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  • Quantitative Easing

  • What Every Investor Should Know About the End of QE Equity markets around the world Wednesday expressed their distaste for the possible end of the Federal Reserve's quantitative easing (QE) policy. Share prices tumbled from New York to Tokyo. Here's what every investor needs to know. Read More...
  • FOMC Preview: Will the Fed Continue its $85B/Month Bond-Buying Program?

    Investors will be looking to the Federal Reserve Wednesday for clues about how long it might continue its bond-buying program aimed at pushing interest rates down.

    The Federal Open Market Committee is expected to release a policy statement at 2:15 p.m. Wednesday, the second day of its two-day meeting.

    In keeping with a practice it began last January, the first meeting of the new year will highlight the FOMC's long-term goals and monetary policy.

    The Central Bank likely will reiterate the goal it has maintained all of last year: boosting the stagnant U.S. economy.

    The Fed's first meeting of 2013 comes after an extraordinarily busy year, capped by two key moves in December.

    That's when the Fed said it would continue spending $85 billion a month on bond purchases to keep interest rates low. At the same time, the Fed set unemployment and inflation "thresholds" instead of a date when the central bank expected to be able to raise interest rates.

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  • Will the Fed End QE This Summer?

    Amid all of the hoopla over the Standard & Poor's 500 Index touching 1,500 on Friday, it seems few people noticed that the yield on 10-year U.S. Treasury bonds has risen to within a couple of basis points of 2%. That is nearly 30 basis points higher than it was one month ago and 10 basis points higher than one year ago.

    It seems as if the bond market is beginning to price in higher inflation at the long end of the yield curve, and that is something that has got to be worrying the Fed.

    Successive rounds of quantitative easing (QE) have added a lot of liquidity to the U.S. economy and this has been repeated globally with massive amounts of liquidity being pumped into the market by the Bank of Japan (BOJ), the European Central Bank (ECB) and the Bank of England (BOE).

    The Bank of Japan has committed itself to further aggressive easing under pressure from the newly elected government headed by Prime Minister Shinzo Abe. Even if BOJ Governor Masaaki Shirakawa has any second thoughts about additional easing, he will keep them to himself.

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  • Did the Fed Just Admit QE3 Has Been a Major Failure? bernake_praying

    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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  • FOMC Meeting: What the Fed Policy Changes Mean For You The Federal Open Market Committee (FOMC) meeting ended yesterday (Wednesday) with two important changes to Fed monetary policy.

    First, the central bank said it would increase the amount of quantitative easing by replacing Operation Twist, which ends Dec. 31, with outright purchases of long-dated Treasury bonds.

    Under Operation Twist, every month the Fed sold $45 billion in short-term Treasury bonds and notes and bought $45 billion of long-term Treasury bonds in an effort to keep long-term interest rates low.

    Because the Fed funded its purchase of long-term bonds with the sale of short-term bonds and notes, no new money was created.

    However, outright purchases of long-term bonds will create new money-$45 billion every month-and, by concentrating its buying at the long end of the yield curve, the Fed should be able to keep long-term interest rates low.

    The Fed also said it will continue to purchase $40 billion of mortgage-backed securities each month, creating a total of $85 billion in new money from these operations monthly.

    That means QE4 is here.

    Starting in January, the Fed will be more than doubling the amount of money it is pumping into the economy. Happy New Year!

    Second, the Fed set unemployment and inflation "thresholds," instead of setting a date for when the central bank expects to be able to raise interest rates. What this means is that the Fed will not raise interest rates unless unemployment is 6.5% or less or inflation is more than 2.5%.

    By setting thresholds where monetary policy might change, the Fed is attempting to improve its communications with the public.

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  • Today's FOMC Meeting Ends with Major Change After today's Federal Open Market Committee (FOMC) meeting, the Fed announced it would expand the third round of its bond buying with fresh stimulus, replacing the soon to expire Operation Twist, set to end Dec. 31.

    And in an additional unprecedented move from the central bank, interest rate decisions will now be tied to the unemployment rate and inflation.

    About a half hour into the release, the Dow Jones Industrial Average staged a near 65-point rally - but then lost that gain and ended down nearly 3 points at 13,245.45.

    Here's a breakdown of the FOMC meeting outcome.

    Today's FOMC Meeting: QE4

    As expected, the FOMC meeting ended with a replacement for Operation Twist, the expiring program introduced in 2011 of swapping short-term Treasuries for longer dated ones. The goal of Operation Twist was to lower long-term interest rates to stimulate the U.S. economy.

    The new asset purchase program is an extended arm of the Fed's familiar quantitative easing programs, and has thus been dubbed QE4.

    Now with QE3 and QE4 together, the Fed will purchase a whopping $85 billion a month of Treasury securities, stacking the Fed's portfolio with government-backed investments for an extended period.

    The buying spree will remain intact until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% for two years out.

    The Fed also left interest rates at rock-bottom historic lows near zero, as was also expected.

    While these moves were widely expected, what wasn't expected was the Fed's forward-looking guidance.

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  • This Week's FOMC Meeting: Why to Expect More Stimulus Investors should expect welcome news from the U.S. Federal Reserve Wednesday at the end of this week's two-day FOMC meeting.

