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QE3

Article Index

Jim Rogers On QE3, Gold, Silver and Oil

By , Contributing Writer, Money Morning -

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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What QE3 Means for Markets and the U.S. Economy

By , Money Morning -

We finally know that a third round of quantitative easing, or QE3, is here, but it has left investors asking what it means long-term for the markets and the economy.

First, let's look at what QE3 is meant to do.

QE3 is meant to encourage economic growth and improve the U.S. employment picture.

On Sept. 7, the Department of Labor reported that only 96,000 jobs were created in August. Not only was that far below expectations, it was well under the 141,000 increase from July.

In addition, the underlying foundation is even weaker as income is down and more Americans are leaving the labor force. Of the jobs that are being created, most are poorly paying ones in the service sector.

From that, economic growth for the United States slowed to 1.7% in the second quarter, down from 4.1% in the final three months of last year.

This new QE3 - or QE Forever, since it has no expiration date - is the most intense program initiated by the Fed to goose the economy since the crisis.

Noted Julia Coronado, the head economist for North America at BNP Paribas and former Fed economist, "This is definitely a significant shift in FOMC policy. This is a very aggressive commitment to success on its mandates."

Here's what QE3 means for the markets and the U.S. economy.

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Stock Market Today: QE3 Sugar High Boosts These Stocks

By , Money Morning -

The major headlines in the stock market today include the markets' reaction to QE3, consumer prices rising, and shaky retail sales.

  • The QE3 rally climbs higher - After the Federal Reserve announced its latest stimulus measure, QE Forever, as some are calling it, the markets soared, all reaching multi-year highs. Commodities and financials in particular did well. Oil is approaching $100 a barrel, gold is nearing $1,800/oz., Bank of America (NYSE: BAC) has gained over 10% this week and JPMorgan Chase & Co. (NSYE: JPM) has now made up all its losses since the "London Whale Trade." The dollar as expected took a beating, falling to its lowest level since May, and the euro is now over $1.31. Yet, the question is whether QE3 will be a short-term or long-term rally. "It was a strong signal from the Fed and a very welcome move but we'll have to wait and see if this is more than a one or two-day wonder for the market," Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London told Bloomberg News. "All of this central-bank policy removes a degree of uncertainty that has been plaguing markets."
  • Retail sales rise but outlook grim - The Commerce Department reported that retail sales increased 0.9% in August from a month earlier following a 0.6% gain in July. This was spurred by better auto and gasoline sales, but outside of those categories there was little good news. Excluding those two items, retail sales inched up 0.1% with weak electronic, clothing, and appliance sales. Core retail sales, which exclude automobiles, gasoline, or building materials fell 0.1% and is more closely related to consumer spending within the U.S gross domestic product calculation.

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QE3 Becomes QE Forever

By , Contributing Writer, Money Morning -

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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How to Play the QE3 Rally

By , Money Morning -

QE3 was finally announced by the U.S. Federal Reserve after today's Federal Open Market Committee (FOMC) meeting.

Federal Reserve Chairman Ben Bernanke announced that the Fed will launch a new bond-buying program to purchase $40 billion in mortgage-backed securities each month. Interest rates will be kept at 0% through mid-2015, six months longer than originally planned.

Together with the rest of the remainder of the Operation Twist program, the Fed will be buying $85 billion in bonds for the rest of 2012. The new bond purchases will start tomorrow (Friday).

Bernanke and the FOMC decided in an 11-1 vote to use unconventional monetary policies once again to bring down unemployment that has been stuck above 8% for 43 months and to boost an economy that grew at a lethargic 1.7% rate in the second quarter.

But this new program, compared to previous rounds of easing, has a new twist.

QE3 is an open-ended program to buy bonds until the economy improves. The Fed said in its statement earlier today that if the labor market does not improve it will continue purchases and undertake additional measures if needed.

Now that QE3 is here, will this new measure actually boost the economy and spur job growth?

Catherine Mann, a Brandeis professor and former Federal Reserve economist doesn't think so.

"The Fed continues to want the economy to grow faster and specifically, to grow more jobs, but the ability of QE to do that is extraordinarily limited," she told CNN. "We know that QE reduced interest rates, but we also know that has not led to more construction, more mortgages, more business investment, or more lending. Since it hasn't done any of that, it probably hasn't created jobs either."

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Stock Market Today: This Stock Wins With or Without QE3

By , Money Morning -

The major headlines in the stock market today include the Fed's decision to implement QE3, increased producer prices, and higher jobless claims.

