And More Cold Water From Goldman: "Bernanke Speech Suggests Fed Squarely In Zone Of Inaction"

Tyler Durden's picture

Following the earlier note on the "irrational exuberance of QE3" at current conditions, Goldman does a one-two to the face of the long-only slow money crowd which are about to realize that what goes up the escalator, will go down the elevator, repeating that the next round of monetary easing "would require a notable further deterioration in the outlook to be considered seriously." As a reminder the only "outlook" the Fed keeps an eye out on is the 50 DMA of the Russell 2000.

Just out from Jan Hatzius:

Fed Chairman Bernanke's speech at the International Monetary Conference acknowledges slower growth but views this as at least partly due to temporary factors.  Easy monetary policies “are still needed” given the economy continues to perform “well below its potential.”

1.     Fed Chairman Bernanke began his remarks by acknowledging the "slower than expected" growth so far this year.  He specifically cited supply chain disruptions stemming from the Japanese earthquake and tsunami as a factor slowing growth in Q2.  However, despite the "frustratingly slow" pace of recovery thus far, Bernanke sees growth as "likely to pick up somewhat in the second half of the year" as manufacturing activity normalizes and gasoline prices ease a little.

2. Noting the headwind from fiscal drag, Bernanke emphasizes the need to “move quickly to enact a credible, long-term fiscal consolidation plan.”  His wording makes clear that he sees a strong case for rapid decisions and action, but a tightening that is gradually phased in so as not to be “self-defeating”.   Such a plan could also provide short-term benefits if it improved confidence and/or lowered long-term borrowing rates.  In the question and answer session following the speech, Bernanke ducked a question asking him to choose between near-term stimulus and long-term tightening, repeating that he saw the problem as fundamentally long-term in nature. 

3. Bernanke notes "the recent increase in inflation is a concern" but suggests that "there is not much evidence that inflation is becoming broad-based or ingrained in our economy".   Given that gasoline prices account for most of the pickup in inflation, Bernanke takes the view that "developments in the global market for crude oil...rather than factors specific to the US economy" are the main driver of higher inflation in recent months.  Bernanke goes on to argue that the sharp increase in commodity prices in recent years is primarily driven by strong gains in global demand alongside constrained supply, rather than the byproduct of easy Fed policies.  In any case, he expects considerable labor market slack and stable long-term inflation expectations to keep US inflation restrained going forward.

4. No surprises in the commentary on monetary policy:  "QE2" is to wind down at the end of the month, but reinvestment of principal payments on the Fed's securities holdings will continue.  In Bernanke's words: "Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established."  That implies a fairly high bar for any monetary tightening.  At the same time, there is of course no mention of the possibility of another asset purchase program--this would require a notable further deterioration in the outlook to be considered seriously. In short, we remain well within the “zone of inaction” for the Fed.

5. In the question and answer session following the speech, Bernanke attributed recent weakness in the US dollar partly to the relaxation of risk aversion following the crisis, and partly to the “quite weak cyclical position” of the US economy relative to many trading partners (especially emerging markets).  In his view, the best way for the Fed to support the dollar “in the medium term” is to keep inflation stable and help the US economy recover.

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Alea Iacta Est's picture


Check this out:

You nailed it and now others are realizing it.

SHTF time.

Tyler Durden's picture

Dick Bove upgraded Lehman to a Buy 3 weeks before its bankruptcy. In the pantheon of irrelevant, pathologically clueless career circus performers, he is just below cramer.

Alea Iacta Est's picture

Fool he may be, but even so, he is catching on: “These numbers indicate that the banking system never put the QE2 money to work in the economy,” he says. “They simply redeposited it back in the Federal Reserve itself. However, the new money did have one clear impact. It drove up asset values.”

Game on S&P 1100! (or more)

Reese Bobby's picture

You do not want Dick Bove on your side. 

NotApplicable's picture

It's bait and switch time. Looks like he is setting up to be the anti-QE3 cheerleader (by telling the truth too late) in order to help break everything, creating the mandate for... QE3!


At which time he will shut up again, until he is needed to handle the next message.

