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Bernankenstein's Monster
Interview with Lee Adler of Wall Street Examiner
Introduction by Ilene
Elliott, of PSW’s Stock World Weekly, and I began a series of interviews with Lee Adler, chief editor and market analyst at the Wall Street Examiner, on May 11, 2011. This is part 2. Lee's Wall Street Examiner is a unique, comprehensive investment newsletter that covers subjects such as the Fed’s open market operations, the impact of the Fed and the US Treasury on the markets, the housing market, and investment strategies. We often cite Lee’s analysis in Stock World Weekly and on Phil’s Stock World--his research provides invaluable information for formulating an overall market outlook.
(Here's part 1 of our interview: The Blinking Idiot & the Banking System)
Part 2: Bernankenstein's Monster
Elliott: How should we invest in this environment - when we take into account the Fed’s huge interference in the markets?
Lee: Think like a criminal. Look, it’s a matter of knowing what the Fed’s next move is going to be, and knowing the investment implications. You have to stay with the trend until the Fed sends signals that it is going to reverse. We’re at that inflection point. The issue is how much front running will there be? You definitely have to be out of your longs by now. When support fails after having succeeded, succeeded, succeeded, and every other previous retracement has held, then suddenly one doesn’t, it’s a huge signal.
Ilene: If the Fed wants oil and metal to go down, and the dollar to go up, is that saying it wants the stock market to go down as collateral damage? If pattern continues, the stock market will go down with the commodities.
Lee: No, the stock market is the center. Bernanke came out in November, the day they announced QE2, and did an Op-ed in the Washington Post saying exactly what he expected. He’s going to manipulate the stock market higher, and that’s going to create economic confidence and everyone’s going to be happy. His goal was to manipulate the stock market. The collateral damage, the stupidity of their policy, was that they didn’t take into account the inflationary effects on commodities. They kept denying it. And Bernanke kept saying over and over, well, look the stock market is going up, QE2’s having the desired effect. He was willing to take credit for the stock market going up, but he refused to take responsibility for the same exact move in commodities. It’s the same, they move together. It’s just that one was an intended consequence (stocks going higher), and the other (inflation in commodities) was the unintended consequence. They took credit for the intended consequences, but wouldn’t take responsibility for the unintended consequences.
Ilene: What in the Fed’s creation gives it the power to manipulate the stock market? That wasn’t one of its dual mandates (maximum employment and price stability). Isn’t that beyond its scope?
Lee: Of course, but QE2 was a direct manipulation of the stock market.
Ilene: So the Fed knew the money they gave to the Primary Dealers would end up in the stock market. Do they have an agreement with Goldman Sachs, like “hey we’re going to print you this money and we want you to buy stocks?”
Lee: Look, Brian Sack, the head trader for the Fed, sits down with the Primary Dealer traders every morning before the NY markets open, and they have a conference call. Every morning. The Fed makes no secret of this, it’s all on the NY Fed website, the “Fed points.” They describe the whole thing. They discuss the dealers’ “positions and what their financing needs are”, but that’s code. The Fed decides what it wants, and the PDs execute the Fed’s wishes. So while government securities are usually the Fed’s focus, the dealers can trade whatever they want. Bernanke made it absolutely clear that stocks were his focus in that November 4 editorial in the Washington post.
Ilene: Even though manipulating stocks is not a legitimate focus of the Fed?
Lee: That’s what they get away with. The mainstream views pushing stocks higher as a legitimate policy. People want the stock market higher. But they don’t want to see oil prices over $100 a barrel, and gas prices over $4 a gallon, they don’t want that.
The Fed does not control what the dealers do with the money, they can only make their wishes clear. The Fed can make it difficult for the dealers, and now they are, because they finally got fed up with the commodity speculation. But the Fed does not control what Goldman Sachs does completely. In fact, it might be the other way around. There’s clearly collusion, it’s no secret.
Ilene: Why doesn’t anyone do anything to stop this?
