It`s a QE world

When patients do not respond to a particular type of medicine, or suffer from side effects, doctors usually stop administrating it and decide on a different course of action. But for central bankers, which are medics hired to fix ailing economies things are not that simple. The European Central Bank and the Bank of England initiated today programmes aimed to expand the availability of credit in an attempt to cure the economic sickness with the very thing that caused it: too low interest rates.

Markets dissapointed as FED`s Bernanke hints no QE3

Just as expected, no new news came out from Chairman Bernanke today, as he delivered his testimony to the Joint Economic Committee of Congress. He instead focused on reassuring financial markets that FED is ready to act in case of an European financial meltdown and plead against fiscal tightening. As an immediate result, gold plunged by $40 to $1592, and the S&P went down to $1321. Markets need their daily dose of stimulus talk Bernanke!

Short S&P500 @ 1339.7

I`m entering a short position on the S&P500 as of now at the $1339 level. The QE2.5, Operation Twist, LTRO and MBS repurchases are starting to wear off. Stop loss at $1360. Target at $1291.

Bernanke expands ZIRP till mid 2014

During the yesterday's Federal Open Market Committee meeting, FED's chairman Ben Bernanke adjusted downwards the US growth outlook and extended the Zero Interest Rate Policy until mid 2014. He didn't mention any further large scale asset purchases except  "Operation Twist" and rolling over of the current portfolio and he didn't mention any unemployment targeting (a widely expected figure).

PIMCO is taking a massive bet on QE3

Bill Gross, the co-chairman of one of the largest bond funds, PIMCO's Total Return fund which closed 2011 at a whopping $244 billion dollars, has added to its leveraged Mortgage Backed Securities position during December 2011, in a bet on further Quantitative Easing and further "Operation Twist".  According to Zerohedge, the Total Return fund had in December a $60 billion cash margin account used to purchase $103 billion in MBS, TIPS and long duration US treasuries. Turns out that in December, Bill borrowed an additional $78 billion to purchase more MBS and treasuries.

What does FED's zero interest rate for the foreseable future mean ?

Despite that bond yields in Europe are imploding, and Italy becoming the newest member of the elitist 7% club, among countries like Greece, Portugal, Ireland, all seems to be running well in the US wonderland. The cost of borrowing, as measured by US T-bills, has reached the lowest level since the beginning of the financial crisis. The demand of short term bills, namely 3 weeks, which are yielding 0%, and 13 weeks which are yielding 0.005%, is still extremely high as the bid/cover ratio stood at 3.41 in the most recent Treasury Auction.

FED's Chairman Bernanke sees trouble ahead

It's time to sober up and say a little prayer for the wellbeing of the United States of America. The recent Federal Open Market Committee decided today to keep the benchmark interest rate at the 0% - 0.25% interval, effectively prolonging the Zero Interest Rate Policy, through at least mid- 2013. FED's policy makers agreed that the economy picked up some steam while "signficant downsize risk" still remains. The US Federal Reserve will still conduct the so called "Operation Twist" which aims to swap short term Treasuries with longer term maturities in order to flatten the yield curve and lower the costs of capital investments. 

The inflation rate, measured by the CPI rose to 2.9% in September, the highest since 2008, while the core-CPI (excluding housing and energy costs) rose to 1.6%.

Next week's FOREX trading outlook

This week has been a hectic trading week, with most of the FOREX currency pairs behaving like in a bee hive. The global turmoil was enhanced by the two major news: first is the agreed haircut of 50% of the Greek debt and the subsequent leverage of the EFSF and the second one is the systematic dump of US Treasuries by the foreign investors (the latest to join the party is the Norwegian sovereign wealth fund which dumped all US Treasuries and all US mortgage backed securities). What is in store for us next week?

How is inflation created and what can be done about it ?

The debate on the real cause of inflation, and whether its positive effects outweigh the negative ones  is growing steam, with the talks of more Quantitative Easing under way. Is QE3 going to generate more inflation or not? Is the view that QE and further market operations (POMOs) will fuel the increase in prices ?

To answer these questions, one has to start from the root of the problem. What is inflation and how should it be measured ?

Gold and Silver in upward trend as Bernanke considers more QE

The Federal Reserve released  the minutes of the September 20-21 session in which there is talk of more monetary stimulus.  Fed officials are considering further large scale asset purchases (QE3) as a form of boosting the economy due to “the considerable uncertainty” in the US growth prospects.