QE = Primarily A Debt Monetization Exercise

Headlines:

Credit Ratings = Meaningless To Central Banks.

Central Banks Incentivized To Overpay = Lower Sovereign Credit Costs.

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Housing MarketThe Voss Value Fund was up 4.09% net for the second quarter, while the Voss Value Offshore Fund was up 3.93%. The Russell 2000 returned 25.42%, the Russell 2000 Value returned 18.24%, and the S&P 500 gained 20.54%. In July, the funds did much better with a return of 15.25% for the Voss Value Fund Read More


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CASE STUDY:

USA + Italy

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USA = S&P Long Term Credit Rating = AAA+

Italy = S&P Long Term Credit Rating = BBB

USA = QE/Debt Monetization = Yes = Federal Reserve

Italy = QE/Debt Monetization = Yes = ECB

USA = QE’ed 10 Year Bond Yield = 2.32 = See Chart Above

Italy = QE’ed 10 Year Bond Yield = 2.25 = See Chart Above

USA = Higher Costs Yet Superior Credit Metrics

Italy = Lower Costs Yet Inferior Credit Metrics

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USA = Ex: QE = Higher Coupons + More Indentures = Higher Deficit/Debt

Italy = Ex: QE = Higher Coupons + More Indentures = Higher Deficit/Debt

USA = Ex: QE = Fiscal Deficit = 10% Higher = Lower Credit Rating

Italy = Ex: QE = Fiscal Deficit = 30% Higher = Lower Credit Rating

USA = Lower Credit Rating = Increased Coupon Costs

Italy = Lower Credit Rating = Increased Coupon Costs

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USA = QE Circumvents Increased Coupon Costs Via Artificial Demand For Sovereign Debt = Prices Higher/Yields Lower

Italy = QE Circumvents Increased Coupon Costs Via Artificial Demand For Sovereign Debt = Prices Higher/Yields Lower

USA = QE = Masks Deficit Via Debt Monetization + Remittance of Coupons To Sovereign Treasury

Italy = QE = Masks Deficit Via Debt Monetization + Remittance of Coupons To Sovereign Treasury

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USA = Fiscal Reform = Levering, QE Enabled, Lower Interest Costs = No

Italy = Fiscal Reform = Levering, QE Enabled, Lower Interest Costs = No

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USA + Italy = Central Bank QE Facilitates Wealth Transfer

From:

Private Fixed Income Investors Via Reduced Coupon Income + Reduced Outstanding Indentures

To:

Sovereign Treasuries Via Reduced Coupon Costs + Reduced Outstanding Indentures

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Article by Global Slant

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