How will Quantitative Easing end?

[bacpacker]

I'm not sure. But this sure sounds like a reasonable assumption to me. What do you all think?

http://www.thestreet.com/story/11861248/1/gundlach-on-why-quantitative-easing-will-end-badly.html

Gundlach on Why Quantitative Easing Will End Badly

By Chris Ciaccia 03/06/13 - 09:43 AM EST
Stock quotes in this article: GLD, SLV, CPB, KFT, DBLTX
inShare

NEW YORK (TheStreet) -- Jeff Gundlach, CEO and chief investment officer of Doubleline Capital, spoke about quantitative easing and said he doesn't know when it will end. But when it does, he said, it won't be pretty.

Gundlach, who manages DoubleLine Total Return Bond (DBLTX_), said the four major central banks around the world -- the Bank of Japan, Federal Reserve, Bank of England and the European Central Bank -- are all firmly in easing mode, expanding their balance sheets at an average rate of 3.5% per year. Many have talked about when the central banks, particularly the Fed, will end quantitative easing, or QE. But this is the wrong question. The Fed will continue to expand its balance sheet not for months, but for years.

"It's not slowing down anytime soon," Gundlach said during a presentation.

Gold has historically done well in times of balance sheet expansion and easing, but not in the past year or so and it's now at the lower end of its range. Gundlach suggested that now would be a "reasonably good entry point for gold." Doubleline actually owns silver, because it has a higher beta than gold, and QE does help commodity prices. SPDR Gold Trust (GLD_) and iShares Silver Trust (SLV_) are the two biggest gold and silver ETFs, respectively.

The Fed will continue to do QE until negatives reveal themselves, and both Fed Chairman Ben Bernanke and Vice Chairman Janet Yellen, who Gundlach believes will be the next chairman, have noted in the past that the benefits still outweigh the negatives. Bernanke has repeatedly said inflation is not high in the U.S. if you look at the Consumer Price Index (CPI). But that's debatable, especially when looking at things like medical care, and the cost of college tuition, which are up 597% and 1,115% respectively, in the time frame Jan. 1, 1978, to Sept. 30, 2012. Conversely, the cost of a new car, food and energy during that time frame are up 95%, 243% and 366%, respectively.

In addition to mentioning gold in order to take advantage of QE, Gundlach mentioned that buying real estate would make sense, especially as the supply of homes on the market continues to be low because so many people are still underwater on their mortgages. The housing market has improved with certain geographies doing well, such as Phoenix, Miami, and even Detroit. Housing is likely to go higher, with limited supply in strong markets, and the housing rally will continue for some time.

[Jimmy24]

Of course any thing that has Fed on it says bad to me. The inflation comment is about as stupid as they come. Guess because real estate is still down and cars are selling at extremely reduced margins, that makes it all good. Have they bought a loaf of bread lately? Gasoline? Milk? Meat?

I think QE3 was about keeping the bankers fat and happy, course that's JMHO.

I don't see it ending anytime soon, as the banking industry has not tightened it's belt enough yet. And I guess why should it when it's on the Fed tit???

I better shut up now.

Jimmy

[bacpacker]

The inflation numbers will never be a true account, as long as Energy and Food are excluded from the calculations. Those are the 2 largest factors in most every families budget.

[Jimmy24]

The inflation numbers will never be a true account, as long as Energy and Food are excluded from the calculations. Those are the 2 largest factors in most every families budget.

Exactly.

Jimmy

[White Tiger]

It only works so long as the rest of the world is FORCED to use the US dollar to buy everything they need on the global market (and s long as those US dollars can only be printed in the good 'ol USA).

The minute they decide not to play the game OUR way anymore (and the So called "non-aligned" countries already have begun: Brazil, Russia, India, China, and Venezuela - by the way, did anyone ever ask WHO the "non-aligned" countries were NOT aligning with? Short answer: all Counties who agreed to usmthemUS dollar!) - is about the time you will see what they have been dealing with - the (minimum) 30% price increase on everything YOU need to live.

When we print dollars to buy our own debt - we reduce the buying power of those who must use the dollar to trade for what they need.

It comes back to bite us when we import things we need/want from other counties...but it comes back in the form of the costs of goods, investments in US real estate by foreign corporations (can you say R-E-N-T?), and it takes a few months to a year before we even see it...by then the majority of our low-information populace doesn't realize we're paying the cost for those "freshly printed/digitized" dollars. We just see the rent go up, boxes of food getting smaller/lighter, while costs keep going up each week at our local grocery stores.

Eventually, the dollar will be worthless and unsalvageable, and we will need a new currency to use...

Why else do you think QE was dreamt-up/ramped-up? The world central banks are not saving anything - they're trying to kill something. In the meantime, they're crushing economies and people so that everyone, regardless of nationality, will happily accept whatever "remedy" they roll out...and surrender whatever right is needed to secu a bit more security...

The ONLY thing it is doing for y that's positive - it delays the inevitable.

Buy what you can now - it WON'T be getting cheaper.

Move along, nothing to see here...

[White Tiger]

What's more, each time some item becomes "price volatile" (as opposed to "price stable"), it is removed from the tracking matrix of the consumer price index (CPI).