Hegel would be proud.

buzzsaw99's picture

True dat. However, the fact that Bove and Dimon are whining is the first positive sign in years.

overbet's picture

Anybody? GLD today pacific time

13:17:01 150.43 8 FINRA TRF 13:19:25 150.42 4 PCSE 13:19:25 150.43 4 PCSE 13:19:25 150.43 2 NSDQ 13:19:31 150.38 1 PCSE 13:19:58 1,150.43 100 CHX 13:23:13 150.41 1 PCSE 13:23:38 150.37 1 CBOE 13:19:58 150.43 100 CHX 13:25:13 150.38 1 PCSE 13:26:56 150.36 2 BATS

knukles's picture

It took Little Dicky "weiner envy" Bove this long to figure that out?  And CNBS this long to stage the Revelation?
The timing's about as propitous as Camping's Rapturefest of last week.

disabledvet's picture

speaking of Lehman, have you checked the chart lately TD?  maybe it was just a case of "bad timing"?

disabledvet's picture

still trading.  6 pennies.  i agree "tough day today, down 28 percent."  still, has a high of 11 pennies.  still doesn't have the "billion bucks" from Barclay's yet ("appealed")--sounds like a lot of money.  who knew something so little could be so expensive?

Spalding_Smailes's picture


Paging Anton Valukas: Dick Fuld Secretly Transferred Jupiter Island Home To Wife

Posted by Tyler Durden  FRIDAY, JANUARY 23, 2009

While John Thain will be enjoying his creme of the crap status of reviled interior decorators for some time, Dick Fuld is about to upstage him in the shady asset transfer category. Cityfile hasbroken the following bombshell: the Gorilla's $13 million home on Jupiter Island, which was held by both Mr and Mrs Dick, was recently transferred singly to Kathy. Dick sold his portion of the house on 265 S Beach Rd, Jupiter Island to his wife for the princely sum of $100. The transfer occurred on November 10, as the sordid details of Lehman's bankruptcy were becoming public knowledge.



XRAYD's picture


In what many consider to be the boldest call on the Street in a while, Punk Ziegel's Dick Bove called Citigroup [C  37.58    -0.49  (-1.29%)   ]the best buying opportunity he’s ever seen. 

I think the stock will be trading at $55 in the next 3 years, concludes Bove, which is double from where it is at the present time. “You only get a once in a generation chance to buy a stock like this at this price. This is it,” he says. (March 7, 2008)


And Cramer from the WSJ last week - 


Sent out under Mr. Cramer's name, with the subject line "My portfolio is CRUSHING the S&P 500," the email said Action Alerts PLUS is "producing some truly incredible results." From Jan. 1, 2002, to April 1, said the email, the portfolio's "total average return has averaged more than DOUBLE the return of the S&P 500." An accompanying bar graph showed the S&P 500 returning 15.5%, versus 39.2% for Mr. Cramer's portfolio.

Incredible indeed, if you include dividends for Mr. Cramer's portfolio and exclude them for the S&P 500. With dividends, the total return of the S&P over the same period was 38.3%.


I am a Man I am Forty's picture

wish i had the piece you did on how reinvestment of principal payments was not near enough

Buck Johnson's picture

The Fed was paying those banks to keep the excessive reserves at the Fed, which discouraged lending.  You see the Fed used bailout money to bailout banks from all that bad paper.  But in so doing they where paid/told/arm twisted to keep much of the reserves (if not all) at the Fed.  And this was because of the fear of inflation/hyperinflation happening (which is already happening).  They knew that the banks would start over again if allowed to put that money back into the system and re-leverage.  They also knew that if done, all that printed money would do what I described earlier to cause the hot economy to become to hot.  And if they wanted to cool it down they couldn't because raising interest rates would be a dagger on those assets that aren't worth the paper it's written on.  They wanted to hold these assets so that in some future time they can slowly wind them down.

The problem is that these assets where owned by investors, and they still had to be paid regardless.  So the longer you held them the more the value of the house went down compared to the amount of the mortgage or mortgages that where taken out on them, so people where walking away.  And all this shadow inventory that have houses sitting with nobody in it is being damaged to the point that you couldn't sell it if you wanted to for any decent amount of money.  What truly amazed me today was the fact that Obama himself said that he dismisses a double dip recession.  He knows that everything failed and is trying to sing along a silver lining for everybody.

