Gyroscopic Investing

Assuming that there will be some sort of announcement by the Fed concerning QE2 in the next couple of months, please place your prediction here regarding the scale of any potential QE2 program.

MediumTex Prediction: $2 Trillion.

That's tough to make a prediction on.  At least as much as QE1 which was what, $1T? 

Pkg Man Prediction: $750B

Bill Gross says $1.2 Trillion ($100B/mo):

The central bank will likely buy $100 billion in government securities a month to keep borrowing costs down, Gross said in a radio interview today on "Bloomberg Surveillance" with Tom Keene. The Fed may buy $1.2 trillion in Treasuries, he said.

http://www.thedailycrux.com/content/5972/Bill_Gross

Wonk wrote: Bill Gross says $1.2 Trillion ($100B/mo):

The central bank will likely buy $100 billion in government securities a month to keep borrowing costs down, Gross said in a radio interview today on "Bloomberg Surveillance" with Tom Keene. The Fed may buy $1.2 trillion in Treasuries, he said.

http://www.thedailycrux.com/content/5972/Bill_Gross

Holy smokes. Ben is going to need some new inkjet cartridges for that kind of printing.

My guess somewhere between $100 to $300 billion to start, upwards of well over $1 trillion over time.

Just a few more days to get your prediction in before the window closes.

$100 Billion per month, for the next 6 months or until QE3 is needed... 

QE2 will be $610 billion.  And 37 cents.

Add another two cents for Bernanke's worth.

Be sure to check out the Quantitative Easing song:

http://www.youtube.com/watch?v=StbxgDD9 ... r_embedded

Storm wrote: $100 Billion per month, for the next 6 months or until QE3 is needed... 

Well, I guess I had the size right as $600 billion, but my time scale is off...  Looks like the market has a split personality today - Gold down sharply early in the day, started to rally right after the $600B announcement, then fell another 1.5%...

Sometimes looking at the zig zag motion I think the market doesn't know how to take it.  Should it go up or down?  All in all people are disappointed and it looked like the market was pricing in a much larger QE.

Storm wrote: All in all people are disappointed and it looked like the market was pricing in a much larger QE.

I'm taking the MediumTexAtron to the shop later today.

Its $2 trillion estimate was way off.

I don't see how $600 billion is going to do much of anything, though.  In a deflationary credit contraction, $600 billion is like a few pieces of confetti in a ticker tape parade.

MediumTex wrote: I don't see how $600 billion is going to do much of anything, though.  In a deflationary credit contraction, $600 billion is like a few pieces of confetti in a ticker tape parade.

Couple of ways to look at this:

1. Face value: The Fed will do exactly as it says and is entirely sincere.

2. Reality: The Fed is showing only as much as is necessary.  IMO, it's a tightrope--on one hand The Fed has to show the market it is willing to step in to boost asset prices.  On the other, it has to show the market it is not going all "Banana Republic" and just print, print, print.  Giving a less than grandiose number right now allows The Fed to calm monetary hawks while leaving the door open to increased amounts later.  The Fed needs to instill confidence on both sides. 

Remember this is just the public version of what The Fed's intentions are. 

Keep this in mind...according to TIC data (http://www.ustreas.gov/tic/mfh.txt), the UK increased U.S. Treasury debt by over 400% ($344B) over the last 12 months while just about all other foreign buyers stayed neutral or made only temperate changes in either direction.  That is a massive outlier. 

How is this explained?  Dunno.  There isn't a smoking gun.  The U.S. sure as hell isn't running trade deficits with the U.K. to account for the size of the change.  The #2 explanation is that China is buying through proxy in the UK.  I don't see the advantage, though.  The #1 explanation so far is direct BOE treasury purchases or swaps.  Through a swap arrangement, The Fed could monetize with the assistance of foreign central banks such as BOE and attempt to stoke inflation on the flank.

Many roads to Dublin as they say....

Congratulations are in order to Storm, it seems!  I was so sure about my $610 billion and 37 cents prediction.  I used a Fibonacci number (610) and everything.  What more could I have done?

And hey, looks like gold's back up today.  I'd have been curious to see what it would've done if they'd come through with MediumTex's prediction (which was completely within the real of possibility.)