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Advance Look At The January FOMC Minutes: Is The Fed Starting Exit Strategy Discussions?

Tyler Durden's picture




 

In advance of tomorrow's FOMC minutes releasae (2pm Eastern) Goldman shares some interesting thoughts on what may be disclosed. The key variable is whether, just like in the minutes from early 2010, the Fed will once again jump the shark (what is the creature of jump choice when jump is done twice in one year?) and commence discussions of exit strategy. If, as Goldman expects this might be the case, expect the market to plunge as there is nothing organic about this Fed liquidity driven pump of over 600 S&P points. To wit: "Is the FOMC turning its attention back to its ultimate exit strategy?  It is premature to assume that the FOMC has any preset schedule for the “exit strategy” that was discussed widely—inside and outside the Fed—in early 2010.  After all, the LSAP program is only about half completed, and the default assumption appears to be that it will run its course until mid-2011.  That said, it is never premature for the committee to revisit its options, particularly during the longer two-day sessions that allow time for more strategic thinking.  Thus, we would not be surprised to see some discussion, if only a brief review of familiar tools and strategies for the exit strategy that will ultimately be needed.  The mere existence of such a discussion would not be meaningful in itself, though obviously the language surrounding it would have the potential for market impact, whether justified or not."

From Goldman's Ed McKelvey

The FOMC meeting held in late January produced no significant surprises, keeping the policy settings unchanged and modestly upgrading the committee’s assessment of the US economic outlook.  Even so, market participants will scrutinize the minutes to that meeting, due for release tomorrow afternoon, for evidence of any shift in the committee’s views.
 
-        In particular, these minutes will update the FOMC’s “central tendency” ranges for growth, unemployment, and inflation.  We expect the committee to raise the 2011 growth range by about ½ percentage point.  It is also conceivable that more meeting participants raised their estimates of the longer-run sustainable rate of unemployment.  Changes in the inflation ranges should be modest—down for core, up for headline—and confined to the near term.
 
-        Although the 11-member voting rotation was unanimous in approving the policy statement in January, the fuller discussion of views in the minutes could well expose differences of view on the appropriateness of the long-term asset purchases.  And, although an exit strategy is some distance off, it is quite possible that the improved outlook motivated the committee to review its options once again.
 
The last meeting of the Federal Open Market Committee (FOMC), held on January 25-26, 2011, produced no major surprises when the policy statement was released in the early afternoon of January 26.  In a unanimous decision, the committee kept in place its two key balance-sheet policies (the reinvestment of MBS and agency principal repayments in US Treasury securities and the continuation of the $600bn Treasury purchase program announced in November) and modestly upgraded its assessment of current economic conditions.
 
Although these results were as expected, market participants will still read the minutes of this meeting, due for release at 2:00pm EST tomorrow, with considerable interest.  The key questions, as we see them, focus on how the committee’s economic outlook is evolving but include color on policy issues as well:
 
1.     How much did FOMC members mark up their growth forecasts?  This set of minutes will update the FOMC’s “central tendency” ranges for real GDP growth (fourth quarter to fourth quarter), unemployment (year-end) and both headline and core inflation (also fourth quarter to fourth quarter).  These ranges were last updated at the November 2-3 meeting, when the committee decided to purchase $600bn of longer-term Treasury securities as a means of providing more monetary accommodation to an economy with a stubbornly high jobless rate and an underlying inflation rate that was too low for the comfort of most committee members.
 
The US growth outlook has brightened considerably since then, with many private forecasters marking up their numbers in response.  For example, our forecast for real GDP growth in 2011 has moved up from 2.2% to 3.9% (fourth quarter to fourth quarter), due mainly to an improvement in underlying growth but also to the fiscal bill passed in mid-December; over the same period the comparable Blue Chip median has risen from 2.8% to 3.5%.  Against this backdrop, we anticipate an upgrade to the FOMC’s 3.0%-3.6% central tendency range for growth in 2011, probably on the order of about ½ point.  The growth ranges for 2012 and 2013 are already higher—about 3½% to 4½% in both cases—and are unlikely to move a lot from these levels.
 
2.     Has their view on the longer-run sustainable level of unemployment risen further?  The central tendency range for this group estimate of the so-called NAIRU (Non-Accelerating Inflation Rate of Unemployment) widened considerably in November, to 5.0%-6.0% from 5.0%-5.3% as of the June 2010 forecast.  However, on closer examination the widening of this range reflected significant changes on the part of a few meeting participants.  Whereas in June only two of 17 thought the longer-run level of unemployment was higher than 5.4%, in November five of 18 were in this category—enough to push the upper end of the central tendency to 6.0%.  (The central tendency ranges omit the top three and the bottom three estimates.)  Most of the others felt that the frictional unemployment rate had risen only slightly—perhaps by a tenth or two.
 
Although the unemployment rate has fallen by 0.8 percentage points in the past two months, the FOMC was aware of only the first of these moves when it met in late January, and that was from a 9.8% level that many observers regarded as distorted to the high side.  Thus, changes to the near-term ranges—8.9%-9.1% for the fourth quarter of 2011 and 7.7%-8.2% for the fourth quarter of 2012—are apt to be small, on the order of one or two tenths of a point.  And it is conceivable that the minority who feels that the longer-term jobless rate has risen to around 6% might grow a bit.
 
