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    Hedgfx 19-06-2012

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    The document discusses expectations around whether the US Federal Reserve will enact another round of quantitative easing (QE3). It argues that expectations of QE3 are misplaced given current economic conditions in the US and issues in Europe. While growth is slowing, US stock markets are doing well and the problems are largely in Europe, so there is no need for more stimulus from the Fed. The author believes the Fed will focus on keeping interest rates low rather than attempting another QE program to address structural issues in Europe. Any announcement of QE3 may lead to a "sell the news" reaction given that expectations are already priced into markets.

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    Hedgfx 19-06-2012

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    The document discusses expectations around whether the US Federal Reserve will enact another round of quantitative easing (QE3). It argues that expectations of QE3 are misplaced given current economic conditions in the US and issues in Europe. While growth is slowing, US stock markets are doing well and the problems are largely in Europe, so there is no need for more stimulus from the Fed. The author believes the Fed will focus on keeping interest rates low rather than attempting another QE program to address structural issues in Europe. Any announcement of QE3 may lead to a "sell the news" reaction given that expectations are already priced into markets.

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    HEDGFX 19-06-2012

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    The document discusses expectations around whether the US Federal Reserve will enact another round of quantitative easing (QE3). It argues that expectations of QE3 are misplaced given current economic conditions in the US and issues in Europe. While growth is slowing, US stock markets are doing well and the problems are largely in Europe, so there is no need for more stimulus from the Fed. The author believes the Fed will focus on keeping interest rates low rather than attempting another QE program to address structural issues in Europe. Any announcement of QE3 may lead to a "sell the news" reaction given that expectations are already priced into markets.

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    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    67 views4 pages

    Hedgfx 19-06-2012

    Uploaded by

    Hedgfx
    The document discusses expectations around whether the US Federal Reserve will enact another round of quantitative easing (QE3). It argues that expectations of QE3 are misplaced given current economic conditions in the US and issues in Europe. While growth is slowing, US stock markets are doing well and the problems are largely in Europe, so there is no need for more stimulus from the Fed. The author believes the Fed will focus on keeping interest rates low rather than attempting another QE program to address structural issues in Europe. Any announcement of QE3 may lead to a "sell the news" reaction given that expectations are already priced into markets.

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    FxCurve

    19/06/12
    the back of the increased QE expectations.

    HEDGFX
    For Private Circulation Only

    The world markets are up mind bogglingly, if I may say, given the underlying news flows all on

    While world and countries urgently needs growth expecting FED to do a QE in this economic environment is a foolhardy thought. We stick to the stand that we took in our June 9th newsletter that QE3 will not happen. Only thing that has changed to force a re-look has been drastic deceleration in PMIs and Business/ Consumer Confidences. The general idea on the street is that it may force FED's hand to 'go for growth.' We find this interpretation of markets rather wrong. This is a classic case of expectations running the price than the facts. Note: Its hard to understand why FED would do a QE if stock markets are doing so well! Its hard to understand why FED would do a QE when the major problem is NOT in US but in Europe QEs have been diminishing in effect. Its hard to understand why FED would do a QE (and risk bloating its balance sheet) to bail Europe's growth!

    QE has proven to be an unreliable solution, reliable only for short term. Given the headwinds we are headed into, we think FED will need much more (a lot more) ammunition when going becomes really bad. Imagine, a Greece's exit for instance, what do you do? A much diminished QE5? The best case to look at why countries are unlikely to do QEs in a hurry is China. China despite its sagging growth and near bust credit-bubble has refrained from QE because this current downturn is a structural / political crisis and not liquidity or interest rate induced slowdown1. For instance, Japan announced a major easing early in the year to undervalue its currency; however the currency is back to where it was pre-easing. Entire easing was a failure and just like several of its easing interventions. Now Japanese threat of quantitative easing has become a joke2.

    The most important criteria for FED currently is: a) to keep the credit/ lending flowing freely to business and at low rates

    hedgefx@gmail.com

    FXCURVE
    low enough to keep new mortgage / building permits growing)

    HEDGFX

    b) to ensure that housing slump reduces over a period of time (i..e interest rates are sufficiently

    c) Increase employment (FED cannot affect this except by encouraging above (a) factor)

    All the above entirely depends on having low interest rates. We think FED would continue and extend Operation Twist for a year more. FED would rightly concentrate on solving its solutions by having low interest rates than fire-fight someone else's structural political problem.

    Even if we are wrong on the QE call, this will be a classic case of "Sell on news." All the price moves are "factored" in already. [If not why are the equity markets up 5-8% worldwide on such pathetic growth numbers?]If there is a pop upside, this would be a good fade.

    Notes:
    1. 2. Aftermath of Lehman Brothers and Credit crunch need a huge infusion of liquidity to overcome this Highlights the diminishing nature to the QEs returns.

    Below is the note reproduced from June 9th Hedgfx newsletter.

    QE3 not just yet


    Its a global poker game out there. Nobody wants to play their best hand just yet. US badly needs a QE, and on a much larger scale than QE2 which didnt do much for growth. US badly needs growth. Obama badly needs to show something just to have some hope of winning. Bad news for QE proponents is, doing a QE right in midst of Eurozones existential crisis, is like lighting a match in hurricane. Any benefits that QE can provide may be swept away by any falter in Eurozone. Undervaluing dollar against Euro is the last thing FED will want at this stage. FED will need maximum dry powder to restart the US economy, in case any disaster strike Eurozone and global growth. Our guess, is QE (with all its diminishing benefits) is unlikely to come unless Eurozone crisis is effectively resolved or at least on clear path of resolution.

    hedgefx@gmail.com

    FXCURVE

    HEDGFX

    The good news (for QE proponents) however is with the escalating tensions in Eurozone, the yields are at record lows. Dollar is the most sought after commodity in the world. What more can the QE achieve? The uncertainly or tragic prognosis of Euro is in itself a synthetic QE for US. This synthetic QE is probably worth several hundreds more billions than proponents would wish for. This perhaps explains the resilience of US economy. If US could add new jobs are good rate, US will become an oasis of global growth. To sum up, we dont think QE is coming anytime soon, not even if Obama is desperate for reelection. QE at this stage is just bad maths, that card will be in reserve as long as it needs to be.

    hedgefx@gmail.com

    FXCURVE

    HEDGFX

    HEDGFX Forex Concepts


    A unit of Agastheeshwaran Securities and Trading Pvt Ltd
    No 212, Palace Orchard, Bellary Road, Sadashivnagar, Bangalore, India. Mail: Hedgfx@gmail.com Phone: +91 87490 94542

    Disclaimer
    Trading and Transactions in Financial markets - equities, forex , commodities and other markets are risky, and has potential for substantial losses. All the suggestions and information shared by HedgeFx and or Agastheeshwaran Securities and Trading Pvt Ltd (ASTRA) through its reports, websites, orally or through any other communications, are shared in good faith and to best of our knowledge and expertise. HEDGFX, ASTRA or any of its officials are not responsible and cannot be held responsible for any losses or risks arising from following these suggestions and reports. Under all and every circumstances, the maximum liability of HEDGFX is absolutely limited to the subscription or service fees paid by the customer. Users and Customers by using these reports, information and other communications agree and accept this disclaimer.

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