Quantitative Easing

What Is The Proper Level For Rates?

  Regarding the concern that interest rates will rise to dangerously high levels, I doubt this will occur. The fear that Quantitative Tightening, where the Fed sells its holdings of bonds to undo QE, will make rates go up a lot is incorrect. When QE was implemented from 2009-2014 it didn’t create inflation and probably only lowered interest rates by 0.5%. The reason yields went down was because of global fears of falling into a debt/deflation trap and because other Developed countries (the EU, Japan, Scandinavia, Switzerland) had negative rates. I don’t see things getting better in Europe; probably the economic problems have not been truly solved in Japan. Thus since the fundamental reason for low yields in the U.S.

2018-11-05T17:54:35+00:00November 5th, 2018|mayflowercapital blog|0 Comments

Will Unwinding QE Blow Up The Bond Market?

    The Fed has scheduled gradual, measured sales of its inventory of bonds so as to unwind the Quantitative Easing (QE) programs of 2008-2014. This could increase the supply of bonds in the market 20% which would act to raise interest rates. The controlling factor in this will be the level of interest rates; if they rise too quickly the Fed will have absolutely no choice but to slow down their scheduled sale of bonds. There is no need for the Fed to sell their bonds and plenty of need to avoid harming the economy with sudden rate increases. Many of the Fed’s holdings will have a natural “runoff”, if the bonds are not sold, of roughly 12 years, assuming

2018-01-17T13:04:11+00:00January 17th, 2018|mayflowercapital blog|Comments Off on Will Unwinding QE Blow Up The Bond Market?

Central Banks Ending QE: Will Rates Go Up?

               Global central banks are retreating from Quantitative Easing, creating a fear of rising rates. During the QE programs in the U.S. the extra money went into stocks but didn’t go into bonds so bond prices went down moderately, making yields go up 0.63% during the average of each of the QE’s. Then when QE’s ended stock gains slowed and the yield on the 10 year Treasury dropped 0.83% on average. Investors became afraid that a recession would occur if QE ended so that made interest rates go down when QE ended, just the opposite of what the Fed intended. Thus, the effect of a cycle of starting and then stopping QE was a net drop in yields of 0.20%

2017-07-06T13:53:38+00:00July 6th, 2017|mayflowercapital blog|Comments Off on Central Banks Ending QE: Will Rates Go Up?

Will Central Banks Bailout Stocks During The Next Big Crash?

   Some people are saying that because the ECB and Japan’s central bank have bought so many local bonds that they will eventually have bought all of their countries’ bonds and will be forced to buy global stocks in an attempt to flood the world with Quantitative Easing (QE) stimulus. Does this mean that stocks will be purchased by central banks, leading to an even greater deviation (a bubble) from traditional fundamental analysis? The answer is that it depends on central banks’ desire to indefinitely pursue QE. I believe the U.S. Federal Reserve has already decided to repudiate QE and Zero Rate Policies (ZIRP) and back away from them very slowly so that no one realizes what is happening. Eventually

2017-05-24T13:56:08+00:00May 24th, 2017|mayflowercapital blog|Comments Off on Will Central Banks Bailout Stocks During The Next Big Crash?

Failed Central Bank Policy Will Lead To Bear Market

Keynesian deficit based fiscal stimulus and extreme monetary policy such as Quantitative Easing and ZIRP are based on the assumption that wealthy people mistakenly hoard cash instead of spending and investing and if they can be tricked into spending then the economy will get out of stagnation or depression. The problem is that the object of the manipulation doesn’t want to be manipulated and is searching for evidence that such a policy might make him or her worse off. Thus these policies are less likely to work the more aggressive they become. During a time of runaway inflation accompanied by price controls consumers and merchants know they mast plan ahead for that. Merchants react during inflation by withholding artificially low

2016-05-11T14:31:56+00:00May 11th, 2016|mayflowercapital blog|Comments Off on Failed Central Bank Policy Will Lead To Bear Market

