The End of QE?

Today’s FOMC Minutes are pretty interesting. It highlights a potential end to QE in 2013. This is going to be the big story later this year. The Fed appears to be positioning for a transition at the helm in my opinion. In my 10 questions for 2013 I said:

“Downside risk:  Ben Bernanke is likely to step down in 2014.  Could he become less accommodative later in the year in order to create flexibility for a smoother transition?  Or could policy take an unexpected turn due to the uncertainty that is likely to develop in the market surrounding this event?”

It will be interesting to see how this thinking evolves as 2013 plays out.  The end of the “Bernanke Fed” will bring substantial uncertainty and volatility to the markets.  It would be nice if they could provide more clarity on this….

 

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Gubbmintcheese

    Would be interesting to see what would happen to the ‘risk on’ trade if/when the safety net is taken away..

  • Tom Brown

    Very interesting news! I wonder how the Sumner/Christensen/Nunes Market Monetarists will take this… I think they were just starting to cheer Bernanke’s open ended QE-4-ever as a small step in the right direction. I think I’ll go check out if they’ve commented on this or not yet…

  • Pacioli
  • Lukey

    Does anyone seriously think President Obama would nominate someone LESS “accommodative” than Ben Bernanke?

  • Geoff

    I don’t give a f about the end of QE. Wake me up when they start talking about ending ZIRP.

  • DonTrumped

    Cullen, new reader here. I just stumbled across your blow a few weeks back and I have to say that I am really amazed by the breadth of information you cover. It’s unusual to find someone who seems to understand banking, the monetary system and the investment business. Thanks for your efforts to keep the little guy informed. Looking forward to reading more from you in 2013.

  • Alberto

    Is it a news ? FED is buying 90 billions/month for all the year. So there is someone outside that wants more ? And the FED what should say, something like “yeah, we will buy 2 trillions up to 2030″ ? The amount of stupidity is unbelievable. Someone will sell gold and some equity in an overbought market and someone else will buy some long t-bond in a sticky deflationary scenario. What a trade.

  • DonTrumped

    *your blog*

  • Neo

    BS. They can’t stop QE. Who is going to finance our 1 trillion deficit at 1.5%, a 17 trillion debt load and dysfunctional Congress? China? Japan? Uh…no. Having the Fed buy the debt at 0% cost is a much better deal anyways (which Gross pointed out today). Tell me how they unwind QE without chaos.

  • Geoff

    Let their bonds mature quietly.

  • Neo

    for current on-balance sheet. What about the trillion we’ll need in 2014. 2015. 2016. 2017…

  • Anonymous1

    One branch of government issues bonds as quickly as possible, and the Fed maintains a brisk business buying those bonds as quickly as possible. If I remember correctly Madoff had his of moment of truth during the holidays ultimately confessing to his ponzi scheme. Maybe the ghost of Christmas past called upon some of the members of the Fed:)

  • Geoff

    It is highly debatable just how much impact QE really had on the t-bond market. Therefore, the elimination of QE is not likely to be an different.

  • Vince

    We can’t afford the Interest payments now on all our debt. It would put us in a recession and stocks would drop as well. Our elected leaders on the Democratic side are not worried about the debt because in back of there minds they will create a VAT tax.

  • Anonymous

    Aren’t these the same members that at the very same meeting voted for the largest QE yet ? How can u take this seriously ? 3 weeks ago it was QE at a rate of a trillion and before it even starts they say it may end by end of year !! Lol they are still going to add a trillion dollars to liquidity buy gold and silver on this overdone attack

  • asha101

    really? why t-bond is down today?

  • Andrew P

    Trillion dollar coins will do nicely for deficit financing. As a bonus, using TDCs will probably drive the 30 yr rates well below 1%, allowing Bernanke an easy way to unload his pile of Treasuries at a “profit”.. If this happens, it should spot the low water mark of interest rates.

  • Cowpoke

    Good point Geoff.

  • JWG

    QE is experimental policy making that started as a justifiable emergency measure at the height of the crisis, needed to save the banking and mortgage system, but has now become institutionalized. As soon as the Fed expressed second thoughts, rates bounced this week. Rate suppression by the Fed and its bloated balance sheet may be creating instability under the surface; stability breeds instability (Minsky). Whether the instability is inflationary or deflationary isn’t clear. Greenspan’s “Great Moderation” turned out to be an illusion; Bernanke’s success may only be temporary.

  • Cowpoke

    Geoff made a great point about the ZIRP here, I have not yet refinanced my house.
    Cullen is “info constrained” with regards to financial advice, but Prag cap Posters are not. (I think)
    So does anyone have any thoughts on the REFI train leaving the station?

    I am about 7 Years into a 6% 30 Year. I bought the keep funds rate low til 2015 speak from the FEDS.

    Am I at risk waiting?
    The 10 year has been Jumping lately is this a Knee Jerk?
    In the past we have seen these knee jerk Mkt reactions only to see a follow up reality check.

    Any Thoughts or opinions on this with regards to MTG’s much appreciated.

    Thanks in advance Prag Cap Community.

  • Geoff

    Beats me, but perhaps it does not have as much to do with QE per se. The mkt may be taking this news as a broader signal that the Fed might begin tightening, in general, sooner than previously expected.

  • http://www.nowandfutures.com bart

    sssshhhhh… Bernays does not approve of looking behind the curtain.

  • Geoff

    Thanks, Cowpoke. I also bought the 2015 line, but the last FOMC meeting might have been a game changer in that they switched emphasis from time to data dependent. If the unemployment rate approaches the magic 6.5% number sooner than 2015, then it will put the Fed in a difficult spot. In any event, I doubt the Fed (the dogwalker) will let the bond market (the dog) get too far ahead of itself. I think you’re probably pretty safe for now, but that is just my personal opinion. Take it for what it’s worth.

    BTW, do you poke cows like those Arab dudes do with goats?

  • William Bedloe

    I don’t know about QE, but the trillion dollar coin idea just hit ABC News via Drudge:

    http://abcnews.go.com/blogs/politics/2013/01/trillion-dollar-coins-the-ultimate-debt-ceiling-end-around/

  • Cowpoke

    Yes, I have an Avatar proving it but Prag Caps Admin Features won’t let me upload my Avatars like I could in the past so I can’t prove it. LOL

  • Geoff

    You need to get yourself a lady friend, man. :)

  • Johnny Evers

    I just refi’d at 3.5 and saved 200 a month on the monthly payment and kept the number of years the same.
    My opinion is that rates can probably go a bit lower, but why be greedy. I’ll take 3.5.

    What would happen to the bank holding my 3.5 loan if rates went up? Would that loan damage their loan portfolio value or cause them to lose money on the deal?