Ed’s Daily Notes for October 22nd   10 comments

CNBC (via Yahoo Finance): Fed could up QE to $1 trillion a month

This is speculative, but there could be an element of truth to it:

Marc Faber, publisher of The Gloom, Boom & Doom Report, told CNBC on Monday that investors are asking the wrong question about when the Federal Reserve will taper its massive bond-buying program. They should be asking when the central bank will be increasing it, he argued.

“The question is not tapering. The question is at what point will they increase the asset purchases to say $150 [billion] , $200 [billion], a trillion dollars a month,” Faber said in a “Squawk Box” interview.

The Fed-which is currently buying $85 billion worth of bonds every month-will hold its October meeting next week to deliberate the future of its asset purchases known as quantitative easing.

Faber has been predicting so-called “QE infinity” because “every government program that is introduced under urgency and as a temporary measure is always permanent.” He also said, “The Fed has boxed itself into a position where there is no exit strategy.”

If you think this is ridiculous, ask yourself: What will happen when the Fed begins tapering? As we saw when the Fed just hinted at tapering, the markets went down. Actual tapering could cause a market nosedive, which could conceivably lead to a new recession. If you recall, it was the Fed raising rates that initiated our last recession. There is an economic theory which says the Fed will reach a point where it will need to increase the money supply during shorter and shorter durations, basically doubling it’s money-printing efforts over shorter periods of time, or risk deflation. Faber’s view is in line with this theory.

If the Fed actually increases QE, watch out! While this will be wonderful for the markets, the economy could be another story. This could lead to dollar devaluation, unless other countries follow suit, which is possible since “we are all Keynesians now”, as Milton Friedman once said (although he didn’t mean it in a good sense).

By the way, if you want to understand why QE really isn’t working, read the following:

Business Insider: Famous Morgan Stanley Strategist Returns, And He Has A Big Warning To The Investment Community About Inequality

In other news…

USAToday: HHS brings in Verizon to help HealthCare.gov

Good news for Verizon (VZ) owners:

The international telecommunications company Verizon has been tasked with helping the government fix the federal health exchange, USA TODAY has learned.

An informed source in the telecommunications industry said Verizon’s Enterprise Solutions division has been asked by the Department of Health and Human Services to improve the performance of the HealthCare.gov site, which is a key component of the Affordable Care Act.

Speaking of Obamacare:

Bloomberg: Is Obamacare in a Death Spiral?

Another great editorial from Bloomberg’s Meg McArdle, who is quickly becoming a “must-read”.


10 responses to “Ed’s Daily Notes for October 22nd

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  1. Today has a chance to be a strong day for me. NUS had blow out earnings (again) and is up 13% in pre market trading. The stock is already up 141% for me since I bought in February. Then RIG is being added to the s&p 500 and is up 4.5% this morning. I am down 5.2% on this purchase, so I at least will be moving back to break even.

  2. Congrats!!! Your portfolio is rocking roll. 🙂
    Bought some KLIC at $13.34.

  3. My brother and I were trading emails on Bank of America. Can anyone think of a worse purchase than Countrywide in the history of buying and selling companies?

    • AOL buying Time Warner for $164 billion comes to mind, although it was technically a “merger”.

      • I wouldn’t be surprised if my the time the government gets done fining BAC for all the wrong doings of Countrywide (and don’t forget the government was begging BAC to buy/take over Countrywide) the amount will equal $164 without counting law fees, etc.

        WSJ: BofA’s deal for Countrywide was more expensive from the very start, costing it $4.5 billion in a two-part transaction. Since then, Bank of America has spent billions writing down loans and paying legal settlements. The Wall Street Journal reported last year the bank has spent more than $40 billion on Countrywide. Since that time the bank has announced more than $15 billion in additional legal and mortgage settlements, with Countywide behind many of those problems too. Since the day Bank of America announced it was buying the rest of Countrywide in January 2008, its stock is down a total of 63%.

        And, how many mortgages is Countrywide doing today?

      • Latetom,
        You’re mixing up the Countrywide purchase with the Merrill Lynch purchase. Countrywide was the purchase former CEO Ken Lewis actually wanted to do! Merrill Lynch was the one where Paulson and Bernanke basically threatened Lewis if he didn’t do it.

        Yes, Ken Lewis is/was a moron…

  4. Tom – I would suggest the purchase of countrywide by BAC is the worst in my memory. Wachovia buying golden west was pretty bad as well and destroyed wachovia. That was done eyes wide open before the housing bubble burst.

  5. Ed, you have your facts wrong again. Not sure why you continue to correct people who are right to begin with when your “corrections” are generally not based on the true facts. You are confusing Countrywide with Lehman, and BAC never wanted Lehman- that was the deal Paulson wanted.

    BAC bought countrywide in January, 2008 for 4 billion and change, as Latetom notes. Terrible deal; worst in history. California, NEvada and Arizona real estate was already crashing and Countrywide had a whopping share of the western market. any fool west of the Mississippi could have told Lewis that; he apparently never asked.

    So BAC paid 4 billion for loans that Mezzulo called “assets” but which were in fact liabilities potentially in the tens of billions because of repurchase obligations with the companies that securitized them. (which, as Latetom notes, have come to pass and hence BAC is paying off purchasers of its Countrywide mortgages.) And that doesn’t even include the fraud claims Countrywide/BAC would face for steering customers into bad products that paid higher commissions.

    The government never “encouraged” BAC to buy Countrywide- that was done in January 2008 driven by Lewis’s greed and ignorance, with a heavy dose of empire-building desire. (Lewis probably bought Dick Fuld’s gold plated crapper.) Uncle Benny was still singing his song about containment and Goldilocks and all is good in the financial markets. Paulson and Bush were talking tax cuts, not mortgage bank bailouts.

    BAC may also have screwed the pooch by purchasing Merrill Lynch, but the jury is still out on that one, and the jury will probably side with BAC on that one. They got it for a pretty cheap price in September, 2008 (not January) at close to the bottom of the market. I think they paid ten bucks a share with government promises to backstop Merrill liabilities if they turned out to be greater than X, and promptly spun off the thundering herd to Morgan Stanley I believe for roughly half of the purchase price.

    So BAC paid roughly $5 a share with a backstop in place in the event of further deterioration of ML’s book value. Not bad, and not nearly in the same league as the disaster that was the Countrywide purchase.

    Lewis was not “threatened” to buy ML- Bernanke/Paulson wanted him to buy Lehman and he refused, instead choosing to buy Merrill Lynch. For making that very good choice, and because the Gov. backstopped the purchase so had the leverage to make the call, Lewis was rewarded with the boot.

    He probably deserved it for the Countrywide purchase, but not for the Merrill Lynch purchase. I think in hindsight that turned out to be a pretty good deal, and with the gov backstopping it, wasn’t a bad deal even then. There was not much risk in that transaction. The risky one was Countrywide, as has been proved since.

    • BB,
      You need to learn to read. What you are saying is exactly what I said: BAC wanted the Countrywide deal, and they were forced into the Merrill Lynch deal by the government (at first, the government encouraged a deal on Lehmann, which Lewis rejected, but they twisted his arm to do the ML deal later). I never said Countrywide was a good deal, nor did I tell Latetom that he was wrong in his view that Countrywide was a bad deal. That was why I called Ken Lewis a moron.

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