3.     Did their inflation views change?  We see the potential for at least small changes—in opposite directions—to the FOMC’s central tendency ranges for core and headline inflation in 2011.  Although December readings on the PCE (personal consumption expenditures) price index and its core (ex food and energy) component were not available in time for the January FOMC meeting, it was clear that the core index would post a year-to-year increase below the 1.0%-1.1% central tendency range for 2010.  (The actual figure was 0.8%.)  We would be surprised but not shocked if this failed to prompt a modest reduction to the upper end of the 0.9%-1.6% range for 2011.  At the same time, the ongoing pressures on prices of food and energy could well have prompted an increase in the headline range of 1.1%-1.7%.  However, we see no reason why the longer-run range for (headline) PCE inflation should change from the 1.6%-2.0% level reported for November.
 
4.     How did the staff forecast change?  The staff updates its forecast for every FOMC meeting, so it had the opportunity to take on board some of the changes described above in the outlook it presented at the December 14 meeting.  However, the minutes of that meeting indicate growth upgrades were confined to the “near term.”  With most indicators continuing to suggest underlying strength, especially when adjusted for weather influences, we expect to read about further upgrades at the January meeting.
 
5.     How deep are the differences of opinion with respect to the long-term asset purchases (LSAPs)?  The unanimous vote at the January FOMC meeting should not be taken as a sign of harmony within the group.  At least two voting members (Presidents Plosser of Philadelphia and Fisher of Dallas) plus two more participants (Presidents Lacker of Richmond and Hoenig of Kansas City) have expressed reservations if not outright opposition to the purchase program now in progress.  In particular, both of the voters in this group have indicated that they would oppose the extension of this program, at least under current economic conditions.  While it is unlikely that the committee formally considered an extension of LSAPs (this is unlikely until the April 26-27 meeting), any reference to the possibility would likely have drawn some opposing views by members of this group.
 
6.     Is the FOMC turning its attention back to its ultimate exit strategy?  It is premature to assume that the FOMC has any preset schedule for the “exit strategy” that was discussed widely—inside and outside the Fed—in early 2010.  After all, the LSAP program is only about half completed, and the default assumption appears to be that it will run its course until mid-2011.  That said, it is never premature for the committee to revisit its options, particularly during the longer two-day sessions that allow time for more strategic thinking.  Thus, we would not be surprised to see some discussion, if only a brief review of familiar tools and strategies for the exit strategy that will ultimately be needed.  The mere existence of such a discussion would not be meaningful in itself, though obviously the language surrounding it would have the potential for market impact, whether justified or not.

 

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Tue, 02/15/2011 - 21:35 | 965528 Turd Ferguson
Turd Ferguson's picture

Some of The Turd's favorite oxymorons:

Jumbo Shrimp

Jobless Recovery

Peace Process

Congressional Oversight

Fed Exit Strategy

Tue, 02/15/2011 - 21:37 | 965530 Pants McPants
Pants McPants's picture

Military intelligence

Tue, 02/15/2011 - 21:49 | 965560 dlmaniac
dlmaniac's picture

Inject demand (Nancy Pelosi)

Tue, 02/15/2011 - 22:08 | 965600 duncecap rack
duncecap rack's picture

Federal reserve. Like they got a ton of money they saved up by careful saving to judiciously spend when need be.

Tue, 02/15/2011 - 22:33 | 965665 Hedge Jobs
Hedge Jobs's picture

war on terror

Tue, 02/15/2011 - 23:19 | 965758 william the bastard
william the bastard's picture

Looks like a 5 way troll circle jerk north of here.

Tue, 02/15/2011 - 23:49 | 965814 LowProfile
LowProfile's picture

Better make that six.

Wed, 02/16/2011 - 05:34 | 966073 slewie the pi-rat
Wed, 02/16/2011 - 06:46 | 966117 MarketTruth
MarketTruth's picture

Sacrificing liberties for freedom.

Wed, 02/16/2011 - 06:50 | 966118 Bringin It
Bringin It's picture

Junks tell a different tale WTB.  Weak

Tue, 02/15/2011 - 21:49 | 965559 mick
mick's picture

plastic rice

Tue, 02/15/2011 - 23:12 | 965743 william the bastard
william the bastard's picture

Turd

(frontrunning the top post or not at all- refusing any discussion with the gold pimp swap meet sidewalk barker):

A perro flaco, todo son pulgas

Tue, 02/15/2011 - 22:09 | 965604 High Plains Drifter
High Plains Drifter's picture

Silver bubble

Tue, 02/15/2011 - 22:22 | 965639 bankrupt JPM bu...
bankrupt JPM buy silver's picture

Netflix to $1500!