Conrad Murray's picture

That last paragraph is the type of thing that makes you want to smash his face into the ground over and over and over until it is mush, then hang the corpse from the Capitol building's flag pole.

SheepDog-One's picture

These assholes have been claiming the economy is on the verge of recovery for 3 years now, treating us as if we're fuking dumbasses! And maybe we are, for not yet smashing their faces to a pulp and hanging them all up on light poles!

Cdad's picture

Confidence blew with that Fed speech, Dog.  Prepare for Plunging and Screaming trades.  No more free money to criminal syndicate Wall Street = end of the dumbass light volume mark up rally.

So true...three years..."we're almost there" our summer of recovery.  Three years and $7 trillion in fiat stimulous.  Unbelievable that the sheeple are so still and so quiet.  Minus a US default, the sheeple have condemned their children to be the payers of this debt nightmare.

Serfs.  All of us.

cougar_w's picture

Let's see if our children actually pay it though. I'm slowly coming to the opinion that this debt is going nowhere, the next generation is going to laugh at what we've done, and the 100 year central banking clusterfuck is going to end in a spasm of indiscriminate hangings.

asdasmos's picture

And yet ZIRP will still be in effect. QE is half the battle (talk about 'inaction').

Nice Goldman, nice.

Ghordius's picture

ZIRP & the revenues from QE1&2 - is this not already like drinking 24 beers a day? Or am I stranded in time & space? 8-/

asdasmos's picture

It is, but to call the lack of QE3 'inaction' is a little disingenuous.

Re-Discovery's picture

I tried drinking 24 beers one day at the beach. 

I woke up next to 20 empty beers, 2 empty shot glasses and a half bottle of Patron, naked in the bathtub.

I have no idea what happened after beer 13.

Re-Discovery's picture

Agreed.  Weak performance.

mynhair's picture

It's very expensive to achieve a decent blackout.  Too bad they don't last.

(Takillya is the worst - avoid.)

bigdumbnugly's picture

your butt wasn't sore was it?

i imagine it would take a big strong dude to get you up into the bathtub from the beach.

ZeroPower's picture

lol, good anecdote. Reminds me of Oktoberfest last yr, rather, reminds me of beers 6 and before, nothing after.

redpill's picture

We'll all be stranded in zombieville.  Banks sitting on free money from the Fed, milking taxpayers with credit card fees while they have their HFT algos "make money" in a perpetual sideways market of meaninglessness.

It's a dream world built to keep us under control in order to change a human being into a financial slave.  Welcome to the desert of the real.

SheepDog-One's picture

Except there are no jobs.

cougar_w's picture

Yeah that's a sticky problem for them, isn't it.

I think they've lost it. Really lost it. Their entire world is slowly imploding around their heads.

Either they jump or we hang them. It's gonna suck to be a banker.

tiger7905's picture

I think Sinclair's description of equites going into the "Blackhole of Calcutta" without QE as being more appropriate.

Spalding_Smailes's picture


With most S&P 500 companies having reported operating profits for Q1 2011, roughly 68% of them have exceeded analysts’ expectations. The highest rate of upside surprises came from sectors historically associated with the midcycle phase of expansion.

The rate of growth for both profits and sales continued to moderate, relative to recent quarters, but remained at healthy levels. Earnings and sales results surpassed expectations across most sectors.

Earnings guidance has remained firm for the coming year, as companies continued to be upbeat about prospects for profitability despite headwinds from higher energy prices and other macro challenges.

Q1 2011 U.S. earnings update - Fidelity Investments


asdasmos's picture

Will the huge debt overhang and subsequent interest payments put downwards pressure on growth?

Caviar Emptor's picture

Awww...let's watch as it's time for tears on Wall Street: waaaa! no QE! 

By late summer this will blossom into a full blown tantrum: if we don't get QE we're gonna blow ourselves up and take the whole economy with us!

Then the overly indulgent father Ben will come through with ice cream for everybody! Yay!!

topcallingtroll's picture

That has been my call.

Anticipate the inflation deflation swings and play contrarian but it sounds suspiciously easy.

Can the stock market melt up without qe3 and leave me behind in cash?

Spalding_Smailes's picture

Yes. The USA will be booming over the next few years ...

asdasmos's picture

Will the huge debt overhang and subsequent interest payments put downwards pressure on growth?

