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Global Economy Bursting?

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The reason for gold prices to continue rising

http://kingworldnews.com/kingworldn...Today_The_Fed_Unofficially_Announced_QE4.html

Now, QE3, the $40 billion (each month), is not sterilized, but the $45 billion in Operation Twist is sterilized. By sterilized I mean they are buying long-date Treasuries, and selling debt, paper from the government that’s less than 3 years. That’s sterilized today. But the reason why Evans said that these new purchases would not be sterilized is because they will not.

The truth is the Fed doesn’t have many short-term Treasuries left to sell. Evans said the $45 billion a month should last at least a year. That’s $540 billion worth of what he indicated would be a combination of mortgage-backed securities and Treasuries.

Well, you cannot sterilize $540 billion, in addition to the $480 billion dollars that you are already doing, when the Fed’s balance sheet shows that they are almost out of short-term Treasuries. So this will be an unsterilized, open-ended, double-down version of QE3, and that’s why you are seeing gold and commodities soar.

He has clearly laid out what he wants QE4 to be already, and this is what I think is going to happen in January, and it will have huge ramifications to (investors) portfolios.
 
Couch Potato said:
You have me confused with my brother. He is the one that went college up in Chicago, IL. :rof:
Click to expand...

Hey! We resemble that remark!

The Chicago Motto- "Vote early and vote often!" and "You're not dead until the board of elections says you're dead!"

Ahhh, All those city cemeteries with all those untapped voters still residing in the city!
 
War On Gravity Or How The FED Controls Asset Prices

David Rosenberg describes six key variables that affect the stock market. These variables are: liquidity, fund flows, technicals, valuation, sentiment, and fundamentals.

Liquidity: Quantitative easing (QE) has been supporting the stock market. The latest, QE-Infinity (or QE3), results in a new $40 billion/month cash injection into the Primary Dealers (PDs) accounts.

David’s research indicates that every $40 billion of QE added to the Fed’s balance sheet adds about 20 points to the S&P 500.

The chart below shows one way to quantify the Fed’s money-printing ways on the stock market:


GPC-7-12-12.jpeg



Describing the chart, Phoenix Capital Research wrote, “the New York Fed itself has openly admitted that were it to remove the market moves that occurred around Fed FOMC meetings [the times when the Fed announced new programs or hinted at doing so], the S&P 500 would be at 600 today…

The higher prices were sustainable because liquidity was added to the financial system through the PDs–beneficiaries of the Fed’s QE programs.

In a ZIRP (Zero Interest Rate Policy) environment, with the Fed printing money and the Dollar losing value, “risk on” trades became increasingly appealing and money moved into stocks and commodities. The PDs also took advantage of more complicated investment strategies. According to Michael Hudson, the $800 billion QE2 was used by the banks to speculate on currency and interest rate arbitrage. They borrowed money at 0.25%, lent it to the BRIC countries at much higher rates, and then pocketed the interest rate arbitrage. Contrary to story line, the banks did NOT put this money into the economy. The reality is that ever since QE1 and QE2, every time there’s a loan, the banks reduce their loans to businesses, they reduce their mortgage loans, there’s less mortgage refinancing, and in fact, the banks use the money to gamble, mainly abroad in foreign currency and interest rate arbitrage…
 
Randolph Kinney said:
In a ZIRP (Zero Interest Rate Policy) environment, with the Fed printing money and the Dollar losing value, “risk on” trades became increasingly appealing and money moved into stocks and commodities. The PDs also took advantage of more complicated investment strategies. According to Michael Hudson, the $800 billion QE2 was used by the banks to speculate on currency and interest rate arbitrage. They borrowed money at 0.25%, lent it to the BRIC countries at much higher rates, and then pocketed the interest rate arbitrage. Contrary to story line, the banks did NOT put this money into the economy. The reality is that ever since QE1 and QE2, every time there’s a loan, the banks reduce their loans to businesses, they reduce their mortgage loans, there’s less mortgage refinancing, and in fact, the banks use the money to gamble, mainly abroad in foreign currency and interest rate arbitrage…
Click to expand...

Interesting read, though saying banks are gambling through arbitrage is an oxymoron.
 
Subprime Gains 30% as Goldman, Cerberus Target Market

http://www.bloomberg.com/news/2012-10-04/subprime-up-as-funds-target-shrinking-market-mortgages.html

U.S. home-loan securities without government backing, the debt that sparked the worst financial crisis since the Great Depression, shrank last quarter to less than $1 trillion for the first time in eight years, leaving fewer bonds to meet soaring demand as housing recovers.

The non-agency mortgage bond market has contracted from $2.3 trillion in mid-2007 when a property bubble fueled by shoddy loans burst, according to Federal Reserve data. It’s fallen to about $970 billion after record homeowner defaults, borrower refinancing and limited sales of new debt.

Growing interest in a diminishing asset has bolstered a rally that’s pushed returns on subprime-backed securities to almost 30 percent this year. Cerberus Capital Management LP and Goldman Sachs Group Inc. (GS) are among firms that have raised money for new funds targeting the bonds, as investors speculate on the real-estate recovery or seek to earn higher returns as the Fed pushes yields on safer debt to record lows.

“The contraction is a huge part of the story of why non- agencies have outperformed almost every other asset class,” said Bryan Whalen, co-head of mortgage bonds at TCW Group Inc., a Los Angeles-based firm that oversees about $130 billion.

The subprime gains are double the 15 percent rise this year for the Standard & Poor’s 500 Index, and more than eight times greater than S&P’s GSCI Total Return Index of 24 commodities. It’s also more than double that for high-yield, high-risk company bonds, which have returned 12.2 percent, according to a Bank of America Merrill Lynch index.


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The demand for higher yields is what created subprime in the real estate credit cycle run up from 2002 through 2006. As more institutions and pension funds chase yield and return on investment, a new product will be coming to market.

Banks won't lend but Wall Street can.
 
Countrywide: It's baaack

http://finance.fortune.cnn.com/2012/10/02/countrywide-is-back-pennymac/

The Federal Reserve's recent decision to buy mortgage bonds until the economy recovers has made home lending more attractive than it has been in years. The spread between what it costs to fund a mortgage loan and what borrowers actually pay is nearly three times as large as usual. So it's perhaps no surprise that one of the first firms to rush into this profit-filled fun house is headed by the former executives of the most notorious subprime lender of the era that led to the financial crisis.

Last month, PennyMac (PMT), a finance company run almost entirely by alumni of Countrywide Financial, opened its first retail branch. The company expects to hire as many as 100 employees for the office, which is in Pasadena, California, including loan officers and underwriters.

"There's free money on the table and you don't have to work that hard to get it, especially if you are the former executives of Countrywide," says Michael Widner.

PennyMac's stated business plan was to buy up delinquent mortgage loans on the cheap, offer modifications and make some money in the process.

In the past year, though, PennyMac has morphed into something that more resembles Countrywide. The company's unit that finances new mortgage loans made by outside brokers and small banks was launched a year ago, and now accounts for about a third of the company's profits.

PennyMac's odd corporate structure has worried some Wall Street analysts. PennyMac runs a public mortgage REIT, but not all of the company's business and profits go to the REIT. Shares of the REIT have risen nearly 50% in the past year. It doesn't hurt that PennyMac has a 9.3% dividend yield at a time when investment income is hard to come by.

PennyMac has funded over $9 billion in mortgages this year, up from less than $1 billion in 2011. Executives say they hope to be on pace to finance $30 billion in mortgage loans next year. That would make the PennyMac the 12th largest mortgage lender in the country, according to trade publication Inside Mortgage Finance.
 
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