QE3!!

Not realy investing in REITs to bet on housing, just finding a way to profit from interest rates staying low for extended period…

Sell the long end or sell caplets.

i’m 100% long and almost fully invested at this point

I don’t like how this whole QE business bolsters stock prices.

I’m not sure if this whole QE thing does anything other than keeps money cheap for banks for clients who don’t want to borrow,but we’ll see in the months to come.

Business’ will borrow for capex only if there’s consumer demand. Of which there is none. Banks will sit on this money for Basel III padding. Smoke in mirrors. Look, I’ll buy stock just for this bogus rally, but not because of fundamentals or the impact of Puke-E3

Yeah, I’ve been thinking that the problem is that QE just doesn’t work when it’s being pushed through the banking system. Eventually this money needs to get to consumers’ pockets so that they can spend, companies can hire, and consumption can start to be sustained through renewed income. I don’t claim to be original in this: the discussion about the “transmission mechanism” is basically the policy-speak for this issue.

Palantir has a good point, though, which is that there is some value in paying the banking system not to crush the consumer while they are delevering (and basically rolling over revolving credit while their creditworthiness is deterorating because of lower collateral values and shakier future income prospects).

My posts have been increasingly anti-banker in recent months, because I feel that bankers have basically learned how to hold the rest of the economy hostage in the hopes of getting more juice from Congress and the Fed. They’ll take some QE funds, invest it in treasuries at a spread (admittedly harder after Op Twist), and pay themselves a bonus for doing so. But the money really never gets anywhere that does any good for the structural issues. At the very least, they manage to keep interest rates low enough to preve massive consumer defaults.

Congress is not going to use fiscal policy, except perhaps some tax cuts that will exacerbate the deficit as much as new spending will.

At times, I think Helicopter Ben needs to live up to his name and actually get the stuff to the consumer by dumpinge QE out of real genuine helicopters.

Well the Fed could do more things too…for example physically buy up houses, create investment vehicles to invest in venture capital.

Fed could allow student loans to default. while keeping rates low.

Bankers get money from the Fed at 0.25%. They buy long treasuries yielding 3%. Now they have some risk - short borrow long lend. But wait, the Fed buys treasuries from them (at a profit to banks), and gives them more money than they had before.

At least, treasuries are high quality assets. The Fed will also accept MBSes, CP, yesterday’s TP.

How the fuck is this NOT a Ponzi scheme?

With almost everyone and their mother sporting a mortgage of the 3-4% fixed variety, I can imagine what kind of crunch banks will be in post 2015.

Those are really fiscal policy tools that aren’t in the Fed’s mandate (even broadly construed). The only one that might fit (and it’s already a big stretch) would be physically buy houses. John Hussman has argued that the Fed has already exceeded its mandate by buying anything other than gold and sovereign debts, though arguably, some MBSs might have higher credit quality than some sovereigns.

For months, Bernanke has been testifying to Congress saying that there are limits to what monetary policy can do to address the crisis. He didn’t say it (maybe he should have), but he was basically begging for fiscal policy, and I read it as saying that the Fed would support it.

But nothing has come from Congress regarding fiscal policy, so Ben basically says, “ok, I’m basically going to throw everything I have at this without limit.”

It isn’t a good sign. It’s like when someone comes into your home, and you need a gun to defend yourself, or at least a good knife, but all you have is a few leftover plastic knives to defend yourself with. It’s the appropriate thing to do, but it’s still freakin’ dangerous and not likely to end well.

I think fiscal policy is really more about expenditure on investment, whereas monetary policy is more increasing quantity of money by buying assets. So I don’t mean build roads etc, but just buying up stakes in a variety of assets that could spur growth could be interpreted as in the mandate.

When there is monetary equilibrium, nominal GDP tends to be growing at a constant rate. In order to maintain monetary equilibrium, a central bank’s best strategy is to attempt to stabilize the path of nominal GDP growth.

Nominal GDP is expected to grow 4.2% (SPF Q3) over the next year (before latest QE round). This is actually relatively anemic compared to the post 1985 period. Economists like Michael Woodford would compare nominal GDP to its trend, which would make the current pace look even worse. Hence, a case could be made that Fed policy is actually too tight right now.

The fact that what the Fed is donig is unprecedented doesn’t mean that it is right or wrong. A bigger problem for the Fed is that they do things haphazardly. They hint that they will continue this asset purchase policy longer, but we have no clear framework as to when we will end it. Rather, if they said we will keep buying assets until nominal GDP growth is expected to be x% than it is much easier to observe how strong their purchases will be and when they will end.

Higher asset prices are a signal that the policy is working. When monetary policy is tight, the market likes it when central banks ease policies. Asset prices are a channel where the effect of monetary policy can be obvious to everyone. I would also distinguish between an economic boom and a asset price bubble. If some asset prices are higher than their fundamental values and have low future expected returns, then it need not have a significant impact on the broader economy. However, a general economic boom, that may or may not contain individual asset price bubbles, would be more of a concern. Often the central bank has not done its job and has allowed nominal GDP to increase by too much.

Looks like the right time to get back into the mortgage biz. Pump out those loans and sell it to the banks/agencies for a few years, get your commission, and call it a day.

Terrific day for equities and gold all around, including some of my less palatable names. A rising tide raises all ships…

And sinks all short positions…

I went market neutral at the end of Aug, so I’m feeling a bit bruised now, but one thing I realize is that going neutral vs going short is a big difference. You really have to feel you have an imminent catalyst to go short, but you can go neutral on lower conviction levels. I figured that the recent rise is for people expecting QE, so now that it’s here, they may take a look at valuations again and compare to the economic prospects. It may still make sense to be neutral, even if I might feel bad about having missed the last little bit.

Well, even if your portfolio is market neutral, your life is still long.

well, my IRA and 401k is obviously long the market.

But my last two trades were short based on unsystematic reasons, but even those were wiped the fck out by the broader rally.

It was a quiet bull market all summer, until Jax Hole, and today’s spike, so today, I hope you’re right that people are going to take a proper look at valuation, and dump the market just for one week. That’s all I need to cut some of my losses with September options expiry. Took too much of a hit this past quarter, and I don’t have the youthful aloofness not to care these days about my bank account.

Great day for my portfolio, but unsurprising. Bad day for America.

@ohai - rates went up on the announcement of QE1, QE2, and Op Twist. QE is designed to create (the illusion of) wealth - “risk on” incarnate. What would make you think rates would decline?

Anyone that thinks this is gonig to meaningfully impact the housing market, or the economy in general is living in a central planning fantasyland.

Y’all should join me in gold/silver. It’s not too late. Easy money (per Ben) to be had.

BCadwick, remember that there are 8,000 banks in the United States. Target your anger at the appropiate ones, not all of the poor guys. The small guys are gettig squeezed out the game.

The proposed Basel III has Unrealized AFS losses on securities in Tier 1 Capital. The next banking crisis may be the result of this new rule in the capital standards + banks chasing yield through further out maturities. It wil be interesting how they interact.

I think the Fed is full of themselves. It’s a terrible idea to try to give a date for rising rates. There is no way they will be able to forecast that.

Ben don’t care, nor did Alan… They just go home and Fck their wives. My capital is tied up in losing DE and FB shorts. funny planet.