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OK. I was wondering how people would explain away the fact that the market did not crash the way they predicted.
And I've been telling people for YEARS that the market was NOT going to crash when QE ended.
And of course almost nobody listend.
Now of course QE is done and there was NO crash (just the way I said wouldn't be).
But quantitative easing is the gift that keeps on giving. Even after the purchases end, its effects will persist. How could that be? The Fed will still own all those bonds it bought, and according to the agency itself, it’s the level of its holdings that affects the bond market, not the rate of addition to those holdings. Having reduced the supply of bonds available on the market, the Fed has raised their price. Yields (i.e. market interest rates) go down when prices go up. So the effect of quantitative easing is to lower interest rates for things Americans actually care about, such as 30-year fixed-rate mortgages.
If the Fed had not bought and held all of these bonds?
Now THAT is FINALLY an intelligent article about how QE works - and WHY there would be NO STOCK MARKET CRASH when the bond buying ended. I would quibble however about the "QE is not ending" statement - mainly because the term "Quantitive Easing" is generally considered (by most people) to mean the PURCHASING of those bonds rather than just the HOLDING of those bonds.
If however ones' definition of QE means the holding of the bonds and not just the buying of the bonds, then I'd accept that basic premise. It really comes down to a question of symantics.
In any event, in spite what they may claim NOW, most folks on THIS BOARD pretty obviously took QE to mean the purchasing of the bonds (just as I did) - after all, for YEARS now wingnuts on this board have gone on and on and on about how when the bond purchases ended the stock market would crash. In fact, some folks here posted charts just a couple of weeks ago showing the stock market declining every time one of the past QE purchasing cycles ended - and pretty much claiming it would happen again THIS TIME and that as a result the FED would RESTART QE again.
Now of course when that's not happened, I fully expect them to suddenly switch gears and sudden say that "well, QE is not over as long as the government holds the bonds". While that statement MAY be true (depending on how one defines QE), there's NO DOUBT that those folks here who were going on and on for the last few years thought that:
A) the FED would not DARE stop buying bonds and
B) IF the FED did by some chance do so that the stock market would crash
Obviously those folks didn't have a CLUE what they were talking about - and NEITHER did the idiot bloggers they were reading - which is exactly what I've been saying for years now.
I've insisted ALL ALONG that the stock market would be FINE when the bond purchases ended - and that article outlines exactly why.
While the sudden unwinding of those purchases by the FED could indeed disrupt the markets - not JUST the stock market but the financial market in general - there is no compelling reason for the FED to sell those assets any time soon. They are after all, income generating bonds which - now that we've "spent" money to purchase them - will continue to bring in revenue to the FED for years or even decades so there is no reason whatsoever for the the FED to sell them anytime soon. The FED could hold them for 30 years if the officers decided to do so - and during all that time they would bring in revenue.
This the crux of the reason - laid out far better than I could have done - WHY I was certain there would be NO stock market crash when the bond buying ended.
I'm also of the opinion that the selling of those bonds will not cause a crash either. If the FED unloaded them all at once it would potentially cause such a crash, but the FED won't do that - after all WHY should they? Those bonds will be slowwwwwwwwly unloaded over a long period of time - probably decades and consequently any affect on the financial markets will be pretty well diluted. Most of the time when the FED makes a change in direction that can affect the market, it's not the actual CHANGE that's the risk, it's the WAY the change is handled. As long as the FED makes it's intentions clear enough in advance. lays out a plan that gradually makes the change - and then sticks to the plan it had announced, the stock market will handle the change with a minimum of disruption. This is why the FED slowwwwwwly tapered the QE purchases rather than cutting from $85 billion/month down to zero overnight. If the FED had SUDDENLY ended QE the market would have crashed big time, but by laying it out in advance and gradually making the change the stock market was fine. That's because it's not the actual ending of the QE purchases that was the potential threat to the market but rather the SUDDEN end to QE that was the threat. That's a subtle but important distinction.
As I said, FINALLY an INTELLIGENT article about the affects of QE and WHY the stock market didn't crash.
Ken
Last edited by LordBalfor; 11-06-2014 at 11:50 PM..
But quantitative easing is the gift that keeps on giving. Even after the purchases end, its effects will persist. How could that be? The Fed will still own all those bonds it bought, and according to the agency itself, it’s the level of its holdings that affects the bond market, not the rate of addition to those holdings. Having reduced the supply of bonds available on the market, the Fed has raised their price. Yields (i.e. market interest rates) go down when prices go up. So the effect of quantitative easing is to lower interest rates for things Americans actually care about, such as 30-year fixed-rate mortgages.
