A Small Start to QE3?

by Michael J. Howell28. November 2012 13:24

Our concerns about the slow start to QE3, i.e, only US$5 billion net since mid-September or nearly US$150 billion short of 'target'. Has been eased a tad by last week's jump in net debt holdings by the Fed of US25-30 billion. This together with signs of movement from the EU on Spanish debt suggests that markets may get the reassurance they need by year-end. We continue to expect that this 'second wave' of liquidity comes in during 2013. Risk asset markets will response accordingly.

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Where's Our QE3?

by Michael J. Howell20. November 2012 18:53

Promises, paper promises...but so far there has been little evidence that the US Fed is honoring its commitment to add US$85 billion per month to its balance sheet, roughly half as new money and half as reinvested coupons. US policy-makers even suggested that US$23 billion would find its way in during the rump of September 2012, immediately following the mid-month QE3 announcement. Sadly, nothing came. Nothing came in October. And, thus far in November, we have only detected a tiny US$5 billion! The delay is gnawing at market sentiment. One impediment may have been the Election; another could be a desire to wait until the ECB acts through its similar slated QE programme, supposedly later this year. A third reason could be, as Chairman Bernanke said today, that yields have already fallen in anticipation, so reducing the Fed's need to rush. Set against a slightly better US economic tone, these points may explain the Fed's inactively? Whatever, markets will demand to see the colour of the QE3 money before a sustained risk rally occurs. We're sure its coming, but so is Christmas.

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A Glorious Fall

by Michael J. Howell2. October 2012 12:00

QE3 arrived essentially on cue and within the ‘normal’ 15 -18 months from the date that the last (QE2) easing ended. This Mshaped pattern of liquidity supply has occurred several times before. Commodity markets are the clear winners from every QE that we have studied. Bonds have lately been the most frequent loser. The discrete pattern of finite quantitative easings (QEs), followed by pauses, explains the recent sequence of ‘Risk On/Risk Off’ markets.

The appearance of QE3 likely heralds a renewed ‘Risk On’ phase.

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Global Liquidity Update

The M-Wave: Where Now? Higher?

by Michael J. Howell2. September 2012 12:04

We have long been taken by the idea of an M-shaped financial/investment cycle. This simple prognosis from 50 years of monetary and credit history suggests this repeating pattern plays out over a ten -year period.

In short, we get two asset booms per banking crisis, with these up-legs separated by an 18-month/2-year sideways period, characterised by ranging markets, sluggish economic growth and low inflation.

Our original timeline placed this liquidity pause from Q1 2011 to Q3 or Q4 2012, with the endgame dependent on Central Banks agreeing to another round of QE (quantitative easing).

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Global Liquidity Update

 
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