    As central bankers gathered Tuesday for the last policy meeting of the year, expectations were high that Fed Chief Ben Bernanke and his cohorts will announce a large scale asset purchase plan to replace the soon-to-end Operation Twist, introduced in September 2011.

    The Fed hopes additional stimulus will finally boost growth and the employment level. With the current unemployment level at an elevated 7.7% -- a number that economists say will be revised higher in the coming weeks - the weak labor market remains a grave concern.

    At recent meetings, the Fed indicated that it will continue QE3, the policy of buying $45 billion in mortgage-backed securities each month until it sees a significant and sustained improvement in the employment scene - which is unlikely to come anytime soon.

    Together with Operation Twist, the two programs added some $85 billion in long-term bonds to the Fed's balance sheet each month.

    The aim, the Fed said in a statement, "should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

    The central bank has also stressed it would employ its other policy tools "if the labor market does not improve substantially."

    While the Fed did not elaborate on what those tools are, it maintains it still has plenty of ammo left and stands ready to pull the trigger when and if necessary.

    It looks like now is the time.

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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.

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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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  • 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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  • QE3 Is Strong Medicine for Dr. Copper With QE3, Ben Bernanke just gave Dr. Copper a shot in the arm that should carry prices to new highs.

    In fact, shortly after the U.S. Federal Reserve announced its decision to launch a third round of bond buying, copper rallied to $3.84 a pound on the Comex division of the New York Mercantile Exchange, up from around $3.35 in mid-August.

    But that is only part of the story...

    As "the only metal with a Ph.D. in economics' because of its widespread use in industrial applications copper is an excellent bellwether for the state of global economic activity.

    And right now copper is predicting a major global rebound.

    "Investors' expectations for global economic growth in the fourth quarter are rising and Dr. Copper is rallying," Andrew Rosenberger, senior portfolio manager at Brinker Capital told MarketWatch.

    "Copper and other assets which are linked to global growth are taking the approach of rally now, ask questions later," he said.

    For investors, there are lots of reasons to like copper right now.

    Let's take a look...

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  • Forget the Punch Bowl, With QE3 Ben's Party is Open Bar Everything changed on September 13. It's the day Ben Bernanke promised not to take away the punch bowl.

    Last Thursday, Helicopter Ben announced that the Fed would start buying $40 billion in mortgage-backed securities -- for as long as it takes. He also announced the Fed will keep rates between 0-0.25%, until mid-2015.

    The goal is to keep supporting the mortgage bond market until the employment level improves "sufficiently."

    But given that the last several rounds of multi-hundred billion dollar stimulus didn't accomplish that goal, it's hard to see why they'd expect this time to be any different.

    Maybe it's just because Paul Krugman was right: They didn't spend enough the first two times (sarcasm intended). Or then again, maybe that's not really their goal...

    Consider this: At Jackson Hole just a few weeks ago Bernanke said that, historically, there has only been limited experience with quantitative easing. Therefore central banks, including the Fed, "have been in the process of learning by doing."

    Excuse me, but are you freaking kidding me?...

    Did Ben skip all his history classes? Has he ever heard of the demise of Rome or Weimar Germany?

    More recently, even Argentina and Zimbabwe have had plenty of experience with quantitative easing. Their zealous over-printing led to major devaluation and/or outright currency collapse.

    Couldn't Bernanke have checked in with Cristina Kirchner or Robert Mugabe?

    The only real difference, and I'll admit it's a substantial one, is that the U.S. dollar is the reserve currency for the world's central banks. But that won't change the outcome.

    Instead it may just delay the day of reckoning. In the meantime, it's very likely going to make the situation much, much worse.

    So what's the Fed really up to?

    Well, here's what I think...

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  • QE3 Delivers Fresh Ammo for Both Romney and Obama U.S. Federal Reserve Chairman Ben Bernanke never intended his latest stimulus program, QE3, to become an issue in the 2012 presidential election, but he had to know what would happen.

    "We have tried very, very hard, and I think we've been successful...to be nonpartisan and apolitical," Bernanke said at a news conference Thursday after the official Fed announcement of QE3. "We make our decisions based entirely on the state of the economy....So we just don't take those [political] factors into account. And we think that's the best way to maintain our independence and maintain the trust of the public."

    In case you missed it, the Fed's third round of quantitative easing entails the purchase of $40 billion of mortgage-backed securities each month until unemployment shows a marked improvement.

    In other words, for as long as it takes.

    But with QE3 arriving less than 60 days before a bitterly contested presidential election, the Fed move was bound to get caught up in the campaign.

    Both sides reacted immediately, with Republicans criticizing QE3 as unnecessary while Democrats applauded.

    A few Republicans even accused Bernanke of timing QE3 intentionally to boost President Obama's re-election chances.

    For the record, Bernanke is himself a Republican, appointed chairman of the Federal Reserve by President George W. Bush in 2006 and re-appointed by President Obama in 2010.

    But with the Fed becoming a GOP bogeyman in recent years (thanks largely to the attacks from Rep. Ron Paul, R-TX), QE3 was bound to become weaponized in this year's increasingly acrimonious campaign.

    Don't be fooled when each political party throws out the following QE3-fueled lines to get your vote.

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