None of those speeches matter much. The only thing that counts is Bernanke. The Fed will end up doing what he wants. There is no true debate at the Fed. All the speeches are show ponies to demonstrate that there is open thinking at the Fed. I don’t believe a word of it. But I do believe when Jon Hilsenrath echoes Ben’s thinking. I believe the Ben/Jon duo was at work in this WSJ article today. The critical words from Ben’s lips: (link)
a $600 billion program of Treasury bond purchases known as quantitative easing looks likely to run its course as planned in June. This will effectively mean the Fed is moving to a neutral stance of no longer easing while not beginning to tighten policy.
Mark Ben’s, Jon’s and my words. This is what the future will bring us. QE will end in June. But the policy of ZIRP will be with us for a long time to come.
There are so many factors at play in the big capital markets these days. The Fed is just one element in the equation. But if you focused on just their effort you would have to conclude that the end of QE but never ending ZIRP will bring us the following:
-Long end yields are going higher. I think the Fed moves have set us up for a 5% long bond and a 4% 10-year. Long bonds are a sucker play when the Fed continues to pour on the gas.
-ZIRP is good for stocks. We shall see about this. One can’t deny that equities are a better place to be than in cash that has a negative return.
-The dollar is going to get crushed. The Yen is a wild card that is influenced today by the uncertainties of Fukushima. We could see more weakness there. But the rest of the currencies of the world are going to have to move higher. I see the Euro over 1.5 the Pound pushing 1.7 and the CHF at around 85 to the dollar. The C&A dollars will be a good place to hide as well.
-PMs have to move higher. We will maintain a policy of cheap money and dollar debasement. How could the metals not respond?
-Inflation is going to roar. The food and energy component of the puzzle that Bernanke refuses to consider is going straight up in my opinion. I wouldn’t be at all surprised to see the non-core CPI up by 5% by the end of the year. We could easily see $5 gas in six months.
I think this is an insane next step for monetary policy. We will all pay a very dear price for this. I think it is also insane to have monetary policy conducted through speeches, innuendo and newspaper leaks.
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"One can’t deny that equities are a better place to be than in cash that has a negative return."
ReplyDeleteSure you can: if QE is withdrawn, equities will take a substantial hit.
As for commodities, demand destruction will take place much faster than you appear to understand. You need to spend to time in flyover country, Bruce. $5 gasoline is untenable -- as for food prices, I'm betting they'll contract along with the 44-inch waistlines that are one place where the average 'Merican actually has a surplus.
thanks Bruce!
ReplyDeleteA few questions:
ReplyDeleteWhat is your estimate for the deficit at the end of this fiscal year? Any ideas of what it will be the next fiscal year? In particular, do you see it topping $1t again? If so, how is that to be financed without QE? Especially considering your ideas about what's ahead for the dollar.
To your credit, you said QE would not be extended (except for QE Lite) four long months ago. I'm curious to know the underlying assumptions for your conclusions above, particularly regarding long term yields heading higher and price inflation. During the last precedent for a non-QE period, roughly April 2010 through mid-August 2010, nearly all of the curve declined, while the very short end stayed put--all without Fed intervention. Why would it be different this time?
ReplyDelete"As for commodities, demand destruction will take place much faster than you appear to understand. You need to spend to time in flyover country, Bruce. $5 gasoline is untenable -- as for food prices, I'm betting they'll contract along with the 44-inch waistlines that are one place where the average 'Merican actually has a surplus."
ReplyDeleteDon't buy gas or food. That'll show the bastards
There won't be much, if any, demand destruction. "Commodities" include a lot of stuff, ranging from things you can and will do without to absolute essentials.
ReplyDeleteGasoline, basic foods, heating oil, electricity, natural gas, etc., will be good places to hide because the purchase at the consumer level of these items is not dependent on credit or even cash: they are INDISPENSABLES. They will be bought, and bought long after all nonessential fluff is forgone. They, like gold, are going to be bought with the consumers very LAST dollar...
Same reasoning may work for gold, too, versus silver, forex, etc.
I think you bring some important information to light. I chose this forum to comment because it's easy to get lost at Zero Hedge (and you never responded there either). I've always been polite and asked what were presumed to be intelligent questions. Yet, you have responded to exactly none. What's the problem?
ReplyDelete