Lee: Well, most of the FOMC members want stock prices higher. They believe the trickle down theory crap. They want to inflate, so it costs less to service our debt. But the kind of inflation we have is devastating. It impoverishes the middle class and makes the middle class unable to pay its debts to the banking system, which is a time bomb in itself.
The banks are not increasing their loss reserves at all. They’re shrinking their reserves so they can show profits when they should be going in the other direction because the ability of the public to service the debt is decreasing.
The Fed gets into these post-hoc crisis management modes where they will make another huge blunder. QE2 was a massive blunder. It did not achieve its desired goal. It got stock prices up but it didn’t get the economy turned around, and it made inflation much worse. They fucked up and the blunder will only be recognized after the fact. Mainstream media won’t get it until after the stock market collapses. By then it’s too late. But the blunder won’t be manifest till stock prices collapse, and then everyone will recognize what a damn idiot Bernanke is.
And now they’re going to sacrifice the stock market, because another problem is that they can’t afford to allow long-term bond yields to go up. The government can’t afford higher interest rates. They will sacrifice the stock market at the alter of the Treasury market. They will do whatever they can to support Treasury prices at high levels. That means they’ll force the liquidation of stocks, and once the wave of liquidation hits the stock market, the knee jerk reaction is for the money to flow towards Treasuries. Someday that’s not going to work, and I think that day may be coming pretty soon.
Ilene: What do you think about Bill Gross shorting Treasuries, is that going to work out for him?
Lee: William the Gross. Watch what he does, not what he says. The guy is a world class card player. For any public pronouncement he makes, generally, you have to consider the opposite. Think like a criminal. He’s the Godfather. When Gross comes on TV, I hear the Godfather music playing in the background. His track record of public pronouncements isn’t very good, yet he consistently makes more money than anyone else trading the bond market, so obviously you can’t be wrong all the time and make money all the time.
Ilene: So he’s front running?
Lee: If he’s making a pronouncement on CNBC, he probably has another reason for saying what’s he’s saying other than what it appears to be. He’s got a direct pipeline to the Fed. The Fed sends these coded messages. It’s not that hard to figure out by watching the data. The massive spike in bank reserve deposits at the Fed, starting right after the January Fed meeting, means something is happening there.
Ilene: You’ve concluded this game is going to stop in June?
Lee: Well, I always figured it would because commodity prices were getting out of control. The more Bernanke denied it, the more troubling it seemed he knew it was. It’s the old “[he] doth protest too much, methinks.” Every time Bernanke claimed the inflation was transitory, the more clear it became that he knew it was a serious problem. But they didn’t do anything about till recently.
Ilene: So what is going to happen with the stock market? Will it sell off as QE ends? At what point will the Fed start a QE3 to stop the stock market from dropping - would it let stocks drop 10%, 20%...?
Lee: Oh yeah. The Fed’s job one is to preserve the Treasury market. With this enormous mountain of debt which the government is on the hook for, they can’t afford to pay 5% interest, or even 4%. They can’t afford any increase in Treasury yields. So, if necessary, they’re going to force a liquidation of stocks and spark a “flight to safety” panic again, as they did in 2008. Then, they needed to get the yields down, and they were also thinking it would help the housing market.
Ilene: But it didn’t really get to the housing market.
Lee: The problem in the housing market had nothing to do with mortgage rates but they didn’t understand that. It’s amazing how when you put all these smart people together how stupid they can be. It’s the problem with group think. When the FOMC gets together, it’s like having all these geniuses in the room coming up with idiotic decisions. They all have the same motivation - to become the next Fed Chairman. The way to do that is to comply with the mad scientist running the show. Bernanke’s whole life has been an ongoing doctoral dissertation in which he tries one experiment after another, based on the crap he wrote when working on his PhD.
The problem we’re experiencing now is that the system is imploding. It’s a slow motion implosion.
Elliott: When QE2 ends in June, will the pain of that ending be extreme enough cause the Fed to resume some form of QE3?
