QE3: The Question Is Not If, But When

The issue is not if/whether the Fed will go for QE3 but only when. Most likely the first step will be on Sept 21st at the next FOMC meeting.

Related: iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM), SPDR S&P 500 ETF (NYSE:SPY), ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT), iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT), PowerShares QQQ Trust, Series 1 (ETF) (+NASDAQ:QQQ)

When Stocks & Bonds Differ, Who Is Correct?

When stocks & bonds differ, who is correct on economy? Look at Japan says Legland of SocGen. & the answer is: the bond market has it right.

Related: SPDR S&P 500 Index ETF (SPY), iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT)

Friday`s Employment Report: Non-Farm Payrolls May Be Close To Zero Or Even Negative

Based on the latest macro data ISM may have a below 50 print (manufacturing contraction) while Non-Farm Payrolls may be close to zero or even negative. - in Roubini`s Official Twitter

Related: ProShares UltraShort S&P500 (ETF) (NYSE:SDS), SPDR S&P 500 ETF (NYSE:SPY)

US Treasuries: Very Low Growth & Inflation For The Time Being

Bill Gross now bullish on US Treasuries as "new normal plus" implies very low growth and also low inflation for time being. - in NR`s Official Twitter

Related: ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT), iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT)

There Were Many Episodes Of High Inflation In Gold Regimes

"(There were) many episodes of high inflation in gold regimes through history due to debasement of gold coins and or shocks to gold supply via discoveries." - in Roubini`s Official Twitter

Related ETFs: SPDR Gold ETF (GLD)

Gold Is Not A Currency.

3 required roles of a currency:

1. Means of Payment
2. Unit of Account
3. Store of Value

Gold today is not a currency as it is NOT 1. & 2.

Related ETFs: SPDR Gold ETF (GLD)

BoJ Already In Quantitative Easing Mode

BoJ already in QE with 100bn fund for forex intervention to stop rise of Yen. More to come as economy slumps. - in Twitter

Related: iShares MSCI Japan Index (ETF) (NYSE:EWJ)

Draghi`s First Policy Action As New ECB President Will Be To Cut Rates

Pragmatic Draghi's first policy action, as new ECB President, will be to cut - not raise - the policy rate and have easier monetary policy. - in Roubini`s Official Twitter

Expectations For Bernanke`s Speech

Fed to proceed with QE3 by year end at the latest, as the economy double dips. Menu of options previewed today without formal announcement. - in NR`s Official Twitter

Growth Forecasts Coming Down

Hatzius/Goldman Sachs, that predicted 4 percent growth for 2011 at year start, is now forecasting growth barely above 1.0 percent for the second half of 2011. - in NR`s Twitter

August Non Farm Payrolls Could Be Close To Zero Or Even Negative

Initial jobless claims up to 417k much more than expected decline. NFP print for August could be close to zero or even negative. - in NR`s Official Twitter

Related: Related: Related ETFs: SPDR S&P 500 Index ETF (SPY), ProShares UltraShort S&P500 (ETF) (NYSE:SDS)

Military Study: 75% of Young Americans Not Fit to Join Military

- 74 percent of young americans are unfit for military service: unskilled, with little education, unable to work and compete in a global economy

- 74 percent of Americans aged 17-24 dont qualify for armed service based on no high school degree, drug use, serious criminal, obesity

in Roubini`s Official Twitter

Firms Have Gone On A Capex Strike

Given the fog of uncertainty of tail risks firms have gone on a capex strike and more job shedding; thus a double dip becomes self-full filling. - in Nouriel`s Twitter

Related: ProShares UltraShort S&P500 (ETF) (NYSE:SDS), SPDR S&P 500 ETF (NYSE:SPY)

When Gold Goes Hyperbolic As Now, It's A Bubble

The higher they go the harder they'll crash: when gold goes hyperbolic as now, it's a bubble. Issue is at which level it crashes? 3K, 4K...? - Business Insider

Related: SPDR Gold ETF (GLD)

Euro Zone Double Dipping

Euro Zone double dipping: PMIs down and in contraction, consumer confidence collapsing, investors confidence (ZEW) plunging, banks and governments stressed. - in Nouriel`s Official Twitter

Is Capitalism Doomed?

