"By tapering its QE
purchases, the Fed is reacting to a decline in the banking system's demand for
bank reserves, because the growth of savings deposits has been decelerating for
the past two years. In fact, in the past three months savings deposits at U.S.
banks have only grown at a mere 1.4% annualized pace, and they have not grown
at all since the Fed started tapering its QE purchases in early January. For
most of the past several years, the Fed's QE bond purchases served mainly to
accommodate the public's seemingly insatiable demand for safe, short-term
savings deposits. That's changed significantly in the past few months, however.
The private sector is no longer so risk-averse, and banks are apparently also
less risk-averse; that would explain why loan volume is expanding and savings
deposit inflows have come to a virtual halt. The slowdown in deposit growth and
the increase in bank lending are both signs of a return of confidence. The
return of confidence is the Fed's worst nightmare."
Pokazywanie postów oznaczonych etykietą tapering. Pokaż wszystkie posty
Pokazywanie postów oznaczonych etykietą tapering. Pokaż wszystkie posty
Everything You Need to Know About the Emerging-Market Currency Collapse
"First, money poured into emerging
markets when it looked like they offered juicy returns. Then it poured out
after they didn't. Currencies are collapsing. Stock markets are falling. And
central banks are sacrificing the real economy to save the exchange rate.
We've seen this movie before.
It was called the East Asian financial crisis, back in 1997. But, for once, the
sequel won't be worse than the original. Emerging markets don't have enough
foreign-money debt this time around to make their falling currencies much of a
concern. What is a concern is whether their central bankers realize this. They
might overreact—they might already be—and raise rates to prop up their
currencies, when they should be lowering them to prop up their economies.
Now, emerging market currencies have been in a
world of pain since last May. That's when Ben Bernanke first hinted that the
Fed would soon draw down—or "taper"—its bond purchases. If that meant
the Fed would start raising rates sooner too, as markets assumed it did, there
wouldn't be any need to park money overseas to get a decent return. You could
do that in the U.S. So investors pulled their money out just as quickly as they
had moved it in—and emerging market currencies fell."
Why the US is not at risk of a Japan-style deflation
"Concerns about the risk of
a "Japan-style deflation" in the U.S. are once again heating up, as
the Fed prepares to taper its bond purchases, something that's very likely to
happen either this month or next. The worry—echoed in a front-page article in
today's WSJ—is that tapering and eventually ending QE at a time when inflation
is unusually low runs the risk of producing even lower or negative inflation
(i.e., deflation), which in turn could doom the U.S. economy to very weak or
even negative growth for the foreseeable future, much like the problems that
have plagued the Japanese economy for many years. Without ongoing QE support,
the thinking goes, the U.S. economy could fall into a sort of deflationary
quicksand and/or lose all forward momentum. But is deflation really so
dangerous, and has growth really been so dependent on QE?"
Good economy, poor returns?
"Ever since the Federal Reserve started to talk of
tapering, the equity market had had a fairly cautious attitude towards economic
data. On some days, bad economic news has been good for the market on the
grounds that the Fed would be less likely to taper; good news has occasionally
provoked a sell-off. Overall, the trend has been upwards, as illustrated by the
Dow's ability to top 16,000. Indeed, we could almost say we are back in
Goldilocks territory, where the economy is not so strong (as to cause inflation
and monetary tightening) or so weak (as to cause recession and a collapse in
profits) but "just right".
It seems common-sensical to say that a strong
economy should be good news for equities, since profits are linked to GDP, and
a weak economy should be bad for the stockmarket (think of the 1930s). But
history suggests there is very little correlation between GDP growth and equity
returns over the long run (see this paper from Jay Ritter, for example). One reason is
that the stockmarket is not an exact representation of the domestic economy
(some sectors are in government, or family-run hands; the biggest companies are
multinational). And a second reason, oft forgotten, is that the key driver of
returns is the starting valuation."
The Fed's objective is to destroy the demand for cash
"Within the next several
months, the Fed is likely to announce the tapering of QE. That's not a big
surprise, but this time there is an interesting twist: in order to offset the
risk that tapering might cause interest rates to move higher—which could slow
the still-weak housing market and the still-weak economy—the Fed will also
announce a lowering of the unemployment rate threshold that would prompt them
to begin raising interest rates. By doing this the Fed would be removing some
of the unwinding risk that continued tapering creates, while at the same time
keeping bond yields from increasing, since a lower unemployment rate threshold
would significantly extend the period during which the Fed would keep
short-term interest at or near zero."
Wycofanie QE – czego nie dostrzegają panikujący inwestorzy
"Prawie cały świat jest przekonany, że wycofanie luzowania ilościowego
w USA może skutkować wyraźnym zacieśnieniem globalnych warunków monetarnych –
czyli wyższym oprocentowaniem szerokich klas aktywów. Ale może wcale tak nie
jest? Oto kilka argumentów wskazujących, że wycofanie QE nie musi odbywać się w
sposób trzęsący rynkami jak workiem kartofli."
Is a QE exit really scary?
"It's not scary at all if
you believe, like I do, that the primary goal of QE was not to "print
money" or stimulate the economy, but rather to satisfy the world's
apparently insatiable appetite for safe-haven, risk-free assets. It's not unreasonable
to think that now, after four years of recovery, with over 6 million jobs
created, with industrial production having staged an almost-complete recovery,
with housing starts and auto sales growing at double-digit rates, and with
global equity market capitalization only 8% shy of its 2007 all-time high, the
demand for risk-free assets is beginning to taper off. If the world is now
beginning to feel more comfortable with the fact that economic and financial
conditions have improved, and thus the risk of another collapse has receded,
then it would be entirely appropriate for the Fed to begin tapering its balance
sheet expansion, simply because there is no longer a need for it."
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