 

www.silvergoldsilver.blogspot.com

Tue, 02/15/2011 - 23:14 | 965746 william the bastard
william the bastard's picture

pimp your malware infected website

Tue, 02/15/2011 - 22:11 | 965609 buzzsaw99
buzzsaw99's picture

Creative Accounting

Tue, 02/15/2011 - 23:29 | 965776 High Plains Drifter
High Plains Drifter's picture

Tea Party

Wed, 02/16/2011 - 00:29 | 965864 Urban Roman
Urban Roman's picture

Clean coal

Wed, 02/16/2011 - 00:44 | 965882 dark pools of soros
dark pools of soros's picture

Diet Coke

Wed, 02/16/2011 - 00:50 | 965885 hambone
hambone's picture

Peaceful revolution

Wed, 02/16/2011 - 01:15 | 965920 PrDtR
PrDtR's picture

Common Sense

Wed, 02/16/2011 - 05:59 | 966071 Quintus
Quintus's picture

This is just another attempt at jawboning to keep the market uncertain which way things are headed.  The only exit strategy The Bernank is seriously considering involves a G6 loaded with gold and a non-extradition country.

Wed, 02/16/2011 - 06:53 | 966122 Bringin It
Bringin It's picture

Exactly!  What are they gonna do?  What are they gonna do?

Some already know.

Why we don't want the FED.

Wed, 02/16/2011 - 08:47 | 966224 BigJim
BigJim's picture

Well... maybe they've decided it's time for another dip, so they can announce QE3 to enable the banks can buy up anything they don't already own?

Wed, 02/16/2011 - 08:23 | 966178 razorthin
razorthin's picture

birthright

Tue, 02/15/2011 - 21:38 | 965532 flaunt
flaunt's picture

Exit Strategy:  Hold on and pray.

Next?

Tue, 02/15/2011 - 21:41 | 965536 Alchemist
Alchemist's picture

"Fed liquidity driven pump of over 600 S&P points"

Where do you get the "600" ? Have you seen credit spreads? earnings?

One can understan blaming the fed for 100-200 pts of rally but 600 is a bit overdoing it.. What analysis are you using to come up with that number other than" lets see what i can pull out of my ass"


Tue, 02/15/2011 - 22:10 | 965605 Hedge Jobs
Hedge Jobs's picture

Alchemist, you are obviously not very familiar with the initial stages of monetary inflation. Go and do some homework before making stupid comments.

Im more concerned about who wrote "the longer two-day sessions that allow time for more strategic thinking" was that TD or GS? Strategic thinking? I always imagined them sitting around doing satanic rituals, sacrificing virgins and that sort of thing.

Tue, 02/15/2011 - 22:55 | 965705 topcallingtroll
topcallingtroll's picture

As you might have guessed.....no analysis.

Wed, 02/16/2011 - 01:19 | 965925 Hedge Jobs
Hedge Jobs's picture

There is about 5 months worth of analysis posted on this website that has also been published by the FED itself. They are called POMO schedules. Over $300 billion in FED created money has now been pumped into US economy. You really think this free money doesn't effect company earnings and bond spreads as it goes through the economy? Monetary inflation induced economic gains are illusory. Believe in them at your own peril.

Wed, 02/16/2011 - 04:30 | 966044 morph
morph's picture

Well the few trillion in QE1 + QE2 should just about cover 600, points.

Stocks are a function of liqudity not value my friend.

More liquidity just means more ridiculous valuations.

Wed, 02/16/2011 - 08:42 | 966213 razorthin
razorthin's picture

"Science of Economics" - how's that for another oxymoron.  Because You cannot isolate the Fed liquidity "variable", and you cannot know how other factors would have shaken out without it, in this bizzare case it might very well be the only "independent variable".  Conjecture might suggest the liquidity is responsible for more than a 1,000 SPX points.

Tue, 02/15/2011 - 21:45 | 965549 Shameful
Shameful's picture

The exit strategy?  You mean all the C-130s loaded with gold and hookers?  Yeah I'm sure those are fueled and ready to go at a moments notice.  Probably talking about what island paradise they have picked out for themselves.

If you meant raise rates or stop QE, well then look at the C130s.  Would see them using them once interest rates took off with no one to buy the infinite deficit spending.

Tue, 02/15/2011 - 21:49 | 965561 LostWages
LostWages's picture

+10.

Another option that they should, but sadly won't use is "Jump You Fuckers!"

Tue, 02/15/2011 - 22:29 | 965657 Caviar Emptor
Caviar Emptor's picture

Exactly. C130s staffed by black ops dudes 

Wed, 02/16/2011 - 05:47 | 966087 slewie the pi-rat
slewie the pi-rat's picture

 

not 2 mention lazer guided surgeons & mini gats, hef Zquat

Tue, 02/15/2011 - 21:50 | 965564 TradingJoe
TradingJoe's picture

"exit strategy" :-()))))))))))) lets just call it CRASHHHHHHH...and get over with it, eh?!

Tue, 02/15/2011 - 21:52 | 965569 duncecap rack
duncecap rack's picture

The squid is right. This is important. If they talked about exit strategies at all the market might have a grand mall seizure and the whack-a-mole commodity markets might get even crazier.

Tue, 02/15/2011 - 21:54 | 965573 Notimpossible
Notimpossible's picture

QE3 is dead, in fact the trade of the year will be taking the other side of the perception of infinite QE, as a modest or even weak economy won't trigger further quantitative easing. Which means we get potentially a growing economy but multiple contraction. PM's look vulnerable, inflation expectations look too high, and the only question is who will be the greater fool in the QE trade.

Tue, 02/15/2011 - 22:01 | 965586 Shameful
Shameful's picture

So with no QE, short treasuries and make a fortune.  Looks liek the Chinese are full and action packed with problems, the Japanese will get sick sooner or later.  I can't imagine the guys masquerading at the UK will keep up buying (unless it is the Fed).

