Goldman: QE2 Launches In One Month... Or Else

ppteam

Goldman is now convinced that the November 2-3 meeting will bring at least $500 mbillion in either "big bang" or staggered QE2. And stocks have pried it in. If this fails to materialize the market will crash, as the next meeting after that is not for almost another 3 motnhs, on January 25, by which point the economy will be firmly in re-recession (now that it is uncool to say Double Dip thanks to a few overcompetent Ph.D.'s), and any monetary stimulus will be too late, which would lead the Fed to overextend and do something really stupid... Like send gold to $50,000.

From Goldman's economic team:

    Dudley Speech Suggests Asset Purchases in November Even More Likely

    BOTTOM LINE: New York Fed President William Dudley’s speech this morning suggests strongly that the FOMC will announce $500bn in asset purchases at the November 2-3 meeting.  We had already thought some announcement of this sort was a "strong possibility" and now see it as even more likely, though it obviously still depends on data yet to be seen.  On a longer-term horizon, he also discusses ways in which the Fed could communicate more clearly its intent to get both inflation and unemployment back to levels consistent with its “maximum employment” and “price stability” mandates.

    MAIN POINTS:

    1. The speech starts with a clear statement that “the current situation is wholly unsatisfactory,” having described the current situation as a tepid recovery that has failed to bring unemployment down and has led to declines in inflation that the FOMC has already labeled as inconsistent with its mandate.  Therefore, “further action is likely to be warranted unless the economic outlook evolves in away that makes me more confident that we will see better outcomes for both employment and inflation before too long.”

    2. In other words, in President Dudley’s view, the onus is on the economy to improve and to do so quickly; otherwise further easing measures from the Fed are warranted.  Although he includes the usual caveat that he speaks for himself, we see this as a signal that an announcement of renewed asset purchases is likely at the November 2-3 meeting, though obviously a sharp turn in the data could push this back.  Furthermore, a passage in the speech discussing the benefits of $500bn in purchases suggests that purchases of this magnitude are likely, but it is difficult to know over what time period they would take place and the extent to which the FOMC would indicate willingness to do more.

    3. The speech goes on to explore issues of a longer-term and more fundamental nature, including: (a) a suggestion that the FOMC could consider what amounts to price level targeting, in which the committee would commit to offset low-side misses on inflation with high-side ones later on, (b) an assertion that further expansion of the balance sheet should not be considered monetization when the economy is operating so far below full capacity, (c) concerns about the Fed’s ability and willingness to exit balance-sheet expansion are misplaced given the development of tools to accomplish the exit, and (d) worries about the central bank’s selling assets at a loss should be subordinated to the ultimate objectives of getting the economy back to the Fed’s policy mandates, especially since earnings are high to begin with.

Poo

damn, should I now follow or not follow Mr. Sucks advice. that is the question.

Poo

another thing since it is already priced in,  if market keep going up till Nov 2 can we 倾家挡产的买 put.

ppteam

回复 3# Poo

this is tough.

"
This week's CFTC Commitment of Traders reports validates what everyone knows: that the "short dollar" is now the biggest groupthink trade in the world. Or let us paraphrase - the "Ben Bernanke QE2 Is Imminent" trade is now the biggest groupthink trade in the world. One glimpse at the move in the COT data confirms what we speculated earlier when we discussed Goldman's virtual certainty that QE2 is coming in 31 days: that if there is no QE2 announcement, the shock that would reverberate from this as all the Kill (Dollar) Bill trades are unwound, may just blow up world markets and make the flash crash seems like a dress rehearsal for midgets (of the SEC intellectual variety). Of course, what this means for contrarian traders is more than obvious.

In summarizing the above data: to say that QE is priced in is an understatement. There are currently trillions of dollars on the line that the Fed will launch QE on November 3. The impact of that announcement will be one of a flash of asset price euphoria followed by the realization that monetary intervention will be just as failed that time as it was before, and that even as rates drop to zero, it will do nothing to reduce the excess slack in the economy. As for housing, zero rates will merely keep prices artificially high, and coupled with the recent M3 scandal,  it will make transactions even rarer, as few if any will be willing to buy at inflated prices when their economic outlook is not only uncertain but deteriorating. More importantly once the Fed has engorged its balance sheet with $3-5 trillion in assets, all naive hopes that a normal unwind of these economic supports can proceed in a normal manner without triggering full dollar collapse, will be extinguished. One thing is certain: the midterm elections will be a very memorable date. Look for forced leaks of the Fed decision ahead of November, and not just to Bill Gross. Indicatively, we still believe the best tell on what the Fed will do will come in Mid-October when the TRS will disclose its latest holdings, which we will present immediately when available.
"

Poo

＂There are currently trillions of dollars on the line that the Fed will launch QE on November 3. The impact of that announcement will be one of a flash of asset price euphoria followed by the realization that monetary intervention will be just as failed that time as it was before, and that even as rates drop to zero, it will do nothing to reduce the excess slack in the economy. ＂

what hack this means? nuclear weapon blow up type of asset price shoot up then crash down?

ByStander

关键是这些空的到底是在赌QEII不会出来，还是在赌SELL ON NEWS呢？