Good luck digging this information out - it only took me a few weeks to dig it out - even economists will immediately dismiss you for even asking what comprises the CPI. When challenge the idea that they are leaving out the information in an effort to hide real inflation...they dismiss you as a tinfoil hat conspiracy. These are well meaning people who REALLYREALLYREALLY believe what they've been taught - and really don't want you plebeians asking about this stuff (...and I kind of think part of the reasoning is because they like changing it without justifying the change).

It's the same as the economic data being changed to hide reality...most Americans do not know that the the total "unemployed, yet no longer looking for work" category has been removed from the unemployment data...

...which of course skews the totals so badly just to allow them to interpret the current data as "moderately" above 8%...

If they calculated unemployment numbers today, the way they did in the 30's, the real number is above 20%.

[Gunfixr]

I read somewhere not too long ago that the Yuan is being prepared to be the next global trade currency.
If that is so, and it happens, dollars will be dumped en-masse everywhere.
I suppose QE would take a hit then.

[Jimmy24]

I read somewhere not too long ago that the Yuan is being prepared to be the next global trade currency.
If that is so, and it happens, dollars will be dumped en-masse everywhere.
I suppose QE would take a hit then.

Kinda what I've read too. I understand that Germany, Russia and China are big buddies in the currency market and that they may be at the core of pushing the Yuan....

Jimmy

[White Tiger]

Whatever currency is invented, it will not be the primary currency of China, or Russia, or even Germany. It is currently a basket of currencies - which are backed by things with a real value - including gold, specific commodities (coal, natural gas & oil).

It's being promoted by countries thar did not sign on to Bretton Woods II (the agreement by the 7 democracies fighting the USSR to buy everything they buy globally using US dollars) they are known as the non-aligned or "BRIC" countries (Brazil, Russia, India, and China)...Venezuela under Chavez was being courted before his death.

The idea is being floated to leverage the countries still playing by the rules - but tired of being forced to eat the inflation of the US dollar (inflation has become our number one export) - away from the increasingly worthless dollar and to a global currency.

One ring to rule them all...and in the darkness bind them...

[Foulball]

Gotta see the whole picture here not just from the US economy point of view. This is a battle between old money vs. new money. With each QE, the dollar is more easily driven into emerging economies, which is something the BRICS do not want because it takes away from their influence in those markets and the resources they hold. We want influence (nationally) so that the rest of the world doesn't get the resources instead.

Which currency do people trust? The Yuan? No way, China has purposefully devalued their currency for years and everyone in the world knows it. This causes imports into China to have a heavy tariff while their own exports are cheaper than dirt. The Russians? Ha. No one trusts the Bear. Not even China. Brazil & India? Not a long enough or strong enough economic history.
Plus Brazil and China are major competitors in the mining trades and are in a de-facto trade war with respect to mining right now. So what if they want to get together and create a new currency, no one is going to trust it.

This is not to say I believe QE is a good thing, but there's a much bigger game going on here. Also, don't forget how much debt China is in because of buying US Treasuries. They screwed the pooch with that, haha.

As to the quote in the OP about buying housing now because there is a shortage..... the reporter has obviously left out the huge amount of foreclosures. Buying when supply is low does not necessarily mean there isn't a hidden supply being held onto by the banks (thereby keeping prices artificially high).

my .02c

[White Tiger]

Anyone that believes QE is a good thing...well, to be polite...deserves to have their payroll accounts, retirements accounts, and pensions, confiscated.

That's how this ends. That's why this government is choosing to print dollars and dump them into the stock market...so rubes who think its a good thing that the Wall Street says the market is over 14,000...will invest all their savings, just in time for the next crash. All ur dollars are belong to us.

There is absolutely NOTHING good about printing worthless dollars and dumping half of them into the stock market to gin up a false sense of security.

Unemployment is at a 60 year high, new investment in brick & mortar is at an all time low, millions of homes sit empty yet companies keep building new homes...you're being set up for something - again.

The only thing this bubble is buying you is time, time to prepare, and that is wasted if you aren't redeeming that time by preparing for the inevitable crash.

See, it must be crashed so that you accept the solution they have afterwards...and if they make you feel it - really feel it - for a little while, well you will take whatever the solution is if it means you get to save SOME of your own money.

But look, even if the crash isn't imminent -the doubling of the money supply has cut in half the amount you've been saving. EVERY raw material for ALL the products you buy is almost double what it was 5 years ago...oil, metals (precious, semi-precious, non-precious metals), food packaging is smaller, while food pricing is higher...

What part of this do you NOT think is due to QE?

Iceland was at this point before anyone, they de-linked from the Euro and took it on the chin, refused the Euro-bail out...and their economy is growing. Why doesn't anyone know that? Why is that we all have to take the Greek bailout model...it has NEVER worked, and it never will fix the economy.

[White Tiger]

Have 30 days of cash on hand, buy things you use everyday - food, water, a means of preserving and/or filtering each of those (respectively). Have some access to electricity (generator), and some means of protecting what you have. Encourage your neighbors (not just those you live by, but any you go to church with, volunteer with, etc,) and reestablish family ties.

Know why these things are important, know what you believe, and why.

Something big is coming.