QE4?

[NYEXPAT]

Several threads running on the current (almost correction) and it seems to be blamed on everything from Ebola to declining oil prices. I do not recall anybody mentioning the end of QE3 as the most logical explanation?

Under that scenario where do you think the FED will step in and announce QE4 or some other acronym :
S&P 1750,1650 or will they let it go to 1600 as they are usually behind the curve?

[samclem]

Quote:

Originally Posted by NYEXPAT Several threads running on the current (almost correction) and it seems to be blamed on everything from Ebola to declining oil prices. I do not recall anybody mentioning the end of QE3 as the most logical explanation? Under that scenario where do you think the FED will step in and announce QE4 or some other acronym : S&P 1750,1650 or will they let it go to 1600 as they are usually behind the curve?

The fundamentals of the economy look to be in "okay" shape overall, no worse than when the FED announced plans to increase interest rates. I don't think the Fed will jump in just to bump up (frothy) stock prices. I hope.
If we get dragged into a recession by Europe, then maybe we'll see a QE4.

[ziggy29]

This economy seems addicted to cheap credit at the expense of savers. No one wants the market or the economy to crash, but at some point we have to wean ourselves off of cheap money.

[Hamlet]

The thing is, you would expect long-term rates to increase with the end of QE3, not decrease like they have. I think people have vastly over-estimated QE's importance.

I don't think the FED is going to do any more QE unless job growth stalls out. I don't think the level of the stock market will factor into their decision much.

I do suspect that rates will stay low for longer than people are currently expecting. They aren't going to raise rates when deflation is a bigger concern than inflation.

Quote:

Originally Posted by NYEXPAT Several threads running on the current (almost correction) and it seems to be blamed on everything from Ebola to declining oil prices. I do not recall anybody mentioning the end of QE3 as the most logical explanation? Under that scenario where do you think the FED will step in and announce QE4 or some other acronym : S&P 1750,1650 or will they let it go to 1600 as they are usually behind the curve?

[brewer12345]

I think the drop in long term rates is just typical market behavior when equities drop: market plunge = buy treasuries. It does not have to make sense for everyone to do it. Longer term, I imagine that short term rates will not rise for quite a while, but longer term rates will start to do so. No way does the FOMC want to risk an inverted yield curve or deflation.

[gcgang]

Stocks were dropping as QE winds down, until St Louis Fed guy said they will come to the rescue. Stocks bounce.

Like a junkie who needs one more fix, we are dependent on Fed stimulus to keep going.




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[audreyh1]

Quote:

Originally Posted by NYEXPAT Several threads running on the current (almost correction) and it seems to be blamed on everything from Ebola to declining oil prices. I do not recall anybody mentioning the end of QE3 as the most logical explanation? Under that scenario where do you think the FED will step in and announce QE4 or some other acronym : S&P 1750,1650 or will they let it go to 1600 as they are usually behind the curve?

No, not a logical explanation as interest rates have continued to drop even in the face of diminishing QE3.

Don't expect the Fed to respond to market levels.

[audreyh1]

Quote:

Originally Posted by brewer12345 I think the drop in long term rates is just typical market behavior when equities drop: market plunge = buy treasuries. It does not have to make sense for everyone to do it. Longer term, I imagine that short term rates will not rise for quite a while, but longer term rates will start to do so. No way does the FOMC want to risk an inverted yield curve or deflation.

Interest rates were already dropping well ahead of the sell-offs.

The 10-year has been dropping since Dec 2013, and continued to drop even more after March 2014 while the market was putting on a good rally through Sept.

[Bdroc]

I don't think the sell off has much to do with Ebola. I think it's due to a weak economy in Europe and the Fed scaling back treasury purchases.


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[audreyh1]

It's due to a burst mini-bubble in oil prices, with a little Ebola panic thrown into the mix.

[Bdroc]

Lower oil prices hurt oil company profits but they help all other companies and individuals. I don't see why lower oil prices would cause a broad market correction.


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[audreyh1]

Quote:

Originally Posted by Bdroc Lower oil prices hurt oil company profits but they help all other companies and individuals. I don't see why lower oil prices would cause a broad market correction. Sent from my iPad using Early Retirement Forum

Simple - too many large oil speculators caught leaning the wrong way. Market disruptions occur as they unwind their positions. Longer term, sure, it will benefit the economy.

[brewer12345]

Quote:

Originally Posted by audreyh1 Interest rates were already dropping well ahead of the sell-offs. The 10-year has been dropping since Dec 2013, and continued to drop even more after March 2014 while the market was putting on a good rally through Sept.

I would be very surprised if supply and demand for Treasuries did not have something to do with the move in treasury rates. Megabanks have to hew to screwy new liquidity requirements that add significant incentive to buy treasuries and similar things (agencies, etc.) and not hold munis, corporates, etc. At the same time, new issuance has been down as the deficit is somewhat reduced.

[audreyh1]

Quote:

Originally Posted by brewer12345 I would be very surprised if supply and demand for Treasuries did not have something to do with the move in treasury rates. Megabanks have to hew to screwy new liquidity requirements that add significant incentive to buy treasuries and similar things (agencies, etc.) and not hold munis, corporates, etc. At the same time, new issuance has been down as the deficit is somewhat reduced.

There had been a lot of folks betting on interest rates rising with the unwinding of QE3, and when they didn't, kept having to cover. I think this also contributed.