July 17, 2012 By gpc1981
http://albertpeia.com/endofbernankeput.htm
‘For
well over a year, even after Ben Bernanke admitted that the consequences of QE
outweighed the benefits, the financial media world is awash with claims that QE
3 is just around the corner. It doesn’t matter than it’s been over a year. Nor
does it matter that the Fed has staged 10 FOMC meetings without launching more
QE, everyone claims QE is coming.
Guess
what? It’s not. And I’m going to lay this idiotic theory to rest right here and
now.
First
off, the Fed cannot launch QE because of the political climate in the
The
political response to this was extreme.
Every GOP candidate under the sun began to target the Fed. Some began calling
for Bernanke to be fired. Meanwhile, Obama became totally silent on
defending the Fed. Let that sink in for a moment. Obama, who reappointed
Bernanke, didn’t defend
Bernanke’s actions. In fact he acted as if nothing had happened.
The
message was clear: the Fed had become politically toxic and if Obama wanted a
shot at re-election, he needed to distance himself from the Fed.
It
was only a few months later that the Fed went into full on damage control mode
by increasing its town hall meeting efforts (Bernanke now goes to colleges to
explain why the Fed is great), writing complaints about how the media is
presenting its moves during the financial crisis along, and of course the now
famous “Bernanke’s a normal guy who drives a Sebring and reads a Kindle”
article in the Wall Street Journal.
Consider
that Bernanke, only a few years ago, lied to Congress about monetizing debt.
Around that same time the Inspector General in charge of oversight of the Fed
said that the Fed:
1)
Didn’t know where it was sending hundreds of billions of Dollars.
2)
Had not launched any investigations into where the money had gone
3)
Had not launched any investigations into why Lehman Brothers had been allowed
to fail
Has
everyone forgotten this? Bernanke, the savior of capitalism, Time Magazine’s Man of the Year, and
arguably the most powerful human being in terms of monetary clout ON THE PLANET
is now going into classrooms to explain why the Fed is wonderful and should
continue to exist.
Even
more than that, he’s having his favorite mouthpiece at the Wall Street Journal portray him as a
normal American who drives a
Folks, the political game has
changed in the
Don’t
believe me? Why do you think Obama is privately begging
Finally,
there’s a simple monetary reason the Fed cannot engage in more QE: BANKS NEED TREASURIES.
Treasuries are the ONLY senior asset on bank balance sheets that are increasing
in value (don’t even try to claim that mortgage bonds, corporate bonds or muni bonds are attractive to banks given what the banks
know about the ongoing debt crisis in the world).
More
QE pushes the US Dollar down. So for the Fed to engage in more QE would mean
the Fed would be buying appreciating assets
from the banks (which can be leveraged up for trades… remember all the big
banks are now basically hedge funds) in exchange for cash which yields next to nothing and would be depreciating
in value if more QE was announced.
The
banks need all the Treasuries they can get their hands on. I know, I know,
ultimately Treasuries will be worth much less when the debt crisis hits the
If
you’re a large bank what would you rather own? Treasuries or some other
sovereign bond which either yields nothing
(
The
answer is obvious. You want Treasuries. We’re not talking about ideals here; we’re
talking about reality. And in today’s financial reality, Treasuries are the
best senior most asset a bank can buy. WHY would a bank want to hand these off
to the Fed for cash, which yields nothing?
I
could go on and on, but the reality is the above arguments alone erase any
reason for the Fed to launch QE any time soon, if ever. The ONLY reason the Fed
would launch QE would be if liquidity needs were so desperate for the banks
that the would be willing to give up their senior most assets in exchange for
cash to meet day to day liquidity needs.
And
if we get to that point in the
So,
QE is not coming. End of story. You can continue to argue otherwise based on
some idealistic view of the world, but the reality is Europe and
So…
if you’re still investing based on the idea that QE is coming and that the
Bernanke Put is firmly in place, you’re going to be in for a HUGE surprise in
the coming months. QE isn’t
coming. And the Bernanke Put is losing its credibility rapidly.
Which
means… the primary prop underneath the
With
that in mind, I’ve begun positioning subscribers of my Private Wealth
Advisory for the next leg down in the markets. We’ve already
locked in over 30 winning trades this year by finding “out of the way”
investments few investors know about and timing our positions to benefit from
the various developments in