The massive volatility and sharp equity-price correction now hitting global financial markets signal that most advanced economies are on the brink of a double-dip recession. A financial and economic crisis caused by too much private-sector debt and leverage led to a massive re-leveraging of the public sector in order to prevent Great Depression 2.0. But the subsequent recovery has been anemic and sub-par in most advanced economies given painful deleveraging.

Now a combination of high oil and commodity prices, turmoil in the Middle East, Japan’s earthquake and tsunami, eurozone debt crises, and America’s fiscal problems (and now its rating downgrade) have led to a massive increase in risk aversion. Economically, the United States, the eurozone, the United Kingdom, and Japan are all idling. Even fast-growing emerging markets (China, emerging Asia, and Latin America), and export-oriented economies that rely on these markets (Germany and resource-rich Australia), are experiencing sharp slowdowns.

Until last year, policymakers could always produce a new rabbit from their hat to reflate asset prices and trigger economic recovery. Fiscal stimulus, near-zero interest rates, two rounds of “quantitative easing,” ring-fencing of bad debt, and trillions of dollars in bailouts and liquidity provision for banks and financial institutions: officials tried them all. Now they have run out of rabbits.

Fiscal policy currently is a drag on economic growth in both the eurozone and the UK. Even in the US, state and local governments, and now the federal government, are cutting expenditure and reducing transfer payments. Soon enough, they will be raising taxes.

Another round of bank bailouts is politically unacceptable and economically unfeasible: most governments, especially in Europe, are so distressed that bailouts are unaffordable; indeed, their sovereign risk is actually fueling concern about the health of Europe’s banks, which hold most of the increasingly shaky government paper.

Nor could monetary policy help very much. Quantitative easing is constrained by above-target inflation in the eurozone and UK. The US Federal Reserve will likely start a third round of quantitative easing (QE3), but it will be too little too late. Last year’s $600 billion QE2 and $1 trillion in tax cuts and transfers delivered growth of barely 3% for one quarter. Then growth slumped to below 1% in the first half of 2011. QE3 will be much smaller, and will do much less to reflate asset prices and restore growth.

Currency depreciation is not a feasible option for all advanced economies: they all need a weaker currency and better trade balance to restore growth, but they all cannot have it at the same time. So relying on exchange rates to influence trade balances is a zero-sum game. Currency wars are thus on the horizon, with Japan and Switzerland engaging in early battles to weaken their exchange rates. Others will soon follow.

Meanwhile, in the eurozone, Italy and Spain are now at risk of losing market access, with financial pressures now mounting on France, too. But Italy and Spain are both too big to fail and too big to be bailed out. For now, the European Central Bank will purchase some of their bonds as a bridge to the eurozone’s new European Financial Stabilization Facility. But, if Italy and/or Spain lose market access, the EFSF’s €440 billion ($627 billion) war chest could be depleted by the end of this year or early 2012.

Then, unless the EFSF pot were tripled – a move that Germany would resist – the only option left would become an orderly but coercive restructuring of Italian and Spanish debt, as has happened in Greece. Coercive restructuring of insolvent banks’ unsecured debt would be next. So, although the process of deleveraging has barely started, debt reductions will become necessary if countries cannot grow or save or inflate themselves out of their debt problems.

So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong). Firms are cutting jobs because there is not enough final demand. But cutting jobs reduces labor income, increases inequality and reduces final demand.

Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China – and soon enough in other advanced economies and emerging markets – are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

To enable market-oriented economies to operate as they should and can, we need to return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of laissez-faire and voodoo economics and the continental European model of deficit-driven welfare states. Both are broken.

