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Quantitative Tightening Print
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Wednesday, 18 October 2017 20:13

QT - is the next big hurdle for markets.

The ECB is telling us they are running out of bonds to buy and it is widely expected that Mario Draghi will have to taper those monthly purchases. Janet Yellen and the Fed are making the same noises. Deutsche Bank's analyst Alan Ruskin

says "by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero." Link to article.

Markets have been, and are, running on QE liquidity since 2008. Every time tapering has been hotly rumoured, markets have corrected and central bankers back away from actually doing the deed of pulling the QE plug - they dare not do it and the reason is as plain as daylight!

It's a very big if. Will they or will they not. If they do, risk assets, real estate will tank along with stock markets. Janet Yellen talks of  "an orderly repricing" Markets don't do orderly - it will be a panic and the western world's Central Bankers know it.

If they don't, and just carry on buying bonds until there are no more available, convential QE will come to a forced end - with the same result.

Janet Yellen has told us "we don't really understand inflation" an extraordinary admission. That statement is just setting us up for the only way out of the QE vs asset price problem. Without a doubt there has been inflation, but mainly in asset values, but not in the purchasing power of the man and woman in the street.

That's the problem. Central bankers thought the feel good factor of higher property valuations would get us all spending again - but it hasn't worked. The averege gal and guy are struggling with austerity. So real inflation has to happen to bail out the western worlds QE obsession. They will find a way of turning the QE trillions into actual cash in our pockets, it's the 'Helicopter money' fix that Ben Bernanke talked about years ago.

It's spare cash to spend that will bring back the feel good factor and real inflation will be allowed to take off and solve the central banks dilema. Who will pay? Those who pay every time. Anyone with cash/bank balances/annuities/fixed incomes/pensions.



From the blog

Another great trade & It's the interest rate differential

Another great trade and a special deal for you below...

At the recent London Forex Show I talked about some of the key issues that impact and move the major currencies. Amongst these were, will US interest rates keep rising and will the US Dollar strengthen or weaken.

The talking heads have told us all about how the US$ is doomed. It's the trillions of US debt they say, and expectations of a US recession kicking off this year.

And then the big one is the global petro dollar decline. China and Russia can now by-pass the US$ strangle hold on world energy markets and trade in Renimbi, Roubles and Euro's.

And then there is the Donald. Whenever he has an audience he tells us that the "gentleman at the fed likes a strong dollar". Clearly, Trump wants it to weaken to make US exports cheaper than the competition and keep 'his' stock market boom going.

The USDJPY just ignored the dollar doomsters...


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