QE3
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Prepare for Years of "QE Forever' with Ben Bernanke at the Helm
When Ben Bernanke testified before Congress Tuesday and Wednesday, he staunchly defended his easy- money policies like quantitative easing, or "QE Forever."
"We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery," the Federal Reserve chairman said.
Bernanke added the central bank takes "very seriously" the excessive risk-taking its dovish policies could provoke and is watching markets carefully.
He maintained that the bank's accommodative monetary policy has "supported real growth in employment and kept inflation close to our target [2%]."
But some Fed officials are growing concerned about quantitative easing - the Fed's purchases of $85 billion in securities a month - and believe it would be prudent to slow or stop the buying well before the end of 2013. Esther George, president of the Federal Reserve Bank of Kansas City, is one of the biggest hawks in the Federal Open Market Committee (FOMC) this year, citing unease about economic stability and inflation.
"While I share the objectives [of the FOMC]," George said in a Feb. 12 speech at the University of Nebraska Omaha, "I dissented because of possible risks and the possible costs of these policies exceeding their benefits...While I have agreed with keeping rates low to support this recovery, I know keeping interest rates near zero has its own consequences."
Despite the increasingly anxious sentiment, as long as Bernanke remains at the helm, QE Forever will be the policy. Here's why.
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Did the Fed Just Admit QE3 Has Been a Major Failure?
After four years of quantitative easing programs, including QE3 just last fall, U.S. Federal Reserve officials have started voicing doubts about its effectiveness and concerns that it is distorting the markets.
And it's not just the Fed's hawks, such as Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, speaking out against the bond-buying extravaganza.
Doves like Atlanta's Dennis Lockhart and moderates like Kansas City's Esther George have expressed concerns about QE3 as well.
"I do think the growth of the Fed's balance sheet could have longer-term consequences that are worrisome. While I've supported these policy decisions to date, I acknowledge legitimate concerns," Lockhart said in a speech in Atlanta on Monday.
According to the minutes of the December Federal Open Market Committee (FOMC) meeting, several members "thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet."
If in fact sentiment within the FOMC is turning against QE3, then the easy money spigot that has helped fuel the stock market and other investments could be switched off sooner than most expected, which could have a sharp impact on the markets.
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Peter Schiff: Thanks to QE3, We're All Screwed
U.S. Federal Reserve policies like QE3 are building up to an inflationary catastrophe, says economic expert Peter Schiff.
Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, made his remarks about the dire consequences of excessive quantitative easing in a video interview on Yahoo! Finance's Breakout.
Schiff said he has dubbed the Fed's third round of bond-buying, known as QE3, "Operation Screw" because "everybody's pretty much screwed if they own dollars."
He warned that the Fed can only continue its policies of buying U.S. Treasuries and mortgages by printing more money, and printing more money inevitably will drive much higher inflation.
"The Fed is now promising to print $85 billion a month," Schiff said. "That's over a trillion dollars a year. And I think that's just their opening bid."
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QE Infinity Won't Work, But Here's What Will
Dallas Federal Reserve President Richard Fisher recently offered a stunning assessment about our policymaking central bankers down in Washington.
They're winging it.
In a talk before a Harvard Club audience, Fisher presented a candid assessment about all the levers the Fed has been pulling in the aftermath of the 2008 financial crisis. And that includes the recently announced QE3.
"Nobody really knows what will work to get the economy back on course. And nobody-in fact, no central bank anywhere on the planet-has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank-not, at least, the Federal Reserve-has ever been on this cruise before."
I don't know about you, but the idea that four years and trillions of dollars into this quantitative easing voyage we're still sailing without a compass isn't just appalling.
It's terrifying.
Yet this ship of fools sails on.
The problem is, Fisher is right: QE3 won't work. QE1 and QE2 didn't fix this mess. Nor will QE4, QE5, onwards to infinity.
What's more, there's a cottage industry of pundits and consultants who'll agree.
Trouble is, just like Fisher and his colleagues at the Fed, none of them can tell you why it won't work.
That's what we're going to do here today.
We'll start by giving you the lowdown on how this nation's central bankers view "Quantitative Easing." Then we'll show you how the Fed thinks QE is supposed to work.
Finally, we'll punch some (actually, many) holes in in the Fed's hull by discussing why it's not working.
We'll even demonstrate what could still be done to fix this wretched mess.
To continue reading, please click here...
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QE3 Will Give Rebounding Homebuilder Stocks An Extra Push
QE3 - Federal Reserve Chairman Ben Bernanke's $40 billion-a-month booster shot - could be just what the doctor ordered to keep homebuilder stocks surging.
The Fed's buying of mortgage-backed securities (MBS) is designed to help push down 30-year mortgage rates -- a major incentive for consumers to buy a house.
And now with QE3 (the third round of quantitative easing), the central bank has promised to keep buying $40 billion per month of MBS until...well, until forever if needed.
The strategy is already working. Last week, just a month after QE3 was announced, mortgage interest rates fell to the lowest level on record.
The average 30-year loan stood at 3.39% as of Oct. 11- down from 6.1% at the start of the recession in December 2007.
And the Fed has said it plans to keep its own federal funds rate, a benchmark for interest rates, at "exceptionally low levels" at least through mid-2015.
Such policies, designed to jumpstart the economy by boosting the housing market, necessarily benefit homebuilder stocks as well.
"You get more benefit when people buy homes," Bernanke says. "It's the purchases of new homes that generate the construction activity, the furnishing, all those things that help the economy grow."
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QE3 and Low Interest Rates Help Savers? Bernanke Thinks So
U.S. Federal Reserve Chairman Ben Bernanke wants you to believe his cheap money, low interest policies like QE3 actually have benefits for savers.
