More on how the US is "Recovering" and how Europe is envious. Q1 GDP 0.2%, Exp. 1.0%, Last 2.2% And on the "awesomeness" of stock buybacks: capex down 3.4%; buybacks since March = $237.1B (h/t TrimTabs)
IMO the only purpose of QE was to rescue the failed banking system particularly in the US. The banking off-balance-sheet leverage was so huge, that even telling daring to speak the truth (mark to market) was no longer possible. I have said for several years on this forum that we were in deflation or disinflation caused by constantly lowering interest rates for 30 years and a fractional reserve dysfunctional pairs banking system (after 1987). Now we are here and IMO the Fed can't get out AND THEY KNOW IT. The European negative interest rates are a desperation move IMO and are crazier than ZIRP. To save a bond market liquidity collapse, one must move to a market that is larger - the forex market. Japan went into the black hole before most countries. Perhaps there is some Hawking radiation to save Japan? IMO we shall soon see what happens. I sure hope my reasoning is incorrect somewhere.
It's difficult for me to tell if you're ignorant or just argumentative; you're ignoring the economic facts or nit picking. The Fed QE operations are in the trillions of dollars. The primary dealers are just intermediaries. So you agree with me. Bubbles have been present in every capitalist country on the planet since capitalism began some 500 years ago. No country has ever avoided them. Your plan (if you have one) isn't going to avoid them either. It's all been tried before. They are inevitable. All the Fed can do is try to smooth out the bubbles and the recessions that follow them. Their mandate is established by Congress, "maximum employment, stable prices, and moderate long-term interest rates". This is in the Federal Reserve Act. Risk aversion and the public's herd behavior effect these things and therefore fall under the mandate of the Federal Reserve. There are plenty of papers on the Fed website that show the relationship between risk aversion and stable prices and long-term interest rates. But maybe you can go hire an expensive lawyer and waste money suing them for exceeding their mandate. Instead of arguing against my argument, you're arguing against how it's phrased. I won't argue over crap like that. Obviously you understood what I meant but all you can do is nit-pick. If you want me to speak to the issue, you need to speak to the issue. Very good, an actual discussion point! Bond yields are relatively low compared to short term interest rates and the inflation rate. They're high enough to attract investors. Have you seen the interest rates that are offered on savings account??? Those are at 70-year lows so it should surprise no one that long term rates are also low. The advice I'm giving my friends is that long term interest rates are very low and they should buy real estate and take on big 30-year mortgages. This is exactly the behavior that the Fed is attempting to cause; the effect is to increase real estate prices. This reduces the number of people going bankrupt. If you're confused on why the Fed is doing this, go back and read the mandate and think about it. It's established economic theory. You're the one who disagrees with 27 central banks. If you want to argue differently, you need to argue why it doesn't work and that QE is not the "cure". Cures take time. Go back and look at that chart of bond yields over the last 100 years. You want QE to cure something that is a very long economic cycles. QE can't stop economic cycles. They can't reset the economic system to "normal" whatever that is. All QE can do is reduce the pain. And Japan's economic problems long predate their QE. Interest rates effect businesses. Business hires people. The hiring of people effects the unemployment rate. The effect is not direct but it's there. That's why it's among the Fed mandates. Cures take time. Yes, as shown in my reply, Europe's unemployment rates are indeed worse than ours. And they are envious. That's why they should implement QE. You're being argumentative again. Stop that or I'll put you on ignore. The Fed has been adjusting the money supply for 100 years. Other central banks adjusted money supplies for 100s of years. None of this is new. The details are not important. You're quibbling again!
