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U.s Fed Ends Qe


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With the 6 year policy of monetary easing ending yesterday we will see how strong the recovery really is in the States. The vast support sums pumped into their economy will now be taken away replaced by the supposed strength of the pickup. I think this is hugely optimistic and see a large correction lower in the US stock markets followed by interest rate hikes and perhaps a humiliating return to QE sometime during 2015.

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I'm not entirely sure how it works in the USofA but I am assuming it is similar to the UK?

I don't think the "QE has ended" headlines in the papers are accurate. They may have ended the phase of pumping more money into the system, possibly? Time will tell on that one. But that is just the first (easy) bit. At some point they have to start selling off the bonds which they "bought" in order to pump that money into the system. IMO, When they start to sell off these bonds, that will be the beginning of the end. Maybe in more ways than one.

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The global economy is still treading water and will weigh heavily. The US has been underpinning things To an extent and confidence is still very fragile. Also, the strength of jobs growth in the States is relatively Weak In historical terms. As I said in op, I foresee a sharp step lower in us and global stocks. Only signs of a pickup in China or Europe will head off another crisis imo.

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It really just a suspension of QE. The US will never rule out using it again because it knows that it's economy will probably require more QE further down the line,.It'll be Wall St that decides if and when QE returns, not the Fed. It's how the US monetary system works. The US economy really needs tax increases and the reduction of its addiction to corporate subsidy - but that's not what Wall St wants because it affects the incomes of the wealthy (the real government).

But I agree it's looking like we're heading for a decent correction (at least) in the US markets. US$ is already about a third weaker than it's pre-recession level and the nature of institutional equity investors will ensure at least decent technical corrections will hit the stockmarket. Most casual observers don't see corrections coming because they believe the Dow Jones Industrial Average index is the equity market's best guide.

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It really just a suspension of QE. The US will never rule out using it again because it knows that it's economy will probably require more QE further down the line,.It'll be Wall St that decides if and when QE returns, not the Fed. It's how the US monetary system works. The US economy really needs tax increases and the reduction of its addiction to corporate subsidy - but that's not what Wall St wants because it affects the incomes of the wealthy (the real government).

But I agree it's looking like we're heading for a decent correction (at least) in the US markets. US$ is already about a third weaker than it's pre-recession level and the nature of institutional equity investors will ensure at least decent technical corrections will hit the stockmarket. Most casual observers don't see corrections coming because they believe the Dow Jones Industrial Average index is the equity market's best guide.

Aye :shocked:

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It really just a suspension of QE. The US will never rule out using it again because it knows that it's economy will probably require more QE further down the line,.It'll be Wall St that decides if and when QE returns, not the Fed. It's how the US monetary system works. The US economy really needs tax increases and the reduction of its addiction to corporate subsidy - but that's not what Wall St wants because it affects the incomes of the wealthy (the real government).

But I agree it's looking like we're heading for a decent correction (at least) in the US markets. US$ is already about a third weaker than it's pre-recession level and the nature of institutional equity investors will ensure at least decent technical corrections will hit the stockmarket. Most casual observers don't see corrections coming because they believe the Dow Jones Industrial Average index is the equity market's best guide.

Do you think the Fed is happy to see a worldwide correction to focus minds? To me this is kicking out the one support that was just about holding things together.

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Do you think the Fed is happy to see a worldwide correction to focus minds? To me this is kicking out the one support that was just about holding things together.

Corrections are an everyday aspect of markets. Unfortunately they don't, IMO, focus ordinary minds - they just encourage shifts of attention to other places. People are in markets to make money so they just follow the money. When stocks crash people invest in things like gold, or the US dollar (still, strangely).

By rights corrections should focus minds but we're no longer in an era where markets are driven by ordinary human investors seeking old fashioned outcomes like value and growth. Humans ( such as quants, maths grads, highly-skilled computer scientists etc) are involved - but they are there only to operate and design the future generations of trading machines that can conduct hundreds of millions of trades across worldwide exchanges in a fraction of a nanosecond. That's what you're up against. Corrections are built into these market-running systems - they are designed into the algorithms underpinning them so they can take advantage of dips and peaks to make even more money. Markets are zero sum games - for every person who loses, someone makes.

The authorities in the US didn't really see this sort of high frequency trading stuff coming and by the time they did the only option they had was to work with it as best they could. It's inevitable IMO that more 'crashes' will happen in future.

If you want a flavour of how global exchanges work in real time have a look at this. This is a video of half a second's real-time global trading in just Johnson & Johnson shares. First you see it in real time then you see it over just under six mins to show it more clearly.

The firing and dots you are seeing is buy and sell orders being run and completed, or run and cancelled,between exchanges quicker than you can blink as buyers and sellers try to take advantage of things such as arbitrage.

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Corrections are an everyday aspect of markets. Unfortunately they don't, IMO, focus ordinary minds - they just

encourage shifts of attention to other places. People are in markets to make money so they just follow the money. When stocks crash people invest in things like gold, or the US dollar (still, strangely).

By rights corrections should focus minds but we're no longer in an era where markets are driven by ordinary human investors seeking old fashioned outcomes like value and growth. Humans ( such as quants, maths grads, highly-skilled computer scientists etc) are involved - but they are there only to operate and design the future generations of trading machines that can conduct hundreds of millions of trades across worldwide exchanges in a fraction of a nanosecond. That's what you're up against. Corrections are built into these market-running systems - they are designed into the algorithms underpinning them so they can take advantage of dips and peaks to make even more money. Markets are zero sum games - for every person who loses, someone makes.

The authorities in the US didn't really see this sort of high frequency trading stuff coming and by the time they did the only option they had was to work with it as best they could. It's inevitable IMO that more 'crashes' will happen in future.

If you want a flavour of how global exchanges work in real time have a look at this. This is a video of half a second's real-time global trading in just Johnson & Johnson shares. First you see it in real time then you see it over just under six mins to show it more clearly.

The firing and dots you are seeing is buy and sell orders being run and completed, or run and cancelled,between exchanges quicker than you can blink as buyers and sellers try to take advantage of things such as arbitrage.

Thanks for that. Interesting stuff! What I was angling at but probably didn't articulate well enough was that a correction/uncertainty in global markets would strengthen the States position/strategy domestically and globally. The world is such a mess that it appears the stronger the hand the more influence they can wield.

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Thanks for that. Interesting stuff! What I was angling at but probably didn't articulate well enough was that a correction/uncertainty in global markets would strengthen the States position/strategy domestically and globally. The world is such a mess that it appears the stronger the hand the more influence they can wield.

Your way of thinking is obvious enough (and may indeed prove correct in the short-term) but it ignores that the global financial system is a complex system and hostage to the kind of economic determinism that got us into the mess we're in.

I think the biggest factor the US has in its economic favour is that is 'owns' the global reserve currency. That is one of the main reasons why it can run such large defecits without too much worry. If the USD ever ceases to be the world's currency (and there's signs in commodity markets that it might be on the horizon) then the US will be in a whole new era.

Currently uncertainty and recession generally sees investors buy the USD. But that affects US exports, which in turn affects interest rates, so it's a precarious juggling act the US has in its hands. I wouldn't like to be the guy that has to steer the US economy through the next five years.

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