The reason why it will be QE forever is there is not enough capital floating around the planet at the rates needed to keep the ponzi moving.  No QE and rates move and the economy shudders to a halt.  The end game of no QE is dollar death.  So might take a beating initially but the long term PM holder will get paid when the bond market beats the tar out of the US with no QE.

Tue, 02/15/2011 - 22:11 | 965610 Notimpossible
Notimpossible's picture

The natural state of the economy coming out of the credit bubble is Deflationary, the only thing keeping it from reverting to that state is big reflation. Take the pedal off the gas and yields drop...QE artificially lifts inflation expectations/yields...popular misconception, look at yields when QE 1 ended.

Tue, 02/15/2011 - 22:28 | 965636 Shameful
Shameful's picture

So there is really an infinite pile of capital out there aching to go into low yield US paper?  1.5 trillion a year, world GDP is what 62 trillion?  My math tells me that is about 2.5% of world GDP that needs to be saved just to roll into the maw that is the Fed Gov.  Every year, forever.  Oh and turns out basically all nations and states are running deficits, but I guess there is infinite capital out there for them to.  Good thing that these govs produce lasting value...

Go long on Treasuries then, I don't care, your money or your investors.  We should head into a deflationary depression, and if they step off the gas that should be true.  But where is the cash going to come from to fuel the world wide debt binge?  People will eventually realize that the full faith and credit of a bankrupt nation doesn't mean all that much, then the dollar is looked at in a different light.  I suppose you can argue that the Fed and states will produce a balanced budget, but that's not something I would place money on.  After all in a deflationary environment tax revenues should go into a tailspin...raising the deficits further.

Hey maybe I'm wrong, hope I am.  I just don't see a way out without radical cutting.  And lets face it, don't see a lot of willingness to do that.  We are not Japan, our savings rate does not let us self finance this debt.  If there is no Fed buying then it must be the kindness of strangers.  And those strangers are looking lean.  No QE kills oil prices and ME oil money, China is staggering, Japan is broke, EU is punch drunk...I'm really just not seeing where the money will come from.

Tue, 02/15/2011 - 23:34 | 965684 hambone
hambone's picture

So there is really an infinite pile of capital out there aching to go into low yield US paper?  1.5 trillion a year, world GDP is what 62 trillion?  My math tells me that is about 2.5% of world GDP that needs to be saved just to roll into the maw that is the Fed Gov

Shameful,

you are far too optimistic - look at all the T's in need of rollover...you are only looking at new issuance (which will be closer to $2T).  US has $14.2T in debt w/ average maturity of bout 5yrs.  Given US never pays debt but only rolls it over, on average, would mean US needs to roll 1/5th of debt every year...that's a little under $3T that is needed to repay investor principle and allow for repurchase of a new T (the actual amount of money rolled is much higher as much is in very short term bills getting rolled every 30, 90, etc. days).  But for our purposes it takes $3T of investors wanting to maintain T's exposure plus $2T in new purchasers. 

That is $5T annually in low yielding T's "someone" needs to buy in the face of dollar devalaution and ultimate inflationary fears.  And the % of world GDP getting sucked into simply maintaining T's is getting closer to 10%...a complete aberation from historical norm when this # was closer to 1% to 2% as recently as '00 and at yields at the short end that were near 5% rather than .5% offered now.

Since this is multiplied globally by many nations and obviously this money does not exist - Fed and CB's are creating massive "money" to maintain the debt market.  Inflation is guaranteed and QE cannot stop...anyone suggesting an end to QE must first explain where the dollars to maintain the debt market would come from...cause absent Fed "money" every other asset would have to be stripped to simply maintain governmental debt or run a balanced budget and begin paying down debt...haha (choosing the long term over short term, the painful cure over pain killer ain't our thing).

BTW - debt (not even considering unfunded liabilities) is now or will shortly be larger than stated GDP.  Growth of debt and interest repayments is growing faster than tax revenues even based on 5% GDP growth.  Those that may feel queasy or slightly ill are likely only perceiving the motion that is the increasing inertia of our DEATH SPIRAL.

Tue, 02/15/2011 - 22:53 | 965695 Caviar Emptor
Caviar Emptor's picture

Agree. They try to talk a good game but don't be fooled: they know if they end QE or any expansive monetary stimulus policy (whatever new name they want to give it) they'll soon have to auction off the Statue of Liberty and Golden Gate Bridge. The US is no longer in a position to  move unilaterally either. The current group think by central bankers and politicians is globally sustained stimulus. Keep in mind my theory of mutually assured financial destruction: US Treasury is too dependent on China not to keep stimulus going. And Europe needs to keep their stimulus going. There are reasons beyond economics why this situation can not be stopped. 

Wed, 02/16/2011 - 06:26 | 966110 Hedge Jobs
Hedge Jobs's picture

"QE3 is dead" Yeah right! its dead while the stimulatory efects of QE2 go through the economy but once they stop its QE3 or deflation. Just like with QE2 once QE1 wore off. Deflation will wipe out the banks so Bernanke, who is employed by the banks, will never allow it to happen.

"even weak economy won't trigger further quantitative easing"

Why not? This was enough of a reason to trigger QE2 why not QE3?