The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial system run amok; breaking up too-big-to-fail banks and oligopolistic trusts.

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalized economy. The alternative is – like in the 1930s – unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

The Vicious Circle To Depression

Vicious circle to depression: firms cut jobs as there are not enough sales; but cutting jobs destroys labor income and leads to lower sales. - in TW

Related ETFs and stocks: SPDR S&P 500 ETF (NYSE:SPY) ProShares UltraShort S&P500 (ETF) (NYSE:SDS) ProShares UltraShort QQQ (ETF) (NYSE:QID) iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM), Intel (INTC), Apple (AAPL), General Electric (GE), Caterpillar (CAT), Wal-Mart (WMT), Ford (F), General Motors (GM)

Nonsense of the Year: "The Obama Stimulus Had No Effect"

Myth / Nonsense of the Year: "The Obama stimulus had no effect".

Rather it prevented the Great Recession from turning into Great Depression 2.0. - in Nouriel`s Official Twitter

We Have Manic Depressive Markets

Manic depressive markets are in risk-off & risk-on mode. Today risk-off. In next few months mostly risk-off as the double dips materializes. - in NR`s Official Twitter

Topics: SPDR Gold ETF (GLD), SPDR S&P 500 Index ETF (SPY), iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX), United States Oil Fund LP (ETF) (NYSE:USO)

The Difference Between A Double Dip And A Depression

What's the difference between a Double Dip and a Depression? A hole so deep you cant dig yourself out of it. - in Roubini`s Official Twitter

Officials have run out of rabbits.

he massive volatility and sharp equity-price correction now hitting global financial markets signal that most advanced economies are on the brink of a double-dip recession. A financial and economic crisis caused by too much private-sector debt and leverage led to a massive re-leveraging of the public sector in order to prevent Great Depression 2.0. But the subsequent recovery has been anemic and sub-par in most advanced economies given painful deleveraging.

Now a combination of high oil and commodity prices, turmoil in the Middle East, Japan’s earthquake and tsunami, eurozone debt crises, and America’s fiscal problems (and now its rating downgrade) have led to a massive increase in risk aversion. Economically, the United States, the eurozone, the United Kingdom, and Japan are all idling. Even fast-growing emerging markets (China, emerging Asia, and Latin America), and export-oriented economies that rely on these markets (Germany and resource-rich Australia), are experiencing sharp slowdowns.

Until last year, policymakers could always produce a new rabbit from their hat to reflate asset prices and trigger economic recovery. Fiscal stimulus, near-zero interest rates, two rounds of “quantitative easing,” ring-fencing of bad debt, and trillions of dollars in bailouts and liquidity provision for banks and financial institutions: officials tried them all. Now they have run out of rabbits. - in Project-Syndicate

MerOzy: No Euro Bonds For Now

MerkOzy rule out E-bonds "for now". That leaves the option open when market pressure & EFSF maxing out puts mores pressure on italian and spanish spreads. - in Nouriel`s Twitter

We Are Not Going Back To The Gold Standard Any Time Soon

"40 years ago the Bretton Woods regime collapsed and the US went formally off gold. And we will not go back to a gold standard any time soon." - in NR`s Twitter

Related: SPDR Gold ETF (GLD), Newmont Mining (NEM), Novagold (NG), Barrick Gold (ABX), Goldcorp (GG)

Eurozone At Stall Speed

Eurozone at stall speed: Second quarter growth at 0.2 percent (0.8 percent annualized). Germany even worse at 0.1 percent. Third quarter looks worse given more tail risks in July /August. - in Roubini`s Official Twitter

I Think There Is A Risk That This Is The Second Leg Of What Happened During The Great Depression

We’re not there yet but I think there is a risk that this is the second leg of what happened during the Great Depression. We had a severe economic and financial crisis, then we kicked the can down the road and have too much private debt—households, banks, governments.

