Bernanke Has Brett Favre Moment As QE2 Hail Mary Picked Off, Going The Other Way

If lowering bond yields was in the playbook, Ben needs to go back to the drawing board

The Fed’s additional round of quantitative easing through large purchases of Treasury bonds was aimed at driving long-term interest rates lower.? That’s not how it’s worked out so far.

As soon as the Fed started hinting at QE2 in early September, interest rates on bonds began rising instead, driving bond prices down significantly. (Bond prices decline when bond yields rise and vice verse.)

It’s been a trying experience for the large number of investors who have piled into bonds and bond funds over the last couple of years on expectation they would be a safe haven.

The bubble that formed in late 2008 as a result of that period of record buying burst and bond prices plummeted. Bonds have now given back most of the gains made in the early months of this year.

Thirty-year Treasury bonds have now lost 9% of their value in three months. The popular iShares Barclays 20+ Year Treasury Bond ETF (TLT) has declined 15% in value.

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I hope you listened when I warned you of our sell signal on Treasury bonds. The ProShares Short 20+ Year Treasury (TBF) inverse bond ETF, designed to move opposite to long bond prices, has been the real safe haven, moving up as fast as bonds have been declining.

Then there is the U.S. dollar. The Fed’s additional round of quantitative easing was also expected to drive the value of the dollar down further, helping to boost the U.S. economy by making U.S. exports less expensive in global markets.

The dollar did begin plunging again in September when the Fed first began talking about the possibility of QE2, and spiked down in early November after the Fed announced its decision.

However, sentiment for the dollar was at a record extreme of bearishness, and short-selling of the dollar was at near record levels. But the dollar found support at the trendline drawn through its lows of 2008 and 2009, our technical triggered a buy signal on the dollar, and the dollar has also defied the Fed by rising steadily since.

Which brings us to gold.

Another of the Fed’s stated goals for QE2 was to create some inflation, in an effort to inflate the economy into a stronger recovery. Gold, the age-old hedge against inflation, initially responded by continuing its bull market, spiking up to a new high.

But after gold spiked up intraday Tuesday to a new record high at $1,431 an ounce, it suddenly reversed to the downside by a big $23 an ounce, to close down $7 at $1,408. Today it plunged another $26 an ounce and at $1,382 is under $1,400 again.

Gold is being whipsawed by government actions, spiking up on the Fed’s easing decision, on expectations it will create inflation, and declining the last few days on expectations that China will raise its interest rates to ward off inflation.

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Bernanke Had To Brag About It, What He’s Doin’

Maybe it wasn't such a good idea to brag about QE2

The long-awaited report on economic growth in the third quarter was released Friday morning, and was a somewhat pleasant surprise. After declining from an annualized growth rate of 5.0% in the fourth quarter of last year,? GDP growth declined to 3.7% in the first quarter of this year, and to just 1.7% in the second quarter.

It had many economists worried about a double-dip back into recession, especially after economic reports for July and August, the first two months of the third quarter, showed sharp declines in auto sales, home sales, and consumer and business confidence. Some economists were projecting third quarter growth could be as low as 0.6%, and headed to negative growth (recession), although the consensus forecast was that GDP would be up 2.1% in the third quarter.

So, it was good news for the economy that the consensus got it right, with the report showing third quarter GDP improved to a 2.0% growth rate. Equally good news within the report was that the growth was propelled by a 2.6% increase in consumer spending, since consumer spending accounts for 70% of the U.S. economy. Federal government spending also added to GDP, rising 8.8%, following a 9.1% increase in the second quarter.

In the other direction, the U.S. trade deficit continued to weigh on growth, as imports grew by 17.4% while exports rose only 5.0%. And corporate pessimism weighed on business spending.

Although still anemic and too slow to improve the employment picture to any degree, the news that the economy turned up some in the third quarter was good news for Main Street. However, the news may not have been all that good for Wall Street.

As I noted in my column last weekend, the Fed seemed to panic after the stock market plunged in August in its worst August in years, as economic reports continued to worsen. The Fed seemed to give up on its prediction of only a temporary slowdown in growth in the summer months but not into recession, and then a return of growth in the second half and through next year.

In early September it was suddenly hinting at, and then virtually promising, a significant round of additional quantitative easing to rescue the economy.

As a result stock markets around the world began rallying off their late August lows, and produced the rarity of a substantial rally in September and October, historically the worst two months of the year.

However, now we have the report that GDP growth did not decline further in the third quarter, but improved, while recent economic indicators show retail sales, home sales, manufacturing, and consumer confidence have all ticked up, while unemployment claims have fallen for three straight weeks.

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As I suggested in my column last weekend, the Fed may now be wishing it had never mentioned quantitative easing, or virtually guaranteed markets a large program of easing, the extent of which it will announce after its FOMC meeting next Wednesday.

Global stock markets have factored in the substantial easing program that seemed to be promised, with projections that it could amount to a ‘shock and awe’ approach of as much as $1.5 trillion. That projection and the big stock market rally factoring the expectation into stock prices, has lifted not only the stock market, but investor sentiment, which is now at an extreme of optimism and complacency often associated with market tops.

