Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

SELLING OUT OF PRECIOUS METALS AND BUYING BITCOIN…. Very Bad Idea
By: Steve St. Angelo

The Bitcoin Bubble Explained in 4 Charts
By: Jake Weber

VXX Sends an Awesome Message from Another Galaxy
By: Rick Ackerman

Asian Metals Market Update: November-22-2017
By: Chintan Karnani, Insignia Consultants

Gold Seeker Closing Report: Gold and Silver Gain With Stocks
By: Chris Mullen, Gold Seeker Report

Ira Epstein's Metals Video 11 21 2017
By: Ira Epstein

Bitcoin, Bail Ins And Bullion
By: Mike Maloney

Tactics For The Gold Bull Era
By: Stewart Thomson

Dow Peaking? The Quick Guide to Diversifying Your Stock Profits
By: Jeff Clark

What History Says for Gold Stocks in 2018-2019
By: Jordan Roy-Byrne CMT, MFTA

 
Search

GoldSeek Web

 
QE Could Be Coming to an End – So What?


 -- Published: Friday, 8 August 2014 | Print  | Disqus 

It is important to review the minutes released recently by the Fed, since they may well signal a turning point in monetary policy. The programs of active purchasing of government debt and commercial assets may be curtailed. Yet, as we have often discussed at length, it is not the most important element. There are other factors of monetary policy to be considered: interest rates for one, and the Federal Open Market Committee suggested they may start to discuss interest rate hikes. The so called taperie (small version of tapering) process discussed earlier in the Market Overview appears to be slowly finalizing:

 

Members judged that the economy had sufficient underlying strength to support ongoing improvement in labor market conditions and a return of inflation toward the Committee's longer-run 2 percent objective, and thus agreed that a further measured reduction in the pace of the Committee's asset purchases was appropriate at this meeting. Accordingly, the Committee agreed that beginning in July, it would add to its holdings of agency MBS at a pace of $15 billion per month rather than $20 billion per month, and it would add to its holdings of Treasury securities at a pace of $20 billion per month rather than $25 billion per month.

 

The famous (and infamous) program of asset purchases finally seems set to fade away. Each month the Fed plans to buy fewer and fewer securities. 15 billion dollars per month will be turned down in October probably at once. Another option is to decrease the buying program to 5 billion dollars, and then terminate it the next month. But it seems a minor technical issue, and most of the members agreed to turn off the program at once. There are no possible huge macroeconomic consequences of this slight difference, hence there is no reason to linger on with these 5 billion for another month to come. In case that happens, it will still have a negligible effect.

 

 

As we emphasized many times those asset purchasing programs were highly overrated by the public. This was mainly because the most active side of monetary policy performed by the Fed involved low interest rates and the great expansion of Fed’s balance sheet through various operations (not only the ones associated with the asset purchase program). The absurdly low interest rates added to existing problems and supported the weaknesses of the current system. Boosted balance sheets on the other hand, combined with the lowered interest rate, were strategies that had been the major program for stimulation. It had started way before we heard about Ben Bernanke’s special programs to invest in securities. After the Lehman collapse the Fed had already started it combined with interventions having differing recipes on how to boost the falling market. It all resulted in colorful expansions of balance sheets. The asset purchase program had impressive press and publicity but depicted only part of what has been going on. Quantitative Easing was actually way larger than what had been described. It went well beyond what is being said.

 

We can put aside, then, monthly purchases of securities. Now the big questions to be faced by the Fed are the questions of “monetary policy normalization”. That is – how do we get out of the current boosted balance sheet and absurdly low interest rates without panicking the market, which has flirted with over-indebtedness for a long time? What do we have to hear about that?

 

Participants also discussed the appropriate time for making a change to the Committee's policy of rolling over maturing Treasury securities at auction and reinvesting principal payments (…)

 

Regardless of whether they preferred to introduce a change to the Committee's reinvestment policy before or after the initial tightening in short-term interest rates, a number of participants thought that it might be best to follow a graduated approach with respect to winding down reinvestments or to manage reinvestments in a manner that would smooth the decline in the balance sheet.

 

Here is where it gets interesting. The Fed is emitting two signals with these minutes. First of all, it reminds us that there is such a thing as non-zero interest rates (positive), which can be set by the central bank. Second of all, it reminds us that the central bank does not have to be a pawnshop of last resort, which increased its balance sheet to dangerous levels. Two adjustments need to be made for the market economy to function as regular and the Fed is aware of that. The interest rates have to go back to positive levels, and the balance sheet of the Federal Reserve has to be significantly decreased. Things are not normal yet, and there is a long, bumpy road ahead.

 

What are the conclusions to be drawn from minutes for the gold market? This time the Fed appears to sincerely believe that better times are back on the horizon. Naturally the Fed constantly tries to assure us that good times will soon be back, but for the last couple of years one could see them as a sort of masquerade in order to boost optimism in the markets. Right now the statements appear as more honest; the members apparently believe in the recovery more. The big question is: do the good times herald bad times for gold? Not necessarily so. At lot of speculation about gold as an absolute substitute for paper dollar assets has burst with the last gold meltdown from the previous year. Just as gold, during the Greenspan bubble, was a good asset, similarly gold does not have to be unwanted during the slight recovery we may experience. And let us add: a recovery about which we remain suspicious.

 

Thank you.

 

Matt Machaj, PhD

Sunshine Profits‘ Market Overview Editor

Gold Market Overview at SunshineProfits.com

 

* * * * *

 

Disclaimer

All essays, research and information found above represent analyses and opinions of Matt Machaj, PhD and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matt Machaj, PhD and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Matt Machaj, PhD is not a Registered Securities Advisor. By reading Matt Machaj’s, PhD reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Matt Machaj, PhD, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


| Digg This Article
 -- Published: Friday, 8 August 2014 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.