 

Tue, 02/15/2011 - 22:17 | 965611 Math Man
Math Man's picture

Goodbye, PMs and commodities.

The speculative QE demand will quickly turn in to supply.

I don't think stocks will crash though... ending QE means the recovery is stronger than anticipated.

And that will be read as very bullish.

Tue, 02/15/2011 - 22:54 | 965703 Caviar Emptor
Caviar Emptor's picture

I'll take the other side of that trade gladly after a brief dip

Tue, 02/15/2011 - 22:54 | 965704 Caviar Emptor
Caviar Emptor's picture

I'll take the other side of that trade gladly after a brief dip

Wed, 02/16/2011 - 00:00 | 965830 High Plains Drifter
High Plains Drifter's picture

Hey mathman, don't ever make the mistake of confusing commodities with real money as stipulated by our own constitution as well as thousands of years of human history.

 

Read my lips. QE will never end. It is about much more than getting the economy going again. It is about the destruction of the United States.

Wed, 02/16/2011 - 08:51 | 966241 tarsubil
tarsubil's picture

I don't think it is so much about destroying the US as much as it is about buying and owning the US.

Wed, 02/16/2011 - 00:51 | 965887 Bastiat
Bastiat's picture

Hey mathman, how's your massive silver put position doing?  Time to double down?

Wed, 02/16/2011 - 01:16 | 965921 trav7777
trav7777's picture

huh?  if the recovery is strong, then demand will drive up commodity prices.

Morons think we will have a global boom reflecting necessarily growing consumption of energy but that the price of oil will...crash??!?

Wed, 02/16/2011 - 05:56 | 966093 slewie the pi-rat
slewie the pi-rat's picture

 

MatressMan:  NEVER 4get 2 BTFD.  justin casey yer wrong, 4 1nc in yer life, got cash?  got PM'z?

Wed, 02/16/2011 - 14:33 | 967457 Fearless Rick
Fearless Rick's picture

Hey, Math Man, please stop posting. Pythagoras is spinning in his grave over your use of the word "MATH" when you in fact are just grasping at air.

When stocks hit the headwinds of realistic valuation, you'll wish you'd bought some silver at $30, like I did today.

Hold onto your shorts, especially if they're cotton because even with the stains from you repeatedly shitting in them, they'll be worth substantially more than stocks, with which you can wipe your smelly ass.

Tue, 02/15/2011 - 22:13 | 965612 buzzsaw99
buzzsaw99's picture

They bat one hawkish eyelash and the market goes into freefall. Then we are back at qe infinity faster than you can say zirp take me away.

Tue, 02/15/2011 - 22:54 | 965707 Caviar Emptor
Caviar Emptor's picture

Yup

Tue, 02/15/2011 - 22:14 | 965616 Snidley Whipsnae
Snidley Whipsnae's picture

If the Fed abandons QE2 after making the claim that it was going to run until ~ July, the psychological impact on mkts around the world would be huge. The Fed would also further undercut it's credibility...if that is possible, and the perception would be that the Fed has totally lost control of the economy, and it likely has after seeing the long bond trashed.

The Fed does not want to lose face by curtailing the program early so I see QE running until at least June...regardless of the hellish situation in commodities.

Even a hint of an interest rate increase would cause big sell offs in various asset classes and would probably require an accompanying default to avoid the steep increase in interest payments on treasuries.

Fed is stuck between rock and hard place. Ben should have stuck to teaching theoretical economics to dumb rich kids.

"When you are up to your ass in alligators it's difficult to remember that you started out to drain the swamp" ...by Florida Cracker

Tue, 02/15/2011 - 22:25 | 965649 Shameful
Shameful's picture

Needs a big sell off.  While I think it will be QE forever I fully expect them to head fake a stop.  Parade out the hawks and have Zimbabwe Ben be non committal.  Let the Pigmen know to take the market down.  In the chaos claim that liquidity was being drawn to quickly and it sparked a panic because of those evil speculators then pile in hot and heavy to drive the markets back up, something like a statement "We will do whatever is necessary from now on to protect the recovery".  Showing the masses it was just a blip in confidence and hopefully hurting the commodity longs enough to make them think twice about going long, buying time into 2012.

There is no long term way out.  Got to look at what they can do to keep the gaming going, that's all.  This game still has legs in it, play accordingly.  Many will be amazed at the moves and twists the big boys play but the end result is the same, a flaming wreck of a nation and currency.

Tue, 02/15/2011 - 22:46 | 965689 topcallingtroll
topcallingtroll's picture

it won't necessarily take a conspiracy for any bad stuff to happen after qe2 stops.  We have at least one inflationary scare and one deflationary scare ahead of us.  And that is assuming congress eventually puts the budget on a sustainable course.

Tue, 02/15/2011 - 23:03 | 965719 Caviar Emptor
Caviar Emptor's picture

 I fully expect them to head fake a stop.  Parade out the hawks 

Hehe. Don't buy their BS. They just fired the biggest hawks on both sides of the Atlantic. 

