September 13th, 2012
(HigginsBlog) – Bernanke skipped right over QE 3/4 and directly announced open-ended QE with plans to purchase $1 trillion in mortgage backed securities over the next 2 years.
Fed chairman Ben Bernanke has announced a new round of stimulus which is being termed open-ended QE and even QE to infinity because Bernanke has refused to give any guidance on how long it will last.
Instead he dodges the question stating the operation will continue into the foreseeable future until things improved and at the minimum for a ‘considerable time’.
This of course means Bernanke is much more pessimistic about the market than Wall Street or the media has realized.
QE infinity will including extending Operation Twist and extending the feds zero-rate interest policy into 2014 as well as committing to purchasing $40 billion worth of toxic mortgage backed securities per month.
That would put the MBS purchases at $1 trillion over a two year period but the plan comes with the caveat that if the Labor market ‘worsens’ the Fed will add to their purchases.
Given that unemployment is currently worsening and is considered a 6 to 12 month lagging indicator any moves made by the Fed could take up to a year to be seen in the Labor market.
Zero Hedge summarizes: Fed Folds: Will Do Open-Ended MBS Buying, Extends Operation Twist.
- *FED TO KEEP POLICY STIMULATIVE FOR `CONSIDERABLE TIME’
- *FED WILL ADD TO PURCHASES IF LABOR MARKET DOESN’T IMPROVE
- *FED DOES NOT SAY WHEN MBS PURCHASE PROGRAM TO END
- *FED TO BUY $40B MBS MONTHLY, CONTINUE `OPERATION TWIST’
- *FED TO BUY MBS, EXTENDS ZERO-RATE POLICY INTO 2015
Zero Hedge goes onto reports a huge problem with Bernanke’s announcement.
The One Big Problem With QE To Infinity
There is one big problem with the Fed’s announcement of Open-Ended QE moments ago: it effectively removes all future suspense from FOMC announcements. Why? Because the Fed has as of this moment exposed its cards for all to see from here until the moment it has to start tightening the money supply (which may or may not happen; frankly we don’t think the Fed tightens until hyperinflation sets in at which point what the Fed does is meaningless). It means easing is now effectively priced into infinity. Now rewind back to that one certain paper by the New York Fed, which laid it out clear for all to see, that if it wasn’t for the expectation of easing in the 24 hour period ahead of the FOMC meeting, the market would be 50% or lower than where it is now, and would have been effectively in negative territory in the aftermath of the Lehman collapse. What Bernanke did is take away this key drive to stock upside over the past 18 years, because going forward there is no surprise factor to any and all future FOMC decisions, as easing the default assumption. It also means that Bernanke may have well fired his last bullet, and it, sadly, is all downhill from here, as soaring input costs crush margins, regardless of what revenues do, and send corporate cash flow to zero. Unfortunately, not even in the New Normal can companies operate without cash flow.
This is the chart.
Than you Fed for telling us what comes next.
Full redline comparison to the August statement below:
The announcement also just paved the path to new all-time precious metal highs:
here was one thing, ONE THING only that Bernanke could do, to become a gold bug’s best friend today, than merely announcing QE 3/4. It was to announce open-ended QE. This means this is the Fed’s final shot and there is no way to frontrun the Fed any more by definition. It means the terminal start of currency debasement is now here. It also means that the path to all time nominal (and inflation adjusted) highs in gold, which is now just $160 away, silver, platinum, and all other metals, as well as all other hard assets is now clear. It also means that very soon stocks are about to realize what soaring “input costs” mean for the bottom line.
Thank you Chairsatan: you are truly a gold bug’s bestest friend!
Iin case you were wondering, Silver is now equal YTD with the NASDAQ and Gold is catching up to the S&P…
Source: Higgins Blog