10 December 2012

Gold Daily and Silver Weekly Charts - FOMC QE Unfolding

It seems that some on the Street agree with me that the Fed may decide to drop the sterilization portion of 'Operation Twist' and just straight up monetize debt rather than merely shift duration of instruments.

The practical factor is the dearth of short term instruments for the Fed to trade. The other is that the election is now past, and the 'restraint' that the Fed often shows during a presidential election is now off the table.

Will it happen at all? If it does will be it an expansion of the Fed's Balance Sheet of 85-100 billion dollars per month? Will the Fed act at all before the 'fiscal cliff' is resolved?

I am not sure, so I am hedged.

I doubt the Fed will do something more untoward, like expanding their balance sheet AND buying even more non-traditional instruments, at least compared to what they are already doing.

The cut-off for action this year on the 'fiscal cliff' is fast approaching. Although Boehner and Obama are in 'face to face' meetings now, Boehner must deliver a vote in the House, which may not be such an easy task given the intransigence of a sizable minority of the Congress.

The Administration could always try to pass a bill in the Senate, and then move to solve the House in reconciliation should they still remain obtusely opposed to any repeal of tax cuts, but that seems to be a work for next year and not the holiday season.

But who can tell what passes in the back rooms and hallways of power?

Have a pleasant evening.