America's savers, many of whom are retired or nearing retirement, would beg to differ.
You see, low rates at the Fed - which has pledged to keep its interest rates near zero at least through 2015 - means low rates on conventional savings vehicles like bank accounts, certificates of deposit, and money market funds.
Those rates affect $10 trillion in savings-like products, costing savers billions of dollars.
For example, if a saver had $100 in a savings account in 2008 that paid 0.35% interest, she'd have just $102 today. But with inflation, $100 worth of goods in 2008 now costs $107.
That's a loss of 5% in four years, the sort of math that eats away at a retiree's standard of living.
And the rates of 2008 look fantastic compared to what's available now.
The Fed's actions have pushed down interest rates to microscopic levels. The average savings account interest rate has fallen one-third in the last year alone, to 0.08%.
The average yield on five-year CDs last month dropped below 1% for the first time ever. Back in 2007, five-year CDs provided a yield of 4%.
And yet in a speech he gave at the Economic Club of Indiana on Monday, Bernanke said his policies are helping savers.
Here's why.
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How QE3 and Higher Inflation Are Part of the Fed's Master Plan
U.S. Federal Reserve Chairman Ben Bernanke might not admit it, but he just drastically increased the inflation risks for 2013 and beyond.
That's because Bernanke pledged on Sept. 13 that QE3 -unlike the stimulus programs before it - will continue for an unlimited timeframe.
QE3 has already led to a rally in commodity prices, like the previous Fed stimulus actions.
But this time the inflationary surge will get much, much worse.
"If the governments and central bankers continue to flood the world with cheap money, it has to translate into some kind of inflation," Money Morning Global Investing Strategist Martin Hutchinson recently explained. "We started with asset inflation. But my sense is that the transition from asset inflation to consumer inflation will happen very quickly."
With median income levels at averages not seen since the mid-90s, U.S. households need to prepare their savings to survive higher prices - especially while interest rates remain near zero.
Unfortunately, it appears this environment is exactly what Ben Bernanke has in mind.
"Not only will they tolerate higher inflation, not only will they wish for higher inflation, but they actually may target higher inflation," PIMCO CEO Mohamed El-Erian told CNBC ofthe Fed. "This is a historical bet that our kids will be reading about in history books."
Here's what Bernanke has planned.
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U.S. Stocks 2012: Can Bulls Keep the Charge Into Q4?
Historically, September hasn't been kind to stocks.
But a noticeable trend is emerging.
In the past seven Septembers, the Dow Jones Industrial Average has risen five times. And while the last trading day of September 2012 ended down, it was an up month for the Dow.
In fact, the Dow has now risen in 11 of the past 12 months (May saw a 6% decline). The last time markets enjoyed that kind of stellar streak was in 1959.
For the third quarter, the Dow tacked on 4.3%, the Standard & Poor's 500 Index rose 5.8% and the Nasdaq climbed 6.2%
Year-to-date, all three major indexes have enjoyed robust gains. They headed into the fourth quarter up 10%, 14.6% and 19.6% year-to-date, respectively.
Commodities also ran higher in the third quarter. Gold glowed, gaining 8%, oil gushed higher by 8%, and the Dow Jones-UBS Commodity Index surged 15%. Gold, up 11% in 2012, and silver, up a sterling 24% so far this year, are both expected to benefit further as the Fed's free monetary stance weighs on the value of the dollar and inflation worries are amplified.
Most of September's gains came during the first two weeks as markets anticipated a third round of quantitative easing. The Fed delivered at the Sept. 13 Federal Open Market Committee (FOMC) meeting, and stocks muddled through the rest of the month suffering from a case of buy on the rumor and sell on the news.
"The third quarter story was really simple. The performance was propelled by the generosity of global central bankers," Rex Macey, chief investment officer at Wilmington Trust told USA Today.
Now let's take a look at if this momentum will surge into the fourth quarter.
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QE3 Not Required: Three Stocks Thriving Without the Fed
When U.S. Federal Reserve Chairman Ben Bernanke opened the floodgates of easy money with quantitative easing (QE3), Wall Street staged a party.
But even though the market quickly jumped to five-year highs, stocks fizzled shortly thereafter.
And that leaves investors wondering whether this market has staying power.
"The question now is if investors feel brave enough to continue to buy stocks at such elevated levels," Fawad Razaqzada, market strategist at GFT Markets wrote in a note to investors. Investors looking for a safer route should focus on companies that can thrive on their own merits -- even without an intoxicating shot of QE3.
Companies that make products we have to have - the necessities of life, in other words -- tend to be more resistant to market ups and downs.
Let's take a look at three companies that have delivered steady, reliable returns for decades -- with or without QE1, QE2, QE3 or, someday, QE99.
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The QE3 Dangers Bernanke Isn’t Telling You About
Hoping the third time is the charm, the U.S. Federal Reserve voted on Sept. 13 to launch another bond-buying program, QE3.
Equity and commodity markets cheered the Fed's move. Stocks rallied and analysts raised precious metals price forecasts.
QE3 differs from the first two rounds in that it is an aggressive open-ended purchase program of $40 billion per month of mortgage-backed securities. The buying is slated to continue until we reach substantial and sustained improvement in the U.S. economy, which won't be a short-term achievement.
The program aims to lower long-term interest rates, stoke consumer demand and bring down the elevated unemployment rate.
But some opponents think the latest stimulus measure from Fed Chairman Ben Bernanke will fail to achieve any of that.
In fact, the QE3 doubters have a lot to say - and anyone with money in the markets right now should pay attention to what could happen.
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