The primary dealers keep the money. They're not intermediaries. If they loaned out the additional money, then you might be on to something. But they don't. They park the reserves and use it as collateral to speculate on assets. QE was designed (publically at least) to make loans easier and cheaper. But when banks don't lend, and people don't want to borrow (at least qualified borrowers) then it doesn't work. And it hasn't. Of course I do. Your point was obvious, though I don't know if it helps your case on QE. Except that they've succeeded in promoting policies to exacerbate bubbles (primarily in the last 15 years). Prior to that, you can argue that there was sanity at the Fed. So you admit promoting risk is nowhere in their mandate. Thank you. I'll skip the ignorant comment about public herding and chalk that up to random speculation on your part. You cannot have debate unless there is clarity on what is exactly being said. People like you try to wiggle out of phrases and comments all the time with the excuse "you know what I meant". No, I did not. When you make simple mistakes like that, you do yourself a disservice as you begin to look like you really have no business being in a thread like this. If it was a mistake, just admit it and lets move on. Price is not yield. End of story. I'm not confused at all as to why the Fed is doing what they are. This is the same discussion - mis-pricing risk. It's great for your private financial advice business that you're roping people into buying real estate at low mortgage rates - though it's not the rate you need be concerned with - it's the asset price. But let's leave that alone. There is a reason Gross recently said that Bunds are the short of a lifetime (or will be rather soon). People buying 10 year, negative yield debt are not doing so because they want to be paying the sovereign for the next 10 years. They're chasing a bubble and frontrunning central bank purchases of the same debt. They're chasing price. There IS no yield. All this talk about the Fed hiking rates is folly. IF they actually hike (it's a coin toss right now, but I think they will just to show us they're serious), it'll be a one and done. Rates might spike in the interim (last few days have been a relative bloodbath across the curve) but only to sink back down by Q3 end when it's obvious they can't continue. Price. Not yield. "Established theory" ah yes. 27 central banks aren't performing QE, by the way. You need to stop throwing that around. What I said originally was 27 central banks have eased this year. That's not even in the same zip code as QE. My proof of QE not working is evident here: Main street economy (what QE was designed to help) hasn't gotten any better. Japan is still flirting with deflation. The EU hasn't seen any benefit. And on and on. QE can't accomplish anything except give money to banks and hedge funds and those with the money to invest (not the majority of the US population). It widens the inequality gap, props up failing institutions and drives up asset prices. If the economy is overburdened with debt, it prolongs the problem by kicking the can, but the debt is never serviced. It just pushes it out. Fiscal policy is meant to be used to cure the ills of a recession. Monetary policy was not designed for that. Interest rates affect businesses in taking loans. Loans only lead to hiring when businesses expand. If businesses don't expand (and they haven't for 6 years now) then there's no hiring (which is evident in our employment data). If companies take advantage of low debt rates to fund share buybacks, that hires no one. And the reason why unemployment is in the Fed's mandate is because in the 70's, Congress wanted to act like it was doing something and made the Federal Reserve responsible for driving employment as well. There were many critics at that time both in Congress and the Fed who stated the obvious - that the Fed can't really affect hiring, and that it can only influence the business environment by cheapening debt. That doesn't always lead to hiring. In fact, it hasn't since the crash. There's a reason price stability is the mandate of central banks worldwide, but employment is only that of the Fed, no other CB. You obviously missed the charts showing the "recovery". Small hint: There is none. You stated the Fed has been buying MBS for 100 years. That's pure BS. If calling you out gets me put on ignore from you, then be done with it already. You can't make ridiculous statements (your M.O.) and expect me to ignore them. Details are not important....LOL! Details are all that's important! And you're dodging again. Primary Open Market Operations is not the same thing as QE. One is a vehicle (that can ease or restrict) and the other is policy. One is used in the short term, the other is policy in the medium term.
I'm assuming that since you did not have any comments about corporate buybacks after the data I showed, that you relent on the following comments you made earlier: "I agree that share buybacks have increased but the increases dates to the 1980s, long before QE was started. As to the Fed being worried about it, could you provide a link to this? My guess is that the Fed thinks of share buybacks as being an alternative to dividends. Along this line, when you talk about how over-valued the stock market is, you need to include these stock repurchases with the dividends. I have no trouble finding stocks paying handsome dividends and simply do not see the stock market as being horribly over valued." "The S&P500 today is at around 2100. That's higher than it ever was in 2008, 2009, 2010, 2011, 2012, 2013 or 2014. Do you really think the stock market can set new highs without the previous prices being low? Hundreds of companies bought back shares in 2009 at prices much lower than they are now. Hey, if stocks were dropping, your argument would make sense. In that case, companies would have bought shares at high prices. Instead they bought them at low prices. I think you're hopeless."
What a timely article regarding Stock Buybacks and Employment. I guess the Fed is really encouraging that hiring! Dow Chemical boosts share buyback program to 10$ Billion. Announces plans to fire 1750 people.
http://www.elitetrader.com/et/index...t-exist-in-5-years.290903/page-6#post-4118534 to paraphrase, ...... the layoffs will continue until earnings and morale improve! Time to look at executive pay and the difficulty of insider selling in a non-liquid market perhaps? Isn't debt being swapped for equity like the junk bond corporate buyouts? Will this all end well? Stay tuned .....