If the Fed had not bought and held all of these bonds?
Mr. Greenspan’s comments to the Council on Foreign Relations came as Fed officials were meeting in Washington, D.C., and expected to announce within hours an end to the bond purchases.
He said the bond-buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.
“Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” said Mr. Greenspan. Boosting asset prices, however, has been “a terrific success.”
I have to add that the most prominant "QE is the only thing propping up the stock market" idiot - ie goldmonger Peter Schiff - has now turned his attention to the Swiss and is trying to convince them to pass a referendum REQUIRING the Swiss government to buy and hold more gold.
Turns out that it wasn't the stock market that crashed when the bond purchases ended, it was GOLD (again, as I said would be the case). Now apparently Schiff so desperate to prop up the price of gold, that he's resorting to trying to get Swiss voters to pass a law to FORCE the Swiss government to buy gold.
It's pretty damn pathetic when one has to FORCE someone or something to buy an "investment". Any rational person would have to conclude that if you have to FORCE the Swiss government to buy gold, it sure as heck isn't a very good investment. A good investment will attract it's OWN buyers - but apparently gold is no longer able to do that.
Schiff of course has MILLIONS tied up in gold - and those investments have been HAMMERED over the past 3 years or so as the U.S. dollar strengthened and the U.S. stock market soared. Now it appears he's growing desperate for something, anything, to turn gold around.
Lots lof luck Peter - you're going to need it.
Gold WILL rebound eventually - probably in 30 years or so when we have the NEXT big financial crisis.
Until then, gold isn't likely to do any kind of rebounding.
Sadly, plenty of wingnuts on this board have no doubt held onto their gold for wayyyyyyyy too long and rode it back down from it's highs of 3 years ago.
Should have listened to me folks. - I'd seen all this silly gold mania nonsense play out back in the late 70's. It didn't have a happy ending then, and it didn't this time around either.
So yeah, the ending of the QE bond purchases did cause a crash - it was just in the GOLD market rather than the STOCK market.
Ken
Last edited by LordBalfor; 11-06-2014 at 11:52 PM..
I have to add that the most prominant "QE is the only thing propping up the stock market" idiot - ie goldmonger Peter Schiff - has now turned his attention to the Swiss and is trying to convince them to pass a referendum REQUIRING the Swiss government to buy and hold more gold.
Turns out that it wasn't the stock market that crashed when the bond purchases ended, it was GOLD (again, as I said would be the case). Now apparently Schiff so desperate to prop up the price of gold, that he's resorting to trying to get Swiss voters to pass a law to FORCE the Swiss government to buy gold.
It's pretty damn pathetic when one has to FORCE someone or something to buy an "investment". Any rational person would have to conclude that if you have to FORCE the Swiss government to buy gold, it sure as heck isn't a very good investment. A good investment will attract it's OWN buyers - but apparently gold is no longer able to do that.
Schiff of course has MILLIONS tied up in gold - and those investments have been HAMMERED over the past 3 years or so as the U.S. dollar strengthened and the U.S. stock market soared. Now it appears he's growing desperate for something, anything, to turn gold around.
Lots lof luck Peter - you're going to need it.
Gold WILL rebound eventually - probably in 30 years or so when we have the NEXT big financial crisis.
Until then, gold isn't likely to do any kind of rebounding.
Sadly, plenty of wingnuts on this board have no doubt held onto their gold for wayyyyyyyy too long and rode it back down from it's highs of 3 years ago.
Should have listened to me folks. - I'd seen all this silly gold mania nonsense play out back in the late 70's. It didn't have a happy ending then, and it didn't this time around either.
So yeah, the ending of the QE bond purchases did cause a crash - it was just in the GOLD market rather than the STOCK market.
Ken
As schilling as Schiff is toward gold, at least he told us about the housing Bubble and saw the collapse coming. btw you didn't see it coming.
Oh, I'm hearing it. It looks like desperate rationalization to me.
Bottom line is that the factual data shows that when QE ends, the market drops by double digit percentages and doesn't increase consistently again until another round of QE is started.
Actually - based on what has happened when QE 3 ended, it doesn't sound like "desperate rationalization" at all - more like "accurate appraisal".
It's very short sighted to defend QE based upon the idea that one wants to prove the "buy gold" preachers wrong. I own absolutely no gold. QE was designed to help one aspect of the economy and one only. The big investment banks.
It did a great job at that but as noted, it's done nothing for the economy overall except to further drive a wedge between the classes.
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