Wednesday, August 24, 2011

What Can (should) Chairman Bernanke Announce at Jackson Hole?

Folks who are betting on an announcement Friday have more guts than I do.
To help refine the speculation here are some alternatives the Fed may be considering.
From FT Alphaville:
Fantasy Fed options
While the world seems divided on whether Friday’s Jackson Hole meeting will result in the announcement of a fresh round of quantitative easing or not — we thought we’d run with the premise that QE in its conventional form is now redundant or impossible.
(For why we think this, see here and here.)
So what, if any, are the possible alternatives?
Here are some we’ve seen thrown about recently:
From Neil Soss at Credit Suisse:
1) Providing liquidity directly to key credit markets – this basically means renewed TALF style facilities, with the aim of getting high-powered money distributed into the real economy via businesses.

2) Making term bank loans with strings attached (a la BoJ) — a plan which essentially restricts Fed funding to institutions that can come up with productive use of the money.....

...Now for some far out FT Alphaville ideas:
7) Fed intervenes directly via the derivative market by actually writing a literal Bernanke put – Similar to the above, though this time the Fed would be targeting equity market levels rather than GDP.

8) Fed adjusts conventional QE — instead of purchasing Treasuries or agency debt (due to the scarcity issue), the Fed decides to purchase equities or ETFs direct, a la Japan, possibly even foreign debt....MUCH MORE
Should the Fed try some of the waaay-out Alphaville ideas and fail, we have been authorized by Long or Short Capital to offer their proprietary End-of-the-universe Puts:
...That is why Long or Short is now offering LHC End of the Universe Puts. It’s a simple put option wherein the buyer retains the write to sell the Universe at a strike price of “Existing”. Based on our Black-Holes model used to value all “end of the world” options, the July 2012 vintage options are currently priced at $20....
I shall also have the numbers guys put together some prop bets on each of the FTA options