David Rosenberg Muses On Yesterday's Market "Watershed" Event, Discusses The Chairman's Lies Under Oath

Tyler Durden's picture

Rosie's latest letter looks at yesterday's events in the market and calls it the 'watershed' event. Alas, where Rosenberg sees a deflationary-driven event precipitating the move in gold lower, we see merely exchange intervention. Aside from that, Rosie's skepticism is of course justified. More importantly, the Gluskin Sheff strategist focuses on the topic we pointed out a few days ago, namely that Dick Fisher has now opened up the door to Bernanke's impeachment by confirming that the Fed is doing precisely what the Chairman swore under oath he would never do, i.e., monetize.


Yesterday’s manic performance in many asset classes may well have been a watershed event.

The U.S. dollar reversed course and rallied and all the program trading risk-on trades are correlated with the greenback. It could well be that some folks are beginning to pay more attention to what is happening in Europe where sovereign default risks and bond spreads within the periphery are blowing out again.

The stock market has not had two losing days in a row in two months. There were divergences at the recent highs, sentiment is overly bullish and the market is overbought. Cramer said yesterday that the charts are our friend to the bulls but we would beg to differ after what happened in yesterday’s session. The market is struggling at the April highs much like it was at the faulty peak in October 2007 as it failed to build on the prior July highs. The fact is that in both October 2007 and again in November 2010, the test of the highs was not confirmed by the financials. Remember that.

Bonds are supposedly the transmission mechanism for the Fed to deliver its QE-induced wealth effect. Well, at yesterday’s close of 2.66% on the 10-year Treasury note, it is now all the way back to where it was when Bernanke first hinted at QE2 back at Jackson Hole on August 27th. The yield on the 5-year Treasury note soared 13bps to 1.25% yesterday and that is where the Fed is supposedly doing the most buying. If you’re Ben Bernanke, something is backfiring.

We are long-term bond bulls but some technical damage has been done. It looks like a complete reversal can take the 10-year note yield to 3%. The long bond reached a key technical juncture yesterday breaking above the 200-day moving average, at 4.24%, which could take the long bond to a 4.6-4.8% and the stock market will have a good dose of trouble with that. But what a buying opportunity that would be for the long end of the curve, which is cheap, cheap, cheap, especially relative to where the cost of carry is.

Gold turned in a stunning reversal — is that a reflationary signpost? The yellow metal got as high as $1,424.60/oz, was as low as $1,382.80/oz, and closed at $1,392.90/oz.

So, the long bond broke the 200 day m.a., gold finished the day below $1,400/oz and the S&P 500 is now back below the April highs. Mr. Cramer — if this was a failed re-test accomplished by an exhaustion rally last week, then sorry, with any follow through to this reversal, the charts are not your friend at all.

As we said last week, the markets are not trading on fundamentals. They are trading off the U.S. dollar. Yesterday may have marked a shift — not that anything is happening in the U.S.A. to cause any excitement, but rather, the fiscal problems in Europe are back on the front burner.
According to the latest Ceridian-UCLA Pulse of Commerce Index, the holiday shopping season could potentially be disappointing versus current market expectations

Some may claim that Obama sending strong hints of a compromise allowing for the extension of the Bush tax cuts is a big catalyst. It is quite a sad commentary that the economy is in such dire shape that it can’t withstand a tax increase that has been advertised for a decade. And, what’s even sadder is that the public purse can hardly handle another $4 trillion of debt. Come on — if the cuts get extended, there will never be a good time to end them.

And on what will most certainly be the topic of the first Ron Paul - Ben Bernanke tete-a-tete:


We thought it was intriguing to see how Fed Chairman Ben Bernanke said for the record, just over a year ago, that the Fed had no intention of monetizing the debt. Chairman Ben Bernanke, in response to a question during his June 3, 2009 testimony to the House Budget Committee, said, “Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation…The Federal Reserve will not monetize the debt.”

Just the other day, Dallas Fed President Fisher stated (more like lamented as he knows this is an exercise in futility) that this is exactly what the Fed has chosen to do. The U.S. does not suffer from a lack of low interest rates. Nor does it suffer from a lack of liquidity. What it suffers from is a lack of policy credibility.

Dallas Federal Reserve President Fisher, in his November 8, 2010, speech titled Recent Decisions of the Federal Open Market Committee: A Bridge to Fiscal Sanity, said, “For the next eight months, the nation’s central bank will be monetizing the federal debt.”

From Gluskin Sheff

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Montecarlo's picture

I don't read that as Rosie being as negative on gold...?

ATG's picture

Rosenberg sees a deflationary-driven event precipitating the move in gold lower

In 1980 COMEX increased margins on precious metals that broke the Hunts and enriched Armand Hammer and Director shorts by driving silver down -50% in four days

The Hunts got a billion dollar credit line from Volcker to prevent the destutction of Wall Street Banks

They later declared bankruptcy

casino capitalism's picture

FYI, Bernanke can't be impeached.  But that doesn't mean he can't go to jail for fraud and gross negligence.

living on the edge's picture

FYI, Bernanke can't be impeached.  But that doesn't mean he can't go to jail for fraud and gross