Spalding_Smailes's picture

No. We have had a brutal debt overhang for a long time everyone is in the same boat. But most peg so they drink uncle ben's inflation and will always feel the pain because of said peg .... The dollar is still King no other choice, not China, not the E.U.

The dollar being low helps the global monsters that call the USA home. Look at the earnings of google, apple, halliburton, boeing, yum brands, starbux, wal mart, ford, prudential, johnson and johnson ....booming over the last 8 quarters



(Reuters) Tue May 31, 2011 - China's regulators plan to shift 2-3 trillion yuan ($308-463 billion) of debt off local governments, sources said, reducing the risk of a wave of defaults that would threaten the stability of the world's second-biggest economy.

The plan is the first concrete move by the government to tackle the bad debt in local government financing vehicles.



Chinese Economy: Victor Shih, Awash in Debt

Victor Shih 

Wednesday, February 10, 2010 Looming Problem of Local Debt in China-- 1.6 Trillion Dollar and Rising

Did China accomplish the impossible? Did it generate almost 9% growth and maintain low debt to GDP ratio even as its export plummeted by 20%? What about claims that the torrent of investment in China has come without too much leveraging? After spending half a year looking into the debt level of local government investment entities-- some 8000 of them-- my conclusion is no. As in the past, the Chinese government just ordered banks to lend to investment companies set up by both central and local governments. Local governments have fully taken advantage of the green light in late 2008 and borrowed an enormous sums from banks and bond investors starting in late 2008 (well, a large amount even before that). In an editorial in the Asian Wall Street Journal yesterday, I outline some problems with this massive amount of borrowing:

Beijing is no longer sure how much money local investment entities have borrowed from banks and raised from bond and equity investors. The amount, however, must be large. In September, the Chinese press, citing government sources, suggested that these entities have borrowed $880 billion (6 trillion yuan). In a January interview with the Twentieth Century Business Herald, a Chinese newspaper, the vice chairman of the Finance and Economic Committee of the National People's Congress, Yi Zhongliu, revealed that local investment entities borrowed some $735 billion in 2009 alone.

These are mere guesses, however. A National Audit Agency audit conducted late last year uncovered so many problems with the data that Premier Wen Jiabao ordered another large-scale audit of local investment entities. Until a thorough audit is completed and the results announced to the public, no one really knows the total scale of local borrowing.

Given the information vacuum surrounding this issue, I spent half a year collecting data that would allow me to provide an estimate of total local debt (and also for each of China's provinces). Again, in the WSJ piece, I briefly outline my methodology and the results in the piece.


To obtain an independent estimate, I collected data from thousands of sources, including regulatory filings, bond-rating reports and press releases of government-bank cooperative agreements. I estimate local investment entities' borrowing between 2004 and the end of 2009 totals some $1.6 trillion. The data are far from perfect because borrowing by low-level government entities and lending by small banks are difficult to track. Nonetheless, my evidence suggests that the scale of the problem is much larger than previous government estimates. At $1.6 trillion, the size of local debt is roughly one-third of China's 2009 GDP and 70% of its foreign-exchange reserves.


SheepDog-One's picture

Yep, USA will be boom boom booming with dirty bombs and other nukes over the coming months.

serotonindumptruck's picture

I admire your optimism. Seriously.


Steaming_Wookie_Doo's picture

Yep. Late 2008 redux. Wailing and gnashing of teeth at the loss of QE. If Congresscritters don't relent, market crash will be programmed to go on until the sheep are *begging* for further QE-based slavery. Uncle Lloyd needs his 0.2% Fed window fix so he can *$!*#%@ you in the ass with 30% int on your remaining credit card. Can we parachute Max Keiser into the next Bernanke meeting so he can shriek at him. I would so love to see Goat Boy void in his pants on live tv.

kito's picture

tyler, why cant you accept the possiblity that the fed will just leave interest rates low and that the market may bounce around but not plunge? 

Caviar Emptor's picture

Ever hear of Trickle Down? No trickle, no tickle. Without smack, this economy is a zombie. 

SheepDog-One's picture

Mr Market is now a Frankenstein monster with a $7 billion a day smack habit, this will get ugly fast.