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amassafortune (29.15)

QE2 - Another Step In The Same Journey



October 28, 2010 – Comments (1)

The FED's asset column includes an array of mortgage-backed securities and other troubled bank leftovers. The FED has also pledged to backstop Fannie, Freddie, AIG, ... you know, pretty much the list of QE1 recipients.

By mid-week next week we may begin to learn who will benefit from QE2. Don't expect much detail. The top-line ballpark may still be the $100 billion per month previously mentioned, or in excess of $4 trillion recently speculated. The question remains - who will get it and over what time period?

Will there be a continuation of the roughly $10 billion per week pre-election POMO stock market injections?  

Will some QE2 money ease the pain of the estimated $280 billion of MERS fraud impact estimated by Barclays?

It is anticipated that the FED will buy more "assets", but that first round of asset buys may still need help. Some estimates of the market value of MBS asset buys are in the 35-50 cents on the dollar range. My recommendation for a better outcome during round two of asset buys (I don't expect the advice to be taken) - haircut. The average prom would be much more memorable if the average prom date had the negotiation prowess of the Federal Reserve.

Now, from the 35-50 cents on the dolar valuation, subtract the continued erosion of real estate, MERS fraud, duplicate and multiple pledges of property titles, ongoing CRE loan resets and reworks, .. If the market value of FED assets is in the 25-35 cent range, it will take many years of targeted 2% inflation to get back to even.

Never hold a loser - The FED may be weak negotiators, but they do think ahead like they're playing a chess match. The FED is implementing its tri-party reverse repo plan. The stated goal is to be able to drain liquidity from the system once inflation kicks in, but that's years away and the tri-party reverse repo plan is being tested live already. There are only a few clean pools of money remaining - money that was honestly earned by people who traded a talent or life force (time) for dollars. They store these ready dollars in CDs, money markets, and other highly-liquid, safe instruments. They would never trade that safety for the risk of a higher, deferred return, which is why the tri-party reverse repo plan targets money market managers with the power to commit clean pool dollars without expressed consent of account holders beyond the small print details of these accounts. 

Don't expect QE2 to promote job growth, small business creation, or any area that was the core of the United States' economic expansion for the past 234 years. The same recipients of QE1, with the possible exception of mortgage insurers, will receive the lion's share of QE2. 

1 Comments – Post Your Own

#1) On October 28, 2010 at 4:17 PM, miteycasey (28.89) wrote:

+1 rec.

The QE2 money will go into the same pockets as QE1.

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