QE and ZIRP Don’t Create a Wealth Effect

Central bank Quantitative Easing bubble making doesn’t really promote a wealth effect that stimulates consumption because the beneficiaries doubt the soundness of the stock rally caused by QE and thus refuse to spend their newly acquired wealth. Investors seem to be more alert to the possibility that stock market values are unreliable and thus they won’t allow rising stock prices to encourage excessive consumption. Stocks, except for the nine FANGS stocks, have been flat and in the case of the NY Composite stocks topped out on July 3, 2014 (on an inflation-adjusted basis) and are now down 5%. A consumer / investor who “benefits” from a rising stock market would say if he lost 5% over two years, excluding dividends,

2017-01-10T23:33:01+00:00April 26th, 2016|mayflowercapital blog|Comments Off on QE and ZIRP Don’t Create a Wealth Effect

Will The Fed Start QE4 To Stop The Stock Market Crash?

Investors who distrusted Quantitative Easing (QE) would complain that Fed would constantly start a new program that would make the bubble even bigger. Thus one may ask is it too risky to become bearish because the Fed could start a new bubble? The answer is that for the Fed to truly ramp up a new QE4 program things would have to get much worse first. There are plenty of inflation hawks at the Fed who feel the hidden unemployed are not really in the labor market (sort of like Marie Antoinette telling the poor to eat cake). These hawks will dig in their heels and refuse to do any more stimulation since they have won a hard fought battle to

2016-01-15T15:46:53+00:00January 15th, 2016|mayflowercapital blog|Comments Off on Will The Fed Start QE4 To Stop The Stock Market Crash?

Rapid Money Growth IsA Misleading Symptom That Won’t Help The Economy

   In The Telegraph newspaper, Ambrose Evans-Pritchard wrote that global M3 money supply is growing at fastest rate in 25 years (except for a brief moment in 2008) and that it is a sign of economic expansion. I disagree. The money supply can grow because of Quantitative Easing and the proceeds of QE may simply be parked in a vault and not used so this statistic is misleading. If the only way that money supply could grow is through a new commercial bank loan issued by a bank that uses traditional underwriting then that would correlate with growth because in order to get the loan the borrower has to have a credible, documented plan to expand their company.    However,

2015-11-05T09:12:00+00:00November 5th, 2015|mayflowercapital blog|Comments Off on Rapid Money Growth IsA Misleading Symptom That Won’t Help The Economy

Does Behavioral Economics Justify the Fed’s QE program?

   The Fed’s lowering of rates assumes people either will be fooled in a non-emotional way or they will get emotional and make a leap of faith and over-consume because of the perceived value of low rates.  In economics and investing there is growing acceptance that emotions influence investors and consumers to act irrationally. However the degree to which emotions influence decision makers depends on the gravity of the situation. If the decision maker is trying to make a corporate growth decision like build a factory then most of the decision will be based on logic. If the decision maker is a retail investor with a busy career in a different field who spends an hour a day reading a

2015-10-23T16:49:00+00:00October 23rd, 2015|mayflowercapital blog|Comments Off on Does Behavioral Economics Justify the Fed’s QE program?

QE Can’t Lower Rates Enough To Stimulate the Economy

Quantitative Easing (QE) allegedly acts to lower interest rates. It does this in a rather indirect way by depriving bond investors and savers of yield so they may seek to invest in yield bearing high risk things like junk bonds possibly blending them with low yield investment grade bonds. The big misunderstanding about how QE lowers rates is that it doesn’t lower rates for investment grade borrowers or at least not enough to induce them to engage in demand creating massive purchase of plant, equipment and the hiring of employees. Instead these investment grade borrowers retrench and refuse to use low rates to expand because they know that the risk of not being able to repay principal is more important

2015-10-22T13:40:00+00:00October 22nd, 2015|mayflowercapital blog|Comments Off on QE Can’t Lower Rates Enough To Stimulate the Economy