Lee: Yep. I don’t think it will take long. We’re in bad shape, as bad as Greece. The only way we can pay our bills is if other countries and investors continue to lend us $100 Billion every month, and that could jump to $150 Billion a month in the summer. So we can’t pay our bills unless people lend us more money. That’s not paying bills. That’s creating a bigger problem.
*****
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Amongst them they can probably find ways to keep treasuries supported. They don't have many ways to go but down, though. During QE2 rates rose. Many people talk about the Fed's need to exit and the need for rates to rise, but we know they aren't going to raise rates for a loooong time. But they will do the OT2 or some other kind of QE3 intervention again, probably around August, just like last time.
You notice the Bernank talking about things be "unclear", just like last summer when he called it "uncertain". Who really believes that they don't know what is going on or where it will go from here? No way. The whole thing is orchestrated ahead of time. Like they didn't know commodities were going to rise. They were giving all their cronies an easy way to make millions of dollars, in the middle of a recession. That's how the game is played.
With respect to equities, they have problems of not only a lack of pump (QE2) but all the continual economic upheavals here and around the world. Does that mean they have to plummet? No, I don't think they are going to let it. There will be decent drop, from what has already occurred.. but I think they can manage to goose it up somehow by the time we start getting into election season. They will manipulate the Treasury market in order to maintain rates that they want and the steep yield curve for the banks to lend money. The economic problems are bad, but, as we all know, all of the data is subject to manipulation. This way, they create the illusion that even though things are not so great, that at least there is some level doubt as to whether maybe it might be turning around. They'll point to bs like the Russell index or sales of Lulumon sweat pants.. The only thing driving that is the hedge fund group-think magical levitation, using cheap money makes it all too easy.
NoLife : you think the Fed can "..manage to goose it up somehow.." namely pump up the stok markets? Tell me how when all Benny does is print money and hands it over to either WS or DC. What policy control/direction does Benny have on the money he dishes out? What does he do after giving them the money, I think he goes back to his desk and picks his nose all day.
The giveaway of just how boring Bennys office life is is his Press Conferences. They are like watching paint dry, what he says is so fuking inane it's no surprise the journos are hand picked starry-eyed rabbits like Jim Liesman because anyone with an enquiring mind would fall asleep with the obsiqious meaningless dribble Ben comes out with
I'd welcome anyone volunteering any evidence whatsoever Ben has any take/control/policy execution ability on the CPI, unemployment, the Russel 2000 or GDP. What does Benny do other than sit on his fat arse all day behond a desk, with the odd run to print off another $100bn to hand over to his bankrupt bum-chums?
I'm taking bets nobody can find any fingerprints, footprints or Masterstrokes of Bennys on any of the above nor has he any control over anything economic but his very dull printing press. Surprise me Benny is more than just a dullard crone, a simple printing wheel in the WS/DC parasite machine and the most over-rated window dressed job in Govt.
Please everyone/anyone, put up (some evidence) or shut up
This whole article is based on the mistaken impression that Bernanke needs to crash stocks to pump Treasuries. The Fed has been doing aggressive QE since 2001 and they will not stop. The only thing they did differently in 2008 was announce it and go a little bigger.
I believe Lee is on the right page here, except he may be over-estimating the chances of QE3 this year. From my first piece on Bill Gross and Monetary-PsyOps - Bill Gross, Master of Monetary-PsyOps:
http://theautomaticearth.blogspot.com/2011/04/april-12-2011-bill-gross-master-of.html
[Bill Gross, Master of Monetary Psy-Ops]: "Now, the TRF is net short treasuries and many people are convinced that its short position is, in fact, nothing short of a prediction by Gross that the treasury market will soon collapse. Indeed, he seems to be at least betting that rates will increase significantly in the short-term. Perhaps that is true or perhaps he is making a bad bet, but perhaps we should also be wary of such plainly advertised convictions. After all, the insider "beltway" encompassing Wall Street and Washington has two lanes running in both directions.
