Following the good 3 yr note auction yesterday, the 10 yr today was good as well. The yield was 1-2 bps below the when issued and the bid to cover of 3.17 was above the 12 month average of 3.11. Direct and indirect bidders totaled 55.9%, about in line with the prior two. Today’s auction had the influence of Bernanke’s comments on doing EVEN MORE, the weak payroll report and the obvious mess in Europe. In terms of QE3, or QE4, QE5, etc…, keep one thing in mind. Just as an alcoholic needs more and more booze each time to get drunk, each successive form of money printing from here on out has to be even greater for it to have an impact similar to the one before. Thus, it is not just the possibility of more, but the size of it that will matter compared to QE2. In terms of even lower interest rates mattering to the actual real world economy at this point, we know it doesn’t anymore. Asset prices again would be the only thing to benefit at the same time the US$ continues to lose purchasing power. What’s nuts and disturbing about this whole discussion is that its not even 2 weeks since QE2 ended.
Not to long after Bernanke today reiterated what was in yesterday’s FOMC minutes, that ‘more’ is always on the table, voting member Fisher is sounding like he will be one of the dissents on this. While he complained about QE2 over the past 6 months but still voted each time for continuing it, in a speech today he sounds like someone in the Fed saying ‘no more.’ He said, “I firmly believe that the Fed has already pressed the limits of monetary policy. So-called QE2, to my way of thinking, was of doubtful efficacy, which is why I did not support it to begin with. But even if you believe the costs of QE2 were worth its purported benefits, you would be hard pressed to now say that still more liquidity, or more fuel, is called for given the more than $1.5 trillion in excess bank reserves and the substantial liquid holdings above the normal working capital needs of corporate businesses…US banks and businesses are awash in liquidity. Adding more is not the answer to our problems.” I thus reiterate again and for last time as not to further annoy, while QE3 is always possible with this Fed, the bar is high and it won’t happen, I believe, unless we see a sharp downward move in both stocks and the economy.