Quantitative Easing

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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How QE3 – Like QE1 and QE2 – Will Trigger Inflation

The traditional safe haven assets of gold (NYSE: GLD) and silver (NYSE: SLV) have surged in price due to the announcement of the latest round of quantitative easing, QE3 - but those aren't the only assets QE3 will push higher.

While QE3 might seem harmless to U.S. consumers, it is present every time they gas up their cars or buy food at the grocery store.

In fact, all three rounds of quantitative easing have led to higher priced commodities.

Whether you realize it or not, QE3 - same as the stimulus programs before it - is adding greatly to the costs of everyday life. QE3 is directly leading to higher prices for oil, food and the cost of imported goods.

Over time, that results in a tremendous consumer expense in all product and service categories.

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Jim Rogers On QE3, Gold, Silver and Oil

The U.S. Federal Reserve is ready to launch a third round of quantitative easing, dubbed QE3 or QE Forever - but legendary investor Jim Rogers is shaking his head.

In fact, Rogers said repeating the same program the Fed has already attempted will make policymakers "look like fools again."

In an interview with CNBC before the Fed's announcement, the chairman of Rogers Holdings said he was skeptical that additional stimulus measures could have any meaningful effect on the U.S. economy. He added that despite his reservations, he expected the Fed to unveil QE3.

The iconic financier also lashed out at the new developments in Europe, including a move from Germany last week to funnel taxpayer cash into the European Central Bank's OMT program, their own version of quantitative easing. Rogers maintained they are not addressing the root of the problems plaguing the Eurozone area.

On Europe's move to implement a euro version of QE, Rogers said it affords the Western world "unanimity towards mutual destruction."

Any relief will be temporary, warned Rogers.

"We're all going to pay a horrible price for this in a year or two or three," he said.

As for why the Fed will continue its ineffective stance of zero to 0.25% interest rates through at least mid-2015, and the tossing good money after bad, Rogers advised the reasons are simple.

It's an election year and "Mr. Bernanke wants to keep his job."

That's why Rogers is getting defensive with commodities.

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QE3 Becomes QE Forever

Welcome to unlimited quantitative easing, or QE Forever.

The U.S. Federal Reserve goosed equities, Treasury yields, gold, silver, oil, platinum, palladium and investor sentiment on Thursday when it announced additional stimulus to spur economic growth.

The central bank said it will continue to buy mortgage-related debt and other securities until the job market shows significant signs of improvement so long as inflation remains tame.

"The market got what it wanted. Stocks immediately shot up," James Meyer, chief investment officer at Tower Bridge Advisers told Reuters.

In fact, the markets got more than expected.

As part of the Fed's new scheme, a marked difference from the first two rounds of QE, it will buy $40 billion of mortgage debt per month. Additionally, the Fed reiterated its stance of keeping interest rates at historic low levels, extending the time frame out until at least the middle of 2015.

"This is definitely a significant shift in FOMC policy," Julia Coronado, chief economist for North America at BNP Paribas in New York and a former Fed economist told Bloomberg News.

Plus, the Fed said it would continue Operation Twist, its action to bring down long-term interest rates.

Collectively, the Fed moves will flood some $85 billion a month into the struggling U.S. economy for the rest of 2012.

The Fed has always set a determined amount of Fed purchases. This time, however, it let America know that easing will endure and no tightening will occur until confidence recovers.

That's why QE3 is a game-changing move for the U.S. economy.

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Fed Meeting Today: Are You Ready for QE3?

Investors have prepared for the Federal Open Market Committee (FOMC) meeting today and tomorrow to end with the announcement of a third round of quantitative easing (QE3) - and that's a good bet to make.

Today's Fed meeting will likely end with more of the same information we've been hearing for months from U.S. Federal Reserve Chairman Ben Bernanke. It's been a year and a half since Bernanke first announced that short-term interest rates would remain near zero "for an extended period." That language will likely stay the same tomorrow, and the policy timelines could be drawn out even longer.

There is also no doubt that QE3 or some other meaningful economic stimulus measure is on its way.

Maury Harris, an analyst with UBS, declared in a recent note to clients that, "We now anticipate an announcement of another round of quantitative easing at the FOMC meeting on September 13th. We expect the easing will take the form of a six-month program of at least $500 billion, primarily focused on Treasuries."

Harris also added that, "We also expect the FOMC extends their rate guidance into 2015."

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QE3: Get Ahead of the Fed

The U.S. Federal Reserve has consistently pointed to high unemployment as a reason to deliver more stimulus, which makes this week a perfect time to announce quantitative easing, or QE3.

The Federal Open Market Committee (FOMC) meeting this week is fresh off Friday's Labor Department report that nonfarm payrolls increased by 96,000 jobs last month. Economists were hoping to see an increase of 125,000 jobs.

Unemployment fell to 8.1% from 8.3% as 368,000 people dropped out of the labor force.

The employment numbers were depressing - but for investors this was always a win-win situation.

If the jobs number had blown past 125,000 that would have been good for the markets - but so is a number that missed the mark.

That's because from whichever angle the Fed and Chairman Ben Bernanke look at this, the report is more fuel for the QE3 fire.

"This weak employment report, in jobs, wages, hours worked and participation is probably the last piece the Fed needs before launching another round of quantitative easing next week," Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, NJ told Reuters last week.

Unemployment fell even though fewer jobs were added because the labor participation rate dropped to 63.5%, its lowest level in 30 years. The amount of underemployed and unemployed people is now above 25 million and the U-6 rate, the broad total unemployment rate which many consider to be a more accurate gauge of unemployment, stands at 14.7%.

With the rally the markets had last Thursday after the European Central Bank announced its new bond-buying plan, expect the markets to continue their bullish trend when Bernanke takes action.

That means now's the time for investors to prepare to profit from QE3.

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Today's FOMC Meeting: Fed Votes Operation Twist to Continue

Today's FOMC meeting - which started Tuesday - ended in a widely expected manner.

The Fed announced it will extend Operation Twist, which was set to expire at month's end, until the end of 2012, in an effort to keep interest rates low.

The Fed will expand Operation Twist, which replaces short-term bonds with longer-term debt, by $267 billion.

In a statement, the FOMC said the prolongation of Operation Twist "should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative."

The Fed pointed to the U.S. economy's poor recovery as reason for more "twist."

"Growth in employment has slowed in recent months and the unemployment rate remains elevated," the Fed reported. "Household spending appears to be rising at a slower pace than earlier in the year."

The lack of more intense stimulus, namely a third round of quantitative easing, sent the Dow Jones, which had been flat all day, plummeting some 50 points in just seconds. All three major indexes treaded lower following the report. Gold, hoping for QE3, sold off some $25 an ounce.

The yield on the 10-year Treasury note rose to 1.67% just after 1 p.m. in New York from 1.62% late yesterday.

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