  • QE3 a 99% certainty?... Not quite- When the Federal Open Market Committee makes its statement at 12:30 p.m. EDT every investor will be waiting to hear if QE3 has finally arrived. After what seems like two years of speculation since QE2 was announced will we finally get QE3? According to Citigroup Inc. (NYSE: C) a gauge of indicators of market expectations for additional central bank stimulus rose to a record 99% in August. Yet many economists do not expect QE3 to be announced today for many reasons. If the Fed takes action it will be viewed as highly political coming just months before Election 2012. Even if the Fed announces QE3 but says it will delay QE3 purchases until after the election as it did with QE2, the political implications will still be there. Other reasons are the lack of progress the previous rounds of QE have had in turning around the economy - and not just the stock market. "The Fed continues to want the economy to grow faster and specifically, to grow more jobs, but the ability of QE to do that is extraordinarily limited," Catherine Mann, a finance professor at Brandeis and former Federal Reserve economist told CNN. "We know that QE reduced interest rates, but we also know that has not led to more construction, more mortgages, more business investment, or more lending. Since it hasn't done any of that, it probably hasn't created jobs either."
  • Producer prices rise most in three years- Wholesale prices, measured by the producer price index, climbed 1.7% in August - the most since June 2009 - due to higher gasoline and natural gas prices. This was a faster increase than the 0.3% reported in July and ahead of the median forecast for a gain of 1.3%. Food prices rose 0.9% due to a rise in dairy and egg prices. The core producer price index which excludes food and energy rose 0.2%, which was in line with expectations. Tomorrow's consumer price index will be a good indicator if higher wholesale prices have translated into increased consumer prices.

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One Reason the Fed Meeting Today Might Not End in QE3

By , Money Morning -

Dismal economic reports for the United States have recently made the stock market rise - not the expected reaction.

That is due to traders anticipating that a third round of quantitative easing (QE3) or a similar measure will be coming to stimulate the American economy.

Yet, despite unemployment rising in the United States and growth falling, no major economic stimulus programs along the lines of QE3 have yet been announced by Federal Reserve Chairman Ben Bernanke at any Fed meeting.

The timing of QE2 explains why.

QE2 was a program where the Federal Reserve inflated its balance sheet to purchase about $700 billion in U.S. Treasury bonds to finance the federal budget deficit. This unprecedented act was required as few other investors, either foreign or domestic, were buying U.S. Treasury bonds at the prevailing interest rates.

Without this action, the low interest rate environment promised by Bernanke until at least 2014 and imperative for the recovery of the United States economy, particularly the real estate sector, would have been untenable.

The Federal Reserve as a result became the "buyer of last resort" for U.S. Treasury bonds.

QE2 was announced by Bernanke at the Jackson Hole economic policy summit in August 2010. However, the Fed's bond buying did not start until after the mid-term elections in November 2010. QE2 ended in June 2011.

That is why QE3 has neither been announced nor initiated.



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Fed Meeting Today: Are You Ready for QE3?

By , Money Morning -

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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Could QE3 Really Do Less for the Economy Than the iPhone 5?

By , Money Morning -

Investors are eagerly waiting to hear if U.S. Federal Reserve Chairman Ben Bernanke will announce QE3 this week. Bernanke speaks Thursday at the conclusion of the two-day Federal Open Market Committee (FOMC) meeting and many expect him to announce some form of stimulus to revive the struggling U.S. economy.

But there's another huge event scheduled this week, one that could provide a tool other than printing money for boosting U.S. gross domestic product (GDP).

Believe it or not, analysts at JPMorgan Chase & Co. (NSYE: JPM) estimate that the Apple iPhone 5, expected to be unveiled tomorrow (Wednesday) afternoon and on sale by the end of this month, will raise GDP by 0.5% in the fourth quarter of this year.

Money Morning Chief Investment Strategist Keith Fitz-Gerald appeared on Fox Business' "Varney & Co." program Tuesday morning to discuss the possibility of this iPhone effect and what it implies.

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QE3: Get Ahead of the Fed

By , Money Morning -

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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QE3 Risks: Why this Harvard Economist Fears More Stimulus

By , Contributing Writer, Money Morning -

High U.S. unemployment and slowing economic growth have stoked hopes of a third round of quantitative easing, or QE3, from the U.S. Federal Reserve. Fed Chairman Ben Bernanke hinted that more was on the way - although failed to indicate when - in a speech Friday at the Jackson Hole, WY, economic symposium.

Bernanke repeated the Fed's recent stance that current economic conditions are still "obviously far from satisfactory" and more help would be coming "as needed."

Interest rates remain near zero, but the Fed maintains that it still has plenty of ammo in its arsenal to boost the economy. The Fed apparently doesn't want to do too little now while the economy faces high unemployment and some inflationary pressure.

On the other hand, doing too much could - if Fed policies interfere with Congress' ability to act down the road -lead to a backlash against the Fed's power.

And the farther the Fed goes with monetary stimulus measures, the deeper that problem becomes.

That's why Harvard economist Martin Feldstein is afraid of QE3. He thinks adding to the billions of dollars already committed to quantitative easing programs will hurt us more than it helps.

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QE3 Still on Table, Bernanke Says in Jackson Hole Speech

By , Associate Editor, Money Morning • @DavidGZeiler -

The Federal Reserve is looking at more action to prop up the lagging U.S. economy, including a third round of quantitative easing (QE3), Fed Chairman Ben Bernanke said in a speech today (Friday).