Actions speak louder than their phony rhetoric. It's sounding more and more hollow, but they have to keep up appearances. That will be the modus going forward. Every government is keeping up appearances and kicking cans on a daily basis. UK GDP just turned negative. So much for the 'austerity' experiment. Greece GDP is negative: let's all pretend we didn't hear that cause it doesn't actually change a thing. NYSE just got taken over. Ignore it, it was a small price to pay and surely not a sign that there's no real private money in the markets. Nope. Those are beautiful new clothes, your majesty

Wed, 02/16/2011 - 07:03 | 966128 Bringin It
Bringin It's picture

Nice post.  Shameful's too.

Tue, 02/15/2011 - 22:49 | 965687 topcallingtroll
topcallingtroll's picture

I am pretty sure the Fed will finish out qe2 no matter what.  As a long time fed watcher it seems clear that to stop early would seriously disrupt the economy for psychological reasons if anything else.  Markets need predictability.  There won't be a muni bailout through the Fed.  Bennie made that clear in his recent testimony.  There won't be an immediate qe3.  Monetary policy has a lag to it.  They will wait a few months and then telegraph well in advance any qe3. The fed is not as stupid as some of you might think.

Tue, 02/15/2011 - 22:16 | 965624 Stuart
Stuart's picture

The fiscal deficits all but assures QE to infinite.   The beast needs to be fed.

Tue, 02/15/2011 - 22:32 | 965664 ebworthen
ebworthen's picture

 

O.K.  So...in response to Republican threats to cut spending FED raises rates and stops QE 2.5 or QE 3.

Then?

House sales collapse, unemployment spike, and what do precious metals do?

 

Tue, 02/15/2011 - 22:49 | 965694 topcallingtroll
topcallingtroll's picture

fall off a cliff

Tue, 02/15/2011 - 23:19 | 965762 Stuart
Stuart's picture

agreed, but only for a very short term and would represent a FABULOUS buying opportunity. 

Tue, 02/15/2011 - 22:41 | 965679 topcallingtroll
topcallingtroll's picture

C'mon Bernanke.  I know you have a crappy car, with bad tires, bad brakes, a mud covered windshield, a crappy engine, and a congress that has loaded down the car with thousands of pounds of deadweight, but I believe in you.  You can get the car through the obstacle course in time.  If anybody can pull it off you can, Mr. Perfect SAT Score.

All these buggers and yankers don't have any solution.  They say the car is going to crash anyway, so they think you ought to just take your hands off the steering wheel and let it crash now.  I don't think that is a solution.   Gold hoarders out of their own self interest want to see lots of people suffer so they can make a lot of money.  That puts them in the same moral and ethical category as bankers.

Just ignore the people who want to grab the wheel and force a crash.  We haven't hit hyperinflation yet.  We haven't gone into a deflationary spiral.  You are driving pretty well so far.

I also know that you really didn't like having to bail out the banks.  I think we could have nationalized them and zeroed out the stock and bondholders.  We could have put a few in jail, but that wasn't your decision.  I don't know how you would have called it, but you didn't have the power to make the call.  You had some limited power and made a decision to triage.  Yeah a few third worlders may starve because their governments won't conduct independent monetary policy, but that is not your fault.

 

Just keep driving Ben.   You may crash, but at least you gave it a try.  Deliberately swerving into oncoming traffic is an option only lunatics and gold hoarders (who think after the crash they will be the new aristocracy) would espouse.

Tue, 02/15/2011 - 23:54 | 965817 hambone
hambone's picture

Sorry - I didn't see the <sarcasm on...sarcasm off> signal above.  If you are serious...you are an idiot.

There are solutions and there are actions to be taken rather than step on the gas to ensure all inhabitants in the car will be destroyed in the spectacular crash.  Continuing to lie and deceive common Americans is the cruelest action our government could take. 

Wed, 02/16/2011 - 01:25 | 965919 GoinFawr
GoinFawr's picture

"...only lunatics and gold hoarders (who think after the crash they will be the new aristocracy) would espouse."

You mean GS alumni hitmen that have infiltrated central banks all over the world? Sovereign nations? 'Cuz they have most of the gold already 'cous', and are grabbing all they can while the fiat is still good; as if you didn't know.

Or am I right in thinking you are referring to the people posting here that are merely trying to protect what little wealth they might still have left from the above elitists? Who at best might be able to form some sort of new middle class if your outlined scenario unfolds.

In which case I would have to ask: who's fucking side are you on, anyway?

Wed, 02/16/2011 - 06:20 | 966108 slewie the pi-rat
slewie the pi-rat's picture

 

xlnt zequest-i-own, GF.  deZe boyz never miss a beat.  tighter than Jetho Tull, 4 ever and ever...Ztribe ticktickTimmyBanjoke

Wed, 02/16/2011 - 01:54 | 965949 ConfusedIdiot
ConfusedIdiot's picture

Right on TCT. BB is neither a fool nor an idiot. Quite a brilliant player with deep roots in the little town of Dillon S.C. where the clapboard houses still remind you of the Last Picture Show. Our Congress Critters sat him up - they send him the bill for the overdrafts and expect him to find some way to pay. So far contrary to the D&G he has kept us in the game. BB knows this is a fiscal issue at heart and if Congress doesn't act then at some point his leger de main will cease to be effective. He sees the impending demand for ever more UST as well. Rollover bills are no problem - it is the mature to cash that have to paid. As for the new deficits - well he has all that new EU printed paper - over a trillion and a half minimum that will find a safe home in UST's. The same goes for all the other fiat printing in the UK, Brazil, and the other emerging markets. Don't think all that offshore US coporate money is going to lie restless in foreign banks that may not be sound either. They will buy Ben's products. And all this against a nice deflationary backdrop as trillions in bad mortgage debt is slowly unwound keeping the cookie monster in check. Of course that's just what I see and I am a CI. Regards, CI

Tue, 02/15/2011 - 22:42 | 965680 Stuart
Stuart's picture

C'mon folks, this is a silly discussion.   Without the Fed, there is no one to buy this level of debt.... it's not a debate point considering what interest rates would do and in turn what this would do to Uncle Sam's ability to service this debt.  It's (exit) not happening....