You cannot solve the problem with liquidity. At some point where there is too much debt either you grow your way out of...either you save yourself out of it...or you can inflate your way out of the debt problem, but that has a lot of collateral damage.

“We’re not doing it. We’re creating zombie households, zombie banks and zombie governments, and you can have a depression. - in CNBC

Karl Marx Said It Right. At Some Point Capitalism Can Self-Destruct Itself.

Karl Marx said it right. At some point capitalism can self-destruct itself because you cannot keep on shifting income from labor to capital without having excess capacity and a lack of aggregate demand. That’s what’s happening. We thought the markets work. They’re not working. - in CNBC

This Is Not The Time To Be In Risky Assets

“We don’t know whether this volatility is temporary and things are going to improve or whether there’s going to be a nasty recession and another 30-40% fall in equity prices. So until the fog of uncertainty is resolved, my view is that it’s better to be safe rather than sorry. This is not the time to be in risky assets.” - in The Big Interview

Taxes For The Rich

Each time I argue higher taxes for rich an idiot replies: "Why dont you send a check to the IRS?" Can`t reduce deficit alone; gotta rise taxes. - in Nouriel`s Official Twitter

Most Advanced Economies Are On The Verge Of A Double-Dip Recession

The recent massive volatility in global financial markets and sharp equity market correction—bordering on a bear market in some countries—signal that most advanced economies are on the verge of a double-dip recession. - in RGE.com

Related ETFs and stocks: SPDR S&P 500 ETF (NYSE:SPY) ProShares UltraShort S&P500 (ETF) (NYSE:SDS) ProShares UltraShort QQQ (ETF) (NYSE:QID) iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM), United States Oil Fund (USO), Intel (INTC), Apple (AAPL), General Electric (GE), Caterpillar (CAT)

This Is Not The Time To Be In Risky Assets

The Big Interview: Economist Nouriel Roubini says the risk of a global recession is greater than 50 percent, and the next two to three months will reveal the economy’s direction. In an interview with WSJ’s Simon Constable, Roubini also says he’s putting his money in cash. “This is not the time to be in risky assets,” he says.

Related: SPDR S&P 500 ETF (NYSE:SPY) ProShares UltraShort S&P500 (ETF) (NYSE:SDS) ProShares UltraShort QQQ (ETF) (NYSE:QID) iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM), United States Oil Fund (USO)

The Consequences Of Rising Income & Wealth Inequality

Consequence of rising income/wealth inequality: riots in Middle East, Israel, UK & popular anger in China. Will they start in the US too? - in Nouriel`s Official Twitter

ECB Should Slash Interest Rates to Zero

The European Central Bank should reduce rates to zero, and make big purchases of government bonds. - in FT.com

Manic Markets

Manic Markets: one second is "Fed is not doing enough" & markets sharply down; next sec is "the Fed will rescue us" & markets sharply up - in NR`s Official Twitter

Economic Policy: We Have Run Out Of Rabbits To Pull Out Of Hats

Until last year, policymakers could always produce a new rabbit from their hat to trigger asset reflation and economic recovery. Zero policy rates, QE1, QE2, credit easing, fiscal stimulus, ring-fencing, liquidity provision to the tune of trillions of dollars and bailing out banks and financial institutions - all have been tried. But now we have run out of rabbits to pull out of hats. - in FT.com

Treasuries Moved Up After The Downgrade

In Friday Bloomberg interview I argued that Treasury yields would go DOWN not up following the S&P downgrade. Case closed.