Much of the speech, delivered at the Fed's annual retreat at Jackson Hole, WY, made a case for the effectiveness of the central bank's easy-money policies since 2007, including "nontraditional" actions such as QE1, QE2, and Operation Twist.

The Fed chairman said that the stimulus purchases "have provided meaningful support to the economic recovery while mitigating deflationary risks."

And in a hint to expect more of the same -- namely, QE3 -- Bernanke said that the costs of such policies, "appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant."

Bernanke also voiced concern over the sluggish economic recovery, and in particular the "painfully slow" improvement of the U.S. unemployment rate, which has changed little in 2012.

That's the sort of bad economic news that has pushed the Fed to take action in the past.

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Stock Market Today: Markets See-Saw on Bernanke Speech

By , Money Morning -

Here are the major headlines in the stock market today. Bernanke makes case for QE3- In his much awaited speech at Jackson Hole, WY Federal Reserve Chairman Ben Bernanke did not signal any new monetary easing was coming but took the Fed's well-used approach of leaving the door open if conditions worsen. He called the […]

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Why the Jackson Hole Fed Meeting Will Look Familiar

By , Money Morning -

U.S. Federal Reserve Chairman Ben Bernanke will take the podium this Friday at the economic policy summit in Jackson Hole, WY, as traders hang on every word hoping he'll deliver a clear signal of central bank action in 2012.

They have good reason to think the Jackson Hole Fed meeting can move markets. It was at this summit two years ago in August 2010 that Bernanke announced an economic stimulus program that came to be known as Quantitative Easing 2.

QE2 consisted of the Federal Reserve inflating its balance sheet to purchase $700 billion in U.S. Treasury bonds from November 2010 to June 2011. This was necessitated as no investors, either foreign or domestic, could be found to purchase U.S. Treasury bonds at such low interest rates.

Now, two years later, the U.S. economy has economic growth falling with unemployment rising. Consumer confidence is at record low levels. Lending institutions are processing millions of properties through various stages of foreclosure. Businesses are sitting on record levels of cash, preparing for the worst, rather than investing in job-creating plants, equipment and machinery.

Oil prices are also rising, which will have a negative impact on the U.S. economy. The more money sent overseas to pay for imported oil, the less there is to buy the goods and services that raise the level of employment in the United States.

This was how things were in 2010. Actually, things seem worse now since Standard & Poor's in August 2011 downgraded the credit rating of the United States.

In an attempt to change this gloomy outlook, the Federal Reserve is letting it be known that it will act again in a major way, like in did in August 2010.

But, like that year, no new policies will officially start until after Election 2012.

The Federal Reserve cannot be seen as doing anything that might influence voting when Americans go to the polls the first Tuesday in November. That is the way it was in 2010, and that is the way it will be this year.

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How to Profit from QE3 When the Fed Pulls the Trigger

By , Money Morning -

In one form or another, the U.S. Federal Reserve soon will introduce a third round of quantitative easing (QE3) or a related major economic stimulus program.

A statement from the most recent Federal Open Market Committee (FOMC) meeting of the Federal Reserve reported that, "Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery."

President of the Boston Federal Reserve, Eric Rosengren, called for an open-ended program to allow for the Federal Reserve to buy bonds like it did during Quantitative Easing 2. He pointed to the high unemployment rate as the main reason more stimulus is necessary.

"That calls for a more substantive action than we've taken to date," he said. "We need a pro-growth monetary policy," adding that the current state of the economy is "not sufficient."

Federal Reserve Chairman Ben Bernanke announced Quantitative Easing 2 at the August 2010 Jackson Hole economic policy summit. It consisted of the central bank buying $700 billion in U.S. Treasury bonds to finance the U.S. budget deficit.

Rosengren now wants the Federal Reserve to have an unlimited authority in that area, held in check only by the reaction of market forces.

Those market forces reacted very strongly to QE2, forcing the U.S. dollar down in value while prices for commodities such as oil, grains, gold and silver soared.

In addition to the commodities price rise, select stocks performed well during QE2 as consumers spent more and emerging markets enjoyed a heavy growth period. These are the companies investors should buy ahead of QE3, which is on its way.

How to Profit from QE3

The most important factor to consider when hunting for stocks to buy ahead of QE3 is a robust dividend framework.

With the Fed keeping interest rates low as it tries to repair the U.S. economy, dividend yield is crucial.

Or, as Money Morning Global Investing Strategist Martin Hutchinson put it, "In Ben Bernanke's rotten world, a few select high-yield investments are practically a necessity these days."

According to investing legend Jack Bogle, founder of the Vanguard Group of mutual funds and creator of the first mutual fund, dividend income has provided more than 40% of the historic total return of a stock.

Besides money in your pocket, dividends represent a commitment of the management to return capital to investors. Dividend income also proves that the company is sound enough to reward its shareholders without hindering the future growth prospects of the business operations.

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