Submitted by Tyler Durden on 06/04/2012 - 21:45 Barclays Ben Bernanke Bond Federal Reserve None PIMCO
When it comes to the future, suddenly torn by economic uncertainty driven by a plunging stock market and a tanking economy, the talking heads and the sellside brigade have opined: more QE, preferably in the form of asset purchases. After all it was none other than Goldman earlier today who said that "our confidence that the FOMC will ease policy once more at the June 19-20 meeting has also grown... Our baseline remains that Fed officials will purchase a mixture of mortgages and long-term Treasuries, financed via balance sheet expansion... If they decide to extend their balance sheet, they could add excess bank reserves or “sterilize” the reserve impact via reverse repos and/or term deposits." In other words: not sterilized, or bye bye Chubby Checker (recall that even Goldman finally admitted two months ago that when it comes to Fed intervention, what matters is flow - as a result Twist has been largely ineffective in recreating the effect of QE1 and 2). To be sure even more respected investors like Pimco have bet the house that the NEW QE will constitute primarily of more MBS purchases. Yet the real question is what is the bond market telling us: after all when it comes to matters such as these, one should completely ignore stocks, and certainly the talking heads, and instead focus on what bonds are saying. And here is where the stock market may be headed for a great disappointment: because now that the bar has been set so far, anything less than full blown LSAP, or a merely extension of Twist, would likely send stocks plunging. Which, ironically, and completely in opposition to stocks, is what bonds are expecting...
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