To QE or not to QE
From PIMCO’s Tony Crescenzi on the QE issue, Fed and Bernanke’s choices.
- If the Fed does nothing, asset prices could fall, threatening America’s fragile economic recovery. But if the Fed decides to battle the forces of deleveraging, it could commit a classic error by acting during a turning point and thereby doing too much.
- During Operation Twist, the Fed will absorb the equivalent of all of the issuance of U.S. Treasury securities maturing beyond seven years. When Operation Twist ends, global investors will be left to shoulder the burden.
- The combination of stronger economic data and rebounding inflation expectations makes it more likely that the Fed will hint at rather than decide on QE3 when it meets again on April 25th.
Like Hamlet, Federal Reserve Chairman Ben Bernanke faces a choice; whether to “QE or not to QE,” which is to say whether or not to conduct a third round of Treasury, agency and/or mortgage-backed securities purchases in order to fend off the ravages of the deleveraging process. In other words, whether the Fed should conduct QE3 – a third round of quantitative easing.
The [Recovery] Has No Clothes
Must read by Eric Sprott.
What a difference a month makes. Now that Greece has been papered over, the bulls are back in full force, pumping up the equity markets and celebrating every passing data point with positive exuberance. Let’s not get ahead of ourselves just yet, however. Very little has actually changed for the better, and it’s certainly too early to start cheerleading a new bull market.
Take the latest US unemployment numbers, for example. There was much excitement about the latest Bureau of Labor Statistics (BLS) report which announced that US unemployment remained unchanged at 8.3% during the month of February.2 The market was particularly enamored by the BLS’s insistence that non-farm payrolls increased by 227,000 during the month, as well as its upward revision of the December 2011 and January 2012 jobs numbers. Lost in all the excitement was the Gallup unemployment report released the day before, which had February unemployment increasing to 9.1% in February from 8.6% in January and 8.5% in December.3 Granted, the Gallup methodology is slightly different than that used by the BLS, but even if Gallup had applied the BLS’s seasonal adjustment, they would have still come out with an unemployment rate of 8.6%, which is considerably higher than that produced by the BLS.4 We all know which number the pundits chose to champion, but the Gallup data may have been closer to the truth.
Has the ECB hit a limit?
The bazooka has supposedly saved the Eurozone, but what flexibility going forward does the ECB actually have? According to the article below, the ECB’s space to manoeuvre inflation has become narrow. From Voxeu.
In December, the ECB successfully forestalled a financial crisis by stepping in with a big bazooka and inundating the market with liquidity. Unfortunately, the big bazooka has come at a cost; the composition of the ECB’s balance sheet has changed dramatically.
Under standard monetary policy, when there is a sudden increase in money growth, the central bank can increase its short-term interest rate and thereby reduce its short-term loans to banks. This policy causes a reduction of bank lending to households and firms, which absorbs excess liquidity and prevents an acceleration of inflation. The ECB has lost its ability to implement this type of anti-inflationary policy.
Spain under new Attack as protesters take on the streets
Remember protest in Europe? Well, it is all back. Spain is under siege by the new austerity protests. Meanwhile the yields are rising, and the IBEX plunging. Watch Spain carefully, as the Big Elephant has started moving. From RT.
Spanish labor unions are raging in the streets again – protesting against labor reforms, which the government sees as a breath of fresh air for the country’s choking economy. Protesters fear eventually falling under the mercy of their employers.
“They want to end labor and social rights and finish off everything” is the theme of Thursday’s 24-hour general strike and rallies.
Hundreds of union members are already flocking to the streets of Madrid, attempting to block trucks crossing the picket line or close stores that remain open. Demonstrators are putting stickers on stores which read “Closed. 29 March General Strike.”
At least 58 people have already been detained by police in the capital. They were mostly picketers trying to stop night shift workers getting to jobs in public transport, factories and wholesale markets. Six people have been injured in clashes: a police officer and five civilians, reports the Associated Press. Video below.
Another spike in VXX volume
Guest post by Bill Luby of Vix and more.
Looking the history of the volume spikes in the iPath S&P 500 VIX Short-Term Futures ETN (VXX) is a lot like looking at the history of market sentiment, contrarian thinking and psychology.
Since its launch in January 2009, VXX has been responsible for luring in unwary investors with its siren song promise of huge profits ahead of the next, inevitable, just-around-the-corner selloff in stocks. Unfortunately for VXX longs, the hoped for VIX spike usually turns out to be much more elusive than anticipated and investors who fail to tie themselves to their masts typically end up shipwrecked on the treacherous shore of complacency.
A glimpse at the biggest volume spikes in the history of VXX (see chart below) shows that almost all of these happen at near the top of a VIX spike and leave longs exposed to a sharp downturn. The notable exceptions are largely limited to last August, when a surge in VXX trading volume accompanied the first leg up of what turned out to be a multi-stage rally in the VIX and VXX.
QE 3 discussion with Biderman and Bianco
Biderman and Jim Bianco on the big question.
Will there be a QE 3?
Must watch videos below, as Bianco is probably one of the better independent bond researchers.
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