Wed, 02/16/2011 - 06:53 | 966119 slewie the pi-rat
slewie the pi-rat's picture

 

QE2infinity, but ZeeBonidee sez lisquiditE ain't gonna cure insovinZ, bro.  lookout up below, there!

Tue, 02/15/2011 - 22:42 | 965682 butchee
butchee's picture

I feel the phrase "jumped the shark" has officially jumped the shark....and that any further usage is tantamount to the spinoff, Joanie Loves Chachi.

Tue, 02/15/2011 - 22:48 | 965692 gwar5
gwar5's picture

Any suggestion the Fed exits QE and markets collapse (as expected) and prices drop, too. 

I can imagine the other inpacts on joblessness, spiraling decrease in revenues, debt and defaults.

When QE looks like an alternative you know they've royally fucked it up. They're just making it worse by continuing dow the same path.

 

Tue, 02/15/2011 - 22:54 | 965701 Brokenarrow
Brokenarrow's picture

do you really think this will happen tomorrow?

might as well pray for a terror attack.

Tue, 02/15/2011 - 23:16 | 965747 william the bastard
william the bastard's picture

You strike me as unprepared.

Tue, 02/15/2011 - 23:19 | 965759 Arthor Bearing
Arthor Bearing's picture

Don't they have a name for schemes which pay out current obligations with incoming debt finance and fall apart once investors lose confidence?

Named for a certain signor of Boston's North End?

Tue, 02/15/2011 - 23:46 | 965766 plocequ1
plocequ1's picture
ZH asks, Advance Look At The January FOMC Minutes: Is The Fed Starting Exit Strategy Discussions?

Through careful analysis i have come up with a conclusion.....NO!!!

Tue, 02/15/2011 - 23:30 | 965778 essence
essence's picture

Great debate going on.

Shameful goes to the head of the line by pointing out that its likely no one on this planet will buy U.S. debt now at unrealistically low rates .... other than the banking cabal (known as the Fed) via its QE.  So the question is ... can the Fed/parasitic banksters quit QE without killing its host country that they went to such trouble to establish themselves in.

If rates rise ... the U.S. federal gov is dead (such a shame... 'cuse me while I shed a tear).

If QE continues then the current results of 'hot' money doing what it will...continues.

Looks like Ben is in the hot seat.
Jeez .. couldn't of happened to a nicer guy.

 

 

Wed, 02/16/2011 - 01:15 | 965904 hambone
hambone's picture

Essence,

you are almost there - QE will be maintained long enough in the US to allow for the destabiliation of the poor (those peoples and countries most affected by inflation).  This is the equivelant of financial warfare on the least among us.  There is no other avenue for the US to deal with it's massive deficits, funding gaps, unemployment, etc. (except actually dealing w/ it constructively...haha).

Middle East nations / populace will react either via terrorism or external threat of oil or Isreal (or both).  An "attack" on US soil by some spectacular means will be the false flag that allows the next action.  That ultimately gives the US the ability to make war...the ultimate inflationary engine.  Under a war stance governments are given carte blanche to spend in order to win the war plus capital controls can be enacted, price freezes, wage freezes...pretty much anything under the sun.

I don't think the middle east issues are accidental or unforseen.  Seems with the offer of "democracy" they are being led to their own slaughter.

Wed, 02/16/2011 - 07:12 | 966130 Bringin It
Bringin It's picture

The whole post is great.  This seems infortunately, possibly true. 

I don't think the middle east issues are accidental or unforseen.  Seems with the offer of "democracy" they are being led to their own slaughter.

As far as timing, note that the Patriot Act was extended for 3 months [thru May?] - pointed out above.

Tue, 02/15/2011 - 23:30 | 965781 Milestones
Milestones's picture

Ya know, If ya live near a ritzy area ya might want to scope out some of the plumper, soft strollers for future "loan" negotiations if things get tough like they do in Mexico City all the time.

Never too soon to take a peak into the future for your financial well being. My guess its not too far down the road.     Milestones

Wed, 02/16/2011 - 00:10 | 965845 trav7777
trav7777's picture

I hear kidnapping is big in the 3rd world too.  It will take a very long time before those with means figure out to start driving downscale anonymous cars.

Brazilians of wealth do this all the time.  In Baghdad I remember a story of a millionaire consumer electronics importer who had the Benz's in europe but drove a beater with a cracked windshield at home.  Simply too dangerous to stand out.