So, the market has to worry that these economic reports that are good for the economy may not be so good for the stock market, if it results in the Fed disappointing next week by initiating only a token amount of quantitative easing to keep its promise on easing, and the stock market has to factor out the shock and awe easing it spent two months factoring in.

Looking out further however, the third year of the four-year presidential cycle, historically the most positive of the four years, is now but a couple of months away.

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Bernanke had perhaps about it, it is Doin'

Perhaps this was not a good idea to boast about QE2

Overdue on economic growth in the third quarter report was published on Friday morning and was somewhat pleasant surprise.Après decline of 5.0% in the fourth quarter of last year annualized growth rate, GDP growth declined 3.7% in the first quarter of this year and only 1.7 per cent in the second quarter.

He had many economists concerned by a double dip recession, especially after economic reports for July and August, the first two months of the third quarter showed sharp drop in sale auto sales house and confidence of consumers and businesses. Some economists have been projecting third quarter growth could be as low as 0.6% and a negative growth (recession), although the consensus forecasting that GDP was 2.1% in the third quarter.

Thus, it is good news for the economy than the consensus it got right, with the report showing the third quarter GDP growth of 2.0% improved.It also good news in the report was that the growth was driven by an increase of 2.6% of consumption, since accounts consumption for 70% of the Federal Government américaine.Dépenses economy is also added to GDP increased by 8.8% to an increase of 9.1% in the second quarter.

In another sense, the u.s. trade deficit continued to weigh on growth as the imports increased from 17.4% while exports grew by 5.0%.And company pessimism weighed on business expenditure.

Although still anemic and too slow to improve the image of the job to some degree, the new economy is some in the third quarter was good news for street Main.Toutefois news perhaps not the only good on Wall Street.

As I mentioned in my column last weekend, the Fed seems to panic after the stock market plunged in the month of August in its worst August in years, as the economic reports continued to worsen .the Fed appeared to abandon its forecast of only a temporary slowdown in growth during the months of summer, but not in recession, and then a return to growth in the second half and by next year.

At the beginning of September he was suddenly referring and then practically promising, an extensive series of quantitative easing further to save the economy.

As stock markets around the world began mobilizing off the coast of their lower-end of August and produces the rarity of a major rally in September and October, historically the worst two months of the year.

However, now we have the report growth of GDP decreased further in the third quarter, but improved, while the recent economic indicators showed retail sale house sales, manufacturing and consumer confidence are all checked, while unemployment benefits fell for three straight weeks.

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As I suggested in my column last weekend, the Fed can now be wishing that he had never mentioned quantitative easing or virtually guaranteed markets an extensive program of relaxation, that the extent of which he will announce after the meeting took place next Wednesday.

Global markets have taken into account in considerable relaxation program that appeared to be promised, with projections that might constitute a "shock and awe" approach as of 1.5 trillion dollars.Cette projection and the large stock market rally factoring waiting in the price of the shares lifted not only the stock market, but feeling of the investor, who is now at an extreme optimism and convenience often associated to top of the market.

Thus, the market was worry that these economic reports are good for the economy is perhaps not very good for the stock market, if it causes the disappointing Fed next week by launching only a symbolic facilitate amount quantitative to keep his promise relaxation and the stock market has factor of shock and awe relaxation he spent two months factoring.

The third year of the four year cycle presidential, historically the most positive for four years, looking again however, is now but a few months later.

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Who is selling bonds if Bernanke buying as a madman?

Bond purchases of Ben, but someone selling

QE2 comes, and it is not Fed purchases in large quantities with its easing quantitative of stocks.Elle purchases of government bonds, in order to drive long term interest rates must drive the price of bonds until.

But the bond market has not been as excited QE2 idea everything that promised to purchase as market fact boursier.En, just the opposite. The obligations of the Board were tumbling since late August.

For example, 30-year bonds have lost about 3.4% of their value in less than two months.This is a notable success for an income asset that gives approximately 3.9% per year.

The popular iShares 20 - year will Bond ETF (TLT) has fared worse, plunging 7.2% in less than two months.

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Investors continued to supply obligations and binding to an unusual, rate funds as was the situation throughout the year.Strategic Outlook reports that money flowing into the bond fund is on pace exceeds $ 300 billion this year, exceeded only by record 350 billion dollars flowed in the last year.

U.s. Federal Reserve continues to reinvest billion in bonds of the Board, each month, to the interest is winning on the amount of the obligations that it bought last year his first tour of the quantitative easing.

It raises the question, what makes any sale that is driving down, providing that these are feeding the bond market one Awards overwhelming the purchase of nearly - an exuberant record for investors and the purchase continues the Federal Reserve?

It is central, as in China and the Japan, holders of such a large percentage of bonds United States banks? analysts are requested for a long time how these nations would never able to downsize or diversify their holdings to link U.S. without devastating on markets possibly selling the resistance being created by the unusual purchase of investors and the Federal Reserve us?

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