Will There Be a QE3?

Is there really any doubt that virtually all our markets, especially commodities and with the exception of real estate, have been propped higher as a direct or indirect result of the Federal Reserve’s policy of quantitative easing? I have no doubt.

The question remains outstanding just how far the Fed, in concert with its banking friends on Wall Street, has gone and will go to further manipulate our markets. That question may never be fully answered. What a shame! For those who believe a preponderance of truth, transparency, and integrity are the cornerstones for long term fiscal health and financial well being our markets remain a decidedly challenging arena.

In light of this reality and with the end of QE2 on the horizon this June, where do we go from here? A reader posed that very question the other day.

LD, ZH (Zero Hedge) recently reported that 2 large macro funds in Europe recently went “super-long” on the S&P around the time you were over there, do you know anything about this? This would seem to imply that Chairman Bernanke is preparing QE3 for June and that there is hedge-fund/institutional knowledge about this? Do you know anything about this? What are your thoughts regarding potential QE3 in June? Will we have QE3 in June and if-so how large will it be? We all need our fix, man.

Yes, we do all need our fix. The markets need to be fixed. Our government needs to be fixed. Our pension system needs to be fixed. Our fiscal deficit needs to be fixed. Is quantitative easing the right approach to go about fixing these problems or merely a charade to disguise our real underlying issues? Once that charade is complete, then what?

Over the last few months I have heard diametrically opposed opinions on whether Ben Bernanke will continue to provide further ‘juice’ via quantitative easing to maintain a negative real interest rate policy. At an industry conference just a month ago, a highly regarded Washington insider said in no uncertain terms that the ‘word about town’ was that the end of QE2 would be the end for quantitative easing as a whole. On the other side of the coin, in speaking with senior executives at a number of money managers, they believe a continuation of the ‘quantitative easing juice’ is a foregone conclusion.

What do I think? Based upon my travels in Europe, it is very apparent that the economies of the peripheral nations remain under real duress. We already know that the Fed has previously provided a backdoor bailout for selected European institutions and effectively the continent as a whole. That precedent and the fact that selected European economies remain on the brink would support a continuation of quantitative easing.

On the contrary, the fact that the Fed has announced a timetable to sell $10 billion in mortgage securities per month is an indication that the Fed may be looking to move to the next phase in managing our ‘walking pneumonia’ economy.

My ‘sense on cents’ take is that Bernanke will try to thread the needle and buy further time with QE2. How so? I think he will announce in the next month or so that he plans to extend the end date and accompanying implementation of QE2 for another few quarters. In doing so, he will provide a wink and a nod to those on Wall Street that the Fed’s easy money is there if and when they need it.

Rock on!!

What do others think? Opinions and comments always encouraged and appreciated.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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2 Comments on Will There Be a QE3?

  1. We are getting some verbal indications that QE3 won’t come from the hawkish Fed presidents, and some direct language about possibly ending QE2 early. Is this a smoke screen? Do they actually believe the economy is on sound footing? Perhaps they are setting the table for the economy to crash and burn kick-starting the next big phase of wealth transfer. What do we know, we’re mushrooms. Any thinking mind who has a grasp on monetary policy and the bind in which the US finds itself can probably put QE1 and QE2 together and end up with QE3 being a foregone conclusion. I think the answer lies in what you believe relative to that point of no return with the dollar… are we there/past it, or not?

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