And from my latest piece about Gross, QE3 and OT2 - Monetary-PsyOps With a "Twist":
There are a lot of valid points made in Rosenberg's "OT2" analysis, and I would be the first to support the argument that the Fed is focused on maintaining the integrity of the Treasury market above all else (especially the long-end).
...The latest Treasury International Capital (TIC) report shows that net inflows into Treasuries increased for the month of April, mainly due to foreign government purchases. So when can we expect all of those "private accounts" to get with the program?
"Outside of equities, official accounts, which include foreign central banks, were the biggest buyers in the month with net inflow into Treasuries of $24.4 billion vs a net outflow from private accounts of $1.0 billion.;
A look at Treasury holdings by nations shows a $7.6 billion rise in mainland China, which is also a positive, to $1.15 trillion and a small decline in Japan to $906.9 billion. UK-based accounts, which are the third largest holders of US Treasuries, shows a $7.8 billion increase to $333.0 billion."
Well, with the rapidly progressing financial troubles of Europe and Japan, I suspect it will not be very long from now. In the meantime, as discussed in Bailing Out the Thimble with the Titanic, the Fed can continue to exert some influence over longer-term rates by selling insurance (IR swaps) on Treasury bonds through primary dealer banks, without any explicit monetization or anyone being the wiser (major investors). Eventually, the time will come when some form of QE3 is necessary, but that time will likely be sometime next year after asset prices have come down significantly. As for Gross, well, I still expect that financial shark to be well-positioned for the long-bond rally when it occurs, and in no small part because of his immensely public fear-mongering tactics.
http://theautomaticearth.blogspot.com/2011/06/june-18-2011-monetary-psy-ops-qe3-and.html
What's going to happen, if the Treasury yields go up, and the stock market goes down?
This happened in Greece - are we still that different?
Good comments all...
Most agree Treasury market must keep prices high and interest rates low.
Imagine debt service load if interest rates spike like Greece. This is the real mandate of the FED at the cost of everything else.
Jack with everything else but the Treasury must issue and roll debt. If not, bubbas run the streets and it gets messy.
Crash the standard of living turning the US into a perverse dairy farm. Feed and water the herd, selloff the male calfs for veal.
Don't kill off the milk producers and keep enough bull calves for breeding. Sell the shit for fertilizer and to grow more corn, alfalfa and hay for feed.
Farmer Ben and NWO, Inc. won't kill the heifers and cows or they won't have the milk and God knows they love the TIT.
Welcome to Dairyland Farms where contented cows get sucked dry daily.
A hard rain's gonna fall...
www.collapsenet.com
My favorite three words from the article:
"...slow motion implosion..."
Bernanke in his green submarine, the U.S.S. Debtaulis, going deeper and deeper into the depths...
+1, and U.S.S. Debtilus sounds better IMO.
Great article for starry eyed rabbits, bamboozled Fed guessers and watchers (zombies)
For the rest of us with a working brain all you need to watch is Wall Street Banks and Washingtons cash flow. The Fed is quite simply a WS/DC monopoly on money (racket) with Benny the Slave a printer at their beck-and-call. Here's the crystal clear road map to date:
2008: WS goes bankrupt ...Benny prints (QE1) ..is anyone surprised?
2008-11: Washington has big cash flow (budget deficit) problems ...Benny prints (QE Lite, QE2)... surprised again??
2011-12: Washington still has big budget deficits ...Benny rolls over existing QE rebates ..surprised again???
Please note Benny is not pro-active and looking forward to control matters like a Wizard he ain't (as the above article implies). In all 3 above cases he is re-active ..like a toilet cleaner always cleaning up after his Masters mess (debt-default)... Ben is too stupid to stear the ship, he just throws lifebelts to the suicidal bankrupts of WS and DC
2012-14: when will bankrupt WS or DC need cash? ...that'll be when Benny runs down the printing press for QE3
Benny's path is as predictible as a wooden cart following 2 horses, the bankrupt nags of WS and Washington... and that's all you need to know about the 'mighty' dull Fed, watch the bankrupt horses cash flows and Benny the crone follows along with freshly printed cash to save them from the knackers yard
...he just does lots of window dressing for the media and starry eyed rabbits in this article to gawp at like the BS about driving the Russell 2000: Benny drives looking in the rear view mirror and the moron can't even describe that (listen to his inane recent Press Conference) let alone control it. Ben is a very, very dull boy
-
"It’s amazing how when you put all these smart people together how stupid they can be."
