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’An important lesson from Jackson Hole 2010
Alternative working title: How QE2 went wrong.
In order to understand what’s really at stake at Jackson Hole on Thursday we need first to understand how the Fed’s thinking has evolved post 2008.
And there’s an excellent presentation from Professor Lew Spellman,
Just cross it out and do bigger numbers
Because if anyone gets the true essence of doing quantitative easing after failing first time round, it’s Japan, no?
Related link:
Inter-yention action – FT Alphaville
The US’s Greece-y new debt dynamics
Some debt doom and gloom from Independent Strategy’s Bob McKee…
… a man who, quite literally, wrote the book on sovereign debt crises.
He notes that the debt deal reached earlier this week does little to address the most pressing of the US’s fiscal issues.
Gold’s not as stretched as you might think, Citi says
One for the gold bugs, this.
The possibility of a surge in the price of gold is growing, according to the commodities team at Citigroup.
In fact, they say, the probability of a short-lived spike in gold is now above 25 per cent (up from 5 per cent just a few weeks ago) and that’s even without a worst-case economic scenario actually happening.
Around the world, in leverage
So much focus on government debt lately — won’t somebody please think of the household leverage?
Morgan Stanley’s Global Monetary Analyst team has:
(And yes, Ireland has been classified as both Anglo Saxon and periphery).
SOMA takes duration risk on your behalf
Did you know that the Fed’s System Open Market Account (SOMA) — the portfolio in which the Fed stashes all the lovely Treasuries it picks up as a result of its quantitative easing asset purchases — has seen its average duration rise from between two and three years to over 4½ years at the end of June this year?
Its holdings meanwhile have risen by an additional $1,600bn worth of assets.
When doves don’t cry – BoE edition
The minutes of the last MPC meeting are out and here’s the price action in the Great British Krona.
Something of a bounce, which is perhaps surprising because on first read the minutes appear to be fairly dovish.
Get ready for QE2 UK. Sort of
The lower-than-expected UK inflation figure for June is reviving chit chat of a second round of monetary easing, first sparked by last month’s minutes from the Monetary Policy Committee.
The economics team at Credit Suisse are joining in — not that they think it will happen any time soon;
No, the ECB can’t prop up Italy
We won’t know if it really did happen, not until next week’s figures on Securities Markets Programme purchases. (Current total: €74bn)
But since there was plenty of rumour on Tuesday that the European Central Bank (via the Bank of Italy) intervened to buy Italian bonds from a terrified secondary market,
Raid Fort Knox!… and other debt ceiling solutions
By Izabella Kaminska and Cardiff Garcia
How does one buy time when trying to avoid a US debt ceiling-related default?
Why not by repo-ing the Treasury’s $300bn worth of gold stocks?
It’s one solution that’s currently being touted by former Federal Reserve official and current Peterson Institute economist Joseph Gagnon,
Libor, repressed
From the annals of financial repression, we bring you Libor rates.
It’s a torrid tale of QE2, dollar funding and liquidity — and it’s one we thought we’d mention, given that the Federal Reserve’s second bout of quantitative easing has just come to an end.
And so farewell, QE2
The last QE2 open market operation: $12.47bn of Treasuries tendered by primary dealers, $4.91bn accepted by the Fed, $4.4bn of which was yesterday’s new seven-year bond.
As highlighted in FT Alphaville’s tombstone (data via Reuters):
What’s wrong with markets in seven easy slides
Hot on the heels of the BIS’s annual report — criticising how prolonged low interest rates can create ‘distortions’ and threaten ‘price stability’ — comes this presentation from Citigroup’s credit team.
The SPQR
Introducing the SPQR: the Special Petroleum Quantitative Reserve.
Some 36 years in the making, specifically designed to provide the US (and via that global markets) with vital oil supplies if and when an emergency strikes,
Mervyn Maradona
The Bank of England governor is a rule-breaker, just like Argentinian football star Diego Maradona.
So says Malcolm Barr over at JPMorgan:
One of Mervyn King’s most memorable analogies in explaining the conduct of monetary policy was his reference to Diego Maradona’s two goals against England in the semi final of 1986 World Cup.
Bernanke has other ways of acting
All this debate about whether or not we will see another round of quantitative easing in the US, and yet, in his latest comments, Ben Bernanke has hinted more strongly than ever that if the Fed does act it might do so in a very different manner.
The Bank of Japan doesn’t seem to like 1 per cent Topix drops
Not price-keeping, but signalling at the Bank of Japan .
Nikkei reports on Monday that “Japan’s stock investment community is buzzing with rumors about the Bank of Japan’s ’1% rule’.” Readers will recall that the BoJ started buying ETFs and JReits late last year,
Re-inventing Opec
Wednesday’s Opec meeting may have resulted in a no-change decision on production targets, but as more and more people are noticing, its importance lay elsewhere — in signalling some significant turmoil within the organisation itself.
The calm before the (volatility) storm
We ♥ this note from Bank of America Merrill Lynch’s Ruslan Bikbov and Priya Misra.
It’s on a subject dear to our own hearts here on FT Alphaville — the curious case of persistently low volatility and the idea that it might be masking systemic risk.
Another commodities crash layer – the $100bn intervention
Tracking the causes of the commodities crash is starting to feel like peeling an onion.
One layer gets pulled back only to reveal another, and then another — and then you start to cry. Last week we had UBS analysts blaming “extreme positioning short the dollar and long commodities.”
So peeling back another layer,
I think, therefore I am nothing
Perhaps some Deutsche Bank analysts have been into the absinthe.
From a DB research note out Monday:
Philosophically one has to question whether there is any merit in being worried about anything.
Well,
UBS on the commods crash – and getting ready for the next one
We’ve heard from Deutsche Bank, who blamed the coming end of QE for last week’s precipitous price moves.
UBS have now added their view to the causes of the commodities crash. In a nutshell, they’re citing:
The deflation risk is still out there, SocGen says
This is what happens when markets are built on sand (silicon QE, anyone?).
They can crumble all too quickly.
A reminder of market fragility, from Societe Generale’s cross-asset research team:
Presumably you need the Baltic Dry line in the first chart — an indicator of ‘real’ economic recovery — to match up with commodities prices,
The financing pyramid and margin debt
Here’s an interesting point from Cullen Roche at Pragmatic Capitalism on Monday.
Margin debt — the amount that speculators borrow to buy stocks (or other assets for that matter) — is rising quickly.
Some more standard deviations in commodities
Sean Corrigan at Diapason Commodities sends us this chart on Friday:
It shows the value of London Metal Exchange Lead inventories over two decades.
As Corrigan notes, the more visible inventory there is,
Deutsche chimes in on the commodities rout – it’s the QEnding
Still pondering possible reasons behind the recent commodities rout?
Deutsche Bank says it’s all because of the coming QEnding, or the end of the Federal Reserve’s second bout of quantitative easing,
The coming QEnding
Or, supply dynamics in quantitative easing. Required reading for a quiet Wednesday, really.
Remember how QE works. The Federal Reserve buys US Treasuries from investors in the hopes of pushing them into things like corporate credit,
QEased credit – but maybe not for long
It’s money money everywhere and not that much to buy.
Citigroup credit strategist Matt King has a nice note out on Wednesday attempting to delve into the ‘cash on the sidelines’ notion — or the idea that there’s a wall of money just waiting to be invested.