Guest Post: Is The Fed Ready To Cut America’s Fiat Life Support?

It is undeniable that America is thoroughly addicted to fiat stimulus. Every aspect of our economy, from stocks, to bonds, to banks, and by indirect extension main street, is now utterly dependent on the continued 24/7 currency creation bonanza. The stock market no longer rallies to the tune of increased retail sales, growing export markets or improved employment expectations.  In fact, “good” economic news today is met with panic and market sell-offs! Why? Because investors and banks still playing equities understand full well that any sign of fiscal improvement might mean the end of the private Federal Reserve’s QE pajama party. They know that without the Fed’s opiate-laced lifeline, the economy dies a fast and painful death. All mainstream economic news currently revolves around the Fed, as pundits clamor to divine whether the latest signals mean the free money will flow, trickle, or dry up. At the edge of the Federal Reserve’s 100th anniversary, it is vital that we see the current developments for what they really are – history changing, in a fashion so violent they are apt to scar America forever.

Summarizing Today's Epic Moves

13th 'up' day of last 15 for the S&P...  Quite a day (considering Bernanke said they "were avoiding sharp shocks"):

Gold's best day since January 2009
5Y Treasury's biggest yield drop since March 2009
USD's 3rd worst day in a year
Homebuilders biggest rise since June 2012
New all-time highs for Dow and S&P

Two things of note aside from this chaos - shorts were being pressed into the meeting (and were smashed higher on the news); and VIX, which had been bid going in, is diverging after the press conference from equity exuberance. Some of the exuberance faded in the last 30 minutes but significant gains are holding.

As Bernanke Blows A Bigger Bubble, Everything Is Bought

"We have got to turn the page on this kind of bubble-and-bust mentality that helped to create this mess in the first place, we have got to build a housing system that’s durable and fair and rewards responsibility for generations to come.  That is what we have got to do."

- Barack Obama, August 6, 2013

Goldman Analyzes The Fed's "Unexpected" Decision

BOTTOM LINE: The FOMC unexpectedly decided not to taper the rate of its asset purchases at today's meeting, preferring to wait for further confirmation of improvement in the outlook. There was no change to the forward guidance on the federal funds rate. The Summary of Economic Projections showed a decline in the central tendency expectation for the year-end 2015 fed funds rate, and the 2016 rate suggested a cautious pace of rate hikes once they begin.

Bernanke's S&P500 Year End Price Target: 1,950

With the Taper now off the table, and with the next earliest probable discussion of a Taper at the December FOMC meeting if then even, Bernanke - who may now stay have no choice but to stay for a third term - has decided to reflate the bubble to end all bubbles, along the lines of what we speculated may be the case in "Bernanke's Helicopter Is Warming Up", it is worth refreshing what Bernanke Asset Management's year end stock market target is. As a reminder, back in April we highlighted that in a world of central planning the only relevant thing to risk assets is the size of the Fed's balance sheet, and since there will be no change in the rate of ascent, we can once again repost what we showed nearly 6 months ago as to where the Fed believes the fair value of the S&P500 should be. The answer: 1,950 or bust.

The Machines Win: Within Milliseconds, The Move Was Over

We hope everyone is enjpying the spoils of war from reading the FOMC statement and buying appropriately. Of course, as Nanex shows, unless your trigger finger hit that big green button within a millisecond or so, you missed the entire move...

Who Leaked The FOMC Statement To Gold Traders?

Beginning 3 minutes before the release of the FOMC Statement, gold spot and futures prices began to rise notably. Bonds did not. Stocks did not. FX did not. Around 4300 contracts changed hands in the Dec Futures - massively more than average volume - before the statement came out and drove prices further up. In those 3 minutes Gold prices jumped $11... so the question is - lucky guess... or which big bullion bank got the nod?

Ben Bernanke Press Conference - Live Webcast

For now, markets are holding on to gains (in bonds, stocks, and gold) as we prepare for Ben to explain just how bad things are... and answer the tough questions about the growth slowdown in 2016... Of Course, that doesn't matter:

DOW JONES INDUSTRIAL AVERAGE RISES TO ALL-TIME HIGH
*S&P 500 RISES TO RECORD HIGH AFTER FED STATEMENT

Seems like moar of the same is here to stay in the Yellen Fed but now we know that QE is not helping the real economy - how will they 'communicate' its effectiveness? We suppose that, for now, Stein's warning of 'froth' is just for the academics...