The corollary to that is this; "when you have deployed enough educated minions in key positions to influence the flow of wealth, then you can begin to drain the cesspool and continue on the path of picking winners and losers (i.e. further concentrating wealth), during which time the sheeple will remain clueless as it appears to be a circus."
Another great article on ZH !
Pooshing on string needs a rope around it's neck.
@ Straykitty
Yes it does. Reading the larger context also tells me (considering the different dispensation) the outcome, the players, and their respective roles. Looking forward to that, however the wait can be quite a grind.
When reading about the underground preparations that have been documented, it made me think of this...
And the kings of the earth, and the great men, and the rich men, and the chief captains, and the mighty men, and every bondman, and every free man, hid themselves in the dens and in the rocks of the mountains; And said to the mountains and rocks, Fall on us, and hide us from the face of him that sitteth on the throne, and from the wrath of the Lamb:
I think the Fed and Treasury might be reiterating an old message: "It's our dollar but it's your problem".
Trouble is, there's no country capable of supporting the US$ by keeping up with US printing, without committing political suicide. This is a financial issue that is exposed as having no backing. An Emperor has no clothes moment.
Ball's back in your court Ben.
Fault!
Double Fault!
Game, set and match.
I don't exactly call your 1190 bottom an implosion, or a crash. It would however coincide with the December gap which is on the road for my target. Technically I like the SPY 100 double bottom from July. If they want a rush into gov't junk(treasuries) I think they're gona have to try harder than you think. And imo even at SPY 100 considering the state of economy that would still equate to overpriced fucking garbage.
That was suppose to be a reply to this:
http://jeffreygtc.blogspot.com/2011/06/friday-june-24th.html
For those of us who research such things, there is an Old Testament account of a bad king: "And my hand hath found as a nest the riches of the people: and as one gathereth eggs that are left, have I gathered all the earth; and there was none that moved the wing, or opened the mouth, or peeped."
Does this remind us of anythig?
When both stocks, the dollar and bonds begin to plunge simultaneously, I think the end game is near. I'm watching for that as a sign that economic armageddon has arrived. I'm also expecting commodities to skyrocket as investors realize that the only true safe haven will be found in things, not paper.
This will happen if FED starts QE3 by increasing its balance sheet to let's say 5 trillion...
QE3 is only needed if the Treasury keeps spending 10+% of GDP with borrowed money, I honestly think that they will make a decent try getting this number back to let's say 2-3% in the next 2 years. Yes, this will kill economic growth, but there is no other option left. The unintended consequences of printing are too severe
That's funny. Can you draw out a believable scenario how they could get that number back to 2-3% within 2 years, if they ever wanted to?
I cannot anymore.
Don't u get it. Eve if they cut the current budget by 40% they still wouldn't break even. Even assuming they could cut deficit spending to 0% of GDP , a 2% rise in rates would increase spending by $280 billion overnight instantly putting spending back into deficit. We're in the debt spiral now. It's impossible to get out.
Imagine if rates rise to 1970's level of 20%
Ok not really overnight, it would depend on the maturity and required rollover. But u get my point
Brilliant article,sums up the dilemma Bernanke has created for himself,one that has no solution but default or hyperinflation.
"...then everyone will recognize what a damn idiot Bernanke is...."
i've known that since day 1.....tell me something i don't know....
otherwise this was a very interesting interview...
"It’s just that one was an intended consequence (stocks going higher), and the other (inflation in commodities) was the unintended consequence. They took credit for the intended consequences, but wouldn’t take responsibility for the unintended consequences."
Focking Brilliant in all it's simplicity...
So what's going to happen with gold and silver?