Related ETFs: ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT) iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT), iShares Lehman 7-10 Yr Treas. Bond (ETF) (NYSE:IEF)

QE3 Won't Make A Difference

"QE3 won't make a difference." - in Bloomberg TV

S&P Downgraded The Fed, Should Downgrade The ECB To Junk

Since S&P downgraded the Fed that is now holding AA+ Treasuries it should downgrade the ECB to junk as it holds lotsa BBB to CCC PIIGS debt. - in Nouriel`s Official Twitter

Definition Of Crisis

Definition of "crisis": when officials need to huddle up on a weekend before Asia opening to take decisions and do statements as turmoil rages. - in NR`s Official Twitter

Until Now, We Have Back-Stopped The States Through The Federal Budget To Make Sure That They Don’t Blow Up

“Until now, we have back-stopped the states through the federal budget – transfer payments of a variety of sorts to make sure that they don’t blow up. At this point, the political willingness to do more of it is limited.” - in Forbes

Bloomberg Video: U.S. May Face Recession

Latest Bloomberg video interview - Watch here

Aug. 5 (Bloomberg) -- Nouriel Roubini, a New York University professor and the economist who predicted the global financial crisis, talks about the possibility of a U.S. recession. Roubini, speaking from Grand Lake Stream, Maine, with Michael McKee and Betty Liu on Bloomberg Television's "In the Loop," also discusses quantitative easing by the Federal Reserve and the July jobs report released today. (Source: Bloomberg)

QE1, QE2 And QE3

QE1 was mostly agencies — Fannie and Freddie, QE2 was treasuries mostly. QE3 could be state and local debt.” - in Forbes Blog

Lousy Job Report

Lousy job report: payrolls gotta rise by >150k to prevent unemp rate from rising: it fell to 9.1% only because 200K folks left labor force - in NR`s Official Twitter

There Is 70% Chance Of Italy Seeking Aid

"According to Nouriel Roubini, there is 70% chance of Italy seeking aid. (La Repubblica)" - in Proactive Investors UK

Related investment vehicles: iShares MSCI Italy Index (ETF) (NYSE:EWI) , iShares MSCI Spain Index (ETF) (NYSE:EWP)

QE3 Started In Japan & Switzerland

QE3 started in Japan & Switzerland via fx action &/or monetary easing. Fed will eventually get to QE3 but it will be too little too late. - in NR`s Official Twitter

Related: iShares MSCI Japan Index (ETF) (NYSE:EWJ), iShares MSCI Switzerland Index Fund(ETF) (NYSE:EWL)

The ECB Should Be Cutting Rates

The ECB not should not just hold rates; it should lower them to save Italy, Spain and stop the deepening recession in the periphery of the Eurozone. RGE's long-standing view that Spain and Italy had a high probability of losing market access is on the verge of materializing. - in NR`s Official Twitter Account

Related investment vehicles: iShares MSCI Italy Index (ETF) (NYSE:EWI) , iShares MSCI Spain Index (ETF) (NYSE:EWP)

Bad Economic Data, Eurozone Crisis. No Wonder Markets Are Free Falling.

Lousy GDP, depressed housing, plunging ISM, falling consumption, job losses, fiscal drag, Eurozone crisis. No wonder now markets are free falling. - in Nouriel`s Twitter

Related ETF s: SPDR S&P 500 ETF (NYSE:SPY) ProShares UltraShort S&P500 (ETF) (NYSE:SDS) ProShares UltraShort QQQ (ETF) (NYSE:QID) iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM)

G3 Economies Are Running Out Of Policy Bullets

G3 economies are running out of policy bullets: fiscal drag, inability to bailout banks by distressed sovereigns, limited effects of more QE.

Double-Dip Risk At 30 Percent

US economy close to stall speed and pig-headed front-loaded fiscal austerity making growth even worse and raising double-dip risk to 30 percent.

Related ETF s: SPDR S&P 500 ETF (NYSE:SPY) ProShares UltraShort S&P500 (ETF) (NYSE:SDS) ProShares UltraShort QQQ (ETF) (NYSE:QID) iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM)

Over-Investment In China

China train crash is signal of the excesses of over-investment: 10 thousand miles of high speed trains planned by an insolvent Railway Ministry - in Nouriel`s Twitter

Tickers: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI)