 will be the year of a currency war ? After the Euro crisis, the dollar crisis ?I dont think the classical money-supply-inflation wisdoms of equilirium theory holds (Fed buys debt or keep it, thus there will be more money than goods, thus price goes up.). Not in a world with Not-100%-reserve and the possibility to get around this (If you would take classic economics literally, before GFC the US economy would have run on approx$500 bn commercial debt because fed reserve was \$50bn with a 10% reserve ratio ... HAHA...) The inflation already happenend during the economic boom phase. What economists often underestimate: Money creation by banks is huge, and money creation by central banks is tiny (A lot of economists are not aware how monetary systems are designed). Money creation will effect prices for goods and services in a timely manner. The large chunk of money was created by the financial sector (and not central banks) during the economic boom phase and led to price increases (popular example: house prices went up but it is still a house). However it seems that the financial sector created a little bit too much money. It is this old/existing excess money the FED tries to swallow (directly, or through government debt what fired into broken banks' balance sheets). You cannot have inflation twice!
Last edited by hamster on November 11th, 2010, 11:00 pm, edited 1 time in total.

Gmike2000
Topic Author
Posts: 801
Joined: September 25th, 2003, 9:49 pm

### Helicopter Ben

The bond market sold off huge again today. The market is rejecting QE. The FED bid for 7 billion and was offered 30 (!). QE is having exactly the opposite effect on yields of what was expected. If this does not stop, the consequences are going to be extreme. If the FED shows that it has no control, there will be a panic reaction and yields are going to explode.Here is my Gedankenmodell of what happened: The economy is like a boat caught in a storm out on the sea. The FED promises QE, which is like saying "the boat is likely to tilt to the left and sink, but no worries, because we may place some weight on the right for balance."What do you think is the reaction of the passengers? They all move to the right before the FED gets going, because the right side is "safe". So then the boat tilts to the right (not the left), because everyone moved there at the same time and....it sinks anyways.Good job FED. This will go down in history as a big communications BLUNDER.It is as Milton Friedman said: The FED acts like the fool in the shower who does not find the balance between hot and cold and keeps switching back and forth.
Last edited by Gmike2000 on November 11th, 2010, 11:00 pm, edited 1 time in total.

list
Posts: 2041
Joined: October 26th, 2005, 2:08 pm

### Helicopter Ben

"If the FED shows that it has no control, there will be a panic reaction and yields are going to explode." They are doing this deliberately and this the first step. They are not so stupid as one can think.

farmer
Posts: 13477
Joined: December 16th, 2002, 7:09 am

### Helicopter Ben

QuoteOriginally posted by: Gmike2000QE is having exactly the opposite effect on yields of what was expected.I don't know about that. Bernanke said over and over that he would do things to raise inflation expectations. It seems obvious this would cause yields to rise. The point of my "What would happen to yields if Bernanke said he would buy all of them?" question was meant to ask if it is possible to create inflation expectations and lower yields at the same time. I felt it was obvious if he bought anything less than all of them, that yields would have to rise steeply (remember the two-tiered equity tender offer analogy where puts trade sky high relative to the spot price because of the back end). Would this hold true if he bought all of them, would it get worse and worse as he approached promising 99%, and then get better if he promised 100%?If he said he was going to buy all of them and burn them, in my mind, created a sort of simpleminded knife on edge. Buying all of them would create ridiculous inflation, at the same time as hypothetically shortening all their durations. But without actually locking in a purchase price in the forward market, there is no guarantee of being able to sell them at any particular price, meaning at any foregone yield. More likely they would sell at the market price knowing inflation. Unless you believed Bernanke intended to get his shirt robbed at ridiculous prices away from the market, like Japanese intervening in the yen.There are two alternative explanations for bond yields recently, A) yields would have continued to fall, except Bernanke's plans for inflation began to weigh on prices - meaning people began to expect higher yields from QE - or B) traders expected QE to lower yields, but increased borrowing demand overwhelmed this and capped prices.It may be that people expected lower yields resulting from this particular QE program as you suggest. Or it may be that people expected a larger QE program to get the same inflation expectation. So inflation expectations were held constant with the announcement of the QE size, but duration was extended by the smaller-than-expected QE size, resulting in a drop in yields.