 

FOMC Statement Market Reaction

There is a modest rebound from knee-jerk levels but in general everything is moving how one would expect since the Fed chickened out... The USD is collapsing, Gold and stocks soaring, and 10Y yields tumbling... VIX and Bond vol has also collapsed. Let's just wait for Ben to bugger it all up with his communications...

Post-FOMC Reaction: S&P +17pts, 10Y -10bps, MTG spread unch, USD -0.65%, WTI +0.5%, Gold +$37

 

FOMC Shocker: No Taper - Full FOMC Statement Redline Comparison

It seems the Fed is so scared about something (despite every long-only asset manager telling us day after day that the economy is recovering and the US doesn't need crisis support... oh and can withstand higher rates) that they have gone against consensus and decided that Tapering now is premature:

*FED REFRAINS FROM QE TAPER, KEEPS MONTHLY BUYING AT $85 BLN
*FED: RISE IN MORTGAGE RATES, FISCAL POLICY RESTRAIN GROWTH
*FED: `TIGHTENING OF FINANCIAL CONDITIONS' COULD SLOW GROWTH
*MOST FED OFFICIALS SEE FIRST INTEREST-RATE RISE IN 2015

Pre-FOMC: S&P Futs 1696, VIX , 10Y 2.865%, MTG Spread 72.5bps, USD 81.00, WTI $107.00, Gold $1310

We await Cramer and Liesman to explain what to do next...

What Happened At The Last Big Fed Announcement

Judging by the market's reaction to the June FOMC statement and press-conference, Nanex shows the four things that US market participants can expect to happen over the next few hours:

  1. The HFT Machines Will Take Over (fake quotes will soar)
  2. Quote Spreads will Widen (but all that liquidity provision?)
  3. Quote Spreads will Become Unstable
  4. The Number of Stocks Locked (Bid=Ask) or crossed (Bid>Ask) Will Soar

But apart from that - do as you're told and BTFATH as every commission-taking muppet will tell you the Taper is priced in.

Free Syrian Army Claims Assad Smuggled Chemical Weapons Out To Lebanon

This morning we heard from Russia's Lavrov claiming to be ready to send proof, that Assad was not responsible for the chemical weapons launch on Syrians, to the UN. It is, therefore, only appropriate that the opposition - in some way - respond. The Free Syrian Army's Al-Masry state by phone this morning that:

  • *SYRIA SMUGGLED CHEMICAL WEAPONS OUT TO LEBANON: AL-MASRY
  • *SYRIA SMUGGLED TWO SHIPMENTS OF CHEMICAL WEAPONS TO HEZBOLLAH
  • *SYRIA OPPOSITION SAYS UN CHEMCIAL TEAM SHOULD VISIT LEBANON

So it would appear the 'Syrian deal' is all going well; the debt-ceiling debate is just starting to hot up; German elections are too close to call; and the Fed is about to step away from the punchbowl. BTFATH...

What The Average American Thinks Of QE

Despite the Fed's strongest efforts at improving its 'communication', the average American is relatvely unaware of just what it is that QE does (and is). Reuters reports that a sad 73% of respondents could not define what the crucial-to-the-market's-survival program is with 12% of respondents believing QE was a computer-assisted program that the Fed uses to manipulate the dollar...

7 Reasons To Delay The Taper (And 4 Reasons Why They Can't)

With the FOMC set to announce the decision to taper or not taper, forward guide or not forward guide, cut thresholds or not cut thresholds, we thought a reminder of the seven reasons to delay the taper (following what BAML's Ethan Harris calls the recent "punch in the stomach for the economic recovery story") and the four crucial reasons why the Fed can't (or won't) delay the Taper.

The Surest Way To Spot Trouble: When Even The CBO Says There's A Problem

In light of this morning's Obama-Boehner volleys, we thought a reflection on the facts was useful. The Congressional Budget Office (CBO) released its 2013 Long-Term Budget Outlook yesterday morning, and its government debt projections are dismal... But the CBO’s featured chart only tells a small part of the story. The baseline scenario happens to be bogus. Even as it shows our addiction to debt worsening, it doesn’t do justice to the severity of that addiction. (You may want to show the chart to your children. After all, they’ll be the ones who’ll have to deal with the debt we’re piling on today.)

The Complete FOMC Announcement Preview

  • Expectations for Fed to begin to taper asset purchases by USD 10-15bln
  • Ranges for pace of Treasury purchases: high USD 45bln, low USD 25bln
  • Ranges for pace of MBS purchases: high USD 45bln, low USD 30bln
  • Some see FOMC lowering unemployment threshold from current 6.5%
  • Summary of Economic Projections and Press Conference from Fed Chairman Bernanke follow the announcement