They're gonna disappear from the market(s) -- if you don't have them now, you WILL NOT be able to buy them at any price (in FRNs).
I'm confused. The whole article the dude is saying no QE3 because they need to crash stocks to save bonds, then at the very end he says QE3 IS coming? WTF? Did I miss something?
I think the "he" is posting as a she "iline" with a link to a publication that is free for 30 days.
Given the choice between crashing equities and keeping bond yields low, they must ensure the latter. He's not saying no QE, he's saying without QE this is the dilemna the Bernank faces. The "crash" will be the populace's signal for the Fed to go QE3.
We are at "simmer"...
Yes, that's my understanding, they will let the market go down; stocks dropping will build up pressure to do some sort of QE3.
yup and yup.
Financial crisis = sovereign crisis = political crisis (peoples crisis) = currency crisis = fail.
The next step is for the Fed shift the blame (risk) to the politicians for continued money debasement. Ultimately, they really need the people themselves to cry for it.
This very basic plan has been unfolding perfectly over the last couple of years.
I won't say your prediction will turn out to be wrong, and I hope you will concede that you don't have a crystal ball, but I'd like to mention that risk off in a moderate to big way for a sustained period of time might create a window large enough for Bernanke to be able to step aside as the necessary buyer of the majority of USTs, and that this is especially true given what's taking place in Japan & the Eurozone (full meltdowns and years of upheaval and uncertainty are very much possible) - and I haven't even gotten to continued turmoil in the ME or the major problems China is facing - all of which would be multipliers of the risk off/pile into safety trade that could make this doable for Bernanke (in the hopes that they can keep the Federal Reserve from imploding).
And who in the UNIVERSE is going to "buy" massive amounts of USTs when the Fucking Chairman "steps aside? (not meant as contradictory).
exactly right
Benny's in the tub, sloshing the water to and fro. On one end is equities and the other is Treasuries. The water has crested on the equities side and needs to recoil back to Treasuries.
He's got two big problems, though: there ain't enough water to support a crest at both ends and, more importantly and possibly out of his view, the stopper is pulled and the tub is draining...
Will he turn the spigot back on? Tune in next time right here on Bathtime with the Bernank.
Ben the Monster's job was to create the depression that is coming. All that hype of Inflation and printing money was part of that game. None of this printed money ever reached the public. It was all routed to his owners and masters to enable them to gain control and acquire valuable assets like Gold, Silver and Oil. The funds have also been used to further ventures like HAARP.
Public funds have been used to achieve the goals.
The depression that we will be seeing will be something unimaginable.
Remember this is a money game being played that has been done before several times in history. The end result is a known fact. Human greed and memory loss is to their favor.
+1234 Excellent reflection Nathan. The FED's job is to serve the primary dealers and corrupt banksters.
Nothing more and nothing less. They want the remaining assets on the cheap. It's the dumb smart money.
The public would be outraged if they only knew why it is all done. Help the economy. LOL on that.
The sad part is, the banksters will acquire without even paying the bill. It's all free to them.
Bernanke’s Great Historic Experiment Approaches Judgment Day
http://bigpeace.com/jxenakis/2011/06/24/bernankes-great-historic-experim...
sharing this with my ZH brethren -- stock market is ready to implode! Based on my Elliott Wave setup.
http://jeffreygtc.blogspot.com/2011/06/friday-june-24th.html
As soon as an Elliot Waver calls a top, the bottom is in.
Excellent and let the games begin.
Housing is dead
Consumers are not coming back
Jobs are not coming back period.
College education is getting to be a waste of time.
deflation Bitchezzz and its over.
The World-wide destruction of wealth rolls on via the credit implosion.
excellent!
Bernanke gets a visit from an old friend he helped create.
http://www.youtube.com/watch?v=Yd91A3Qcfkw
A little deflation will be good for us....
There won't be delfation. Ben Bukkakke can print as much money as he likes.
What part about interest rates did you not understand in the above article?
No, he can't actually print as much as he wants. That's why he's fucked.