Wed, 02/16/2011 - 01:02 | 965903 dark pools of soros
dark pools of soros's picture

and bring your wal-mart bags when shopping in Niemans

Tue, 02/15/2011 - 23:33 | 965787 Caviar Emptor
Caviar Emptor's picture

They'll try to keep a stiff upper lip, a straight face and put lipstick on the pig. But no way will they stop monetary stimulus (QE and other) let alone tighten. That would be game over on any chance for banks to "grow their way out of debt", and for the US Treasury to successfully roll its debt and continue to attract new capital. Global bankers are in agreement to keep stimulus coming (just as they always did even prior to 2008). Only they need more than ever just to keep bond vigilantes at bay and a flow of private capital, no matter how anemic it might be. 

Tue, 02/15/2011 - 23:40 | 965801 poydras
poydras's picture

Talk Talk

Talk Talk

Imagine global interest rates if real savings were required to purchase all of this debt.

Wed, 02/16/2011 - 00:05 | 965836 essence
essence's picture

poydas (aka talk talk)

The point is these jokers won't quit till the walls come crumbling down on them.

Remember the first 'terminator' movie, there was this line to the effect that they feel no remorse, no pain, no pity. That there's no bargining with them.

That's what we have.
The bankers are the status quo and they have fat reserves.

They live in luxury in the Hamptoms, and have escape ranches in Idaho and Patagonia with supplies to last an Ice age.

They'll push things to the limit.
The only way to deal with them is to replace them.

 

 

Wed, 02/16/2011 - 00:07 | 965837 trav7777
trav7777's picture

they will have to make mention of exit strategy but it is jawboning at this point.  They'll say it at precise times to ward off the inflation tide, but seriously...if they were to pull their bids on treasuries, the chasm gapes.  There's simply no way the UST can roll at the rates that would be commanded from a literally BK State, reserve currency or not.

the true trend is deflation and discounting of debt-based instruments to reflect a future of contraction.  There is nothing the Fed can do at this point with interest rate policy to change this.  Japan has not come out of QE after 20 years; why everyone expects the Fed to is beyond me.

Wed, 02/16/2011 - 00:29 | 965861 Dr. Gonzo
Dr. Gonzo's picture

Rumor also has it that they are also going to talk about backing the Fed Reserve note with gold again at this meeting too. As a surpirse present they want to make it fully convertible to the old U.S. standard when they were formed to $20 US dollars per oz. They're talking about using the Grand Canyon as the new depository. Chairman Bernake is going to suprise the American people with an announcement that his office has been hard at work minning gold post Lehman Bros collapse to fix their mistakes and make ammends with the American people. I bet you guys feel pretty stupid now. You thought he was going to leave this country bankrupt. You will all owe him a big appology. While you guys have been paying $1400 perfectly good FRNs for 1oz I've been saving mine for when I can go to the bank and get it for $20 like great grandpappy Gonzo used to. You should be ashamed of yourselves. 

Wed, 02/16/2011 - 06:40 | 966115 slewie the pi-rat
slewie the pi-rat's picture

 

koshRtoungsteerZgotZtonsof tung, eh, leadZippy! V V V nize!

+4z, gopheRgolphur just put the hoZe in the hole and crank her opine.

luv&kizzes,

caddy 4 life

Wed, 02/16/2011 - 00:33 | 965866 Flatchestynerdette
Flatchestynerdette's picture

1. "Is the FOMC turning its attention back to its ultimate exit strategy? "

 

2. "Thus, we would not be surprised to see some discussion, if only a brief review of familiar tools and strategies for the exit strategy that will ultimately be needed. 

3. The mere existence of such a discussion would not be meaningful in itself, though obviously the language surrounding it would have the potential for market impact, whether justified or not."

 

1. HAHAHA

2. Keep talking.......does nothing/slight of hand/move along...move along...

3. excuse me, but there is no language, to date, that has made this market act in a rational fashion, hence you are absolutely correct that whatever potential for market impact whether justified or not - will be counter balanced by dark pools so as nothing appears to have happened at all with regards to  even the discussion and so it renders that even meaningless.


Wed, 02/16/2011 - 00:36 | 965870 essence
essence's picture

$20 an oz for tungsten  ... such a deal!

Wed, 02/16/2011 - 02:24 | 965973 AldoHux_IV
AldoHux_IV's picture

The ultimate exit strategy is when the federal reserve will be finally dissolved and all members be tried for crimes against humanity.

Much like Hitler and the SS, I'm sure they won't be brought to justice.

Wed, 02/16/2011 - 02:47 | 965986 glenlloyd
glenlloyd's picture

exit strategy...now that's laughable.

Wed, 02/16/2011 - 04:29 | 966042 mt paul
mt paul's picture


Is The Fed Starting Exit Strategy Discussions?

ya ...what plane to exit on ..

where we meeting boys peru ...

Wed, 02/16/2011 - 06:01 | 966098 bigargon
bigargon's picture

The Fed is screwed no matter what they do. Ben painted himself in a corner and has no way out.the really problem is in Congress and that "president of the world " Obama. They have to drastically cut the budget, but they all too chickshit to do it. they are all worried about making to the next election cycle. The problem is this country might not make it to the next election cycle if they don't pull thier heads out of there asses.

Wed, 02/16/2011 - 12:11 | 966799 michigan independant
michigan independant's picture

All but four signers risked their lives and fortunes in spite of considerable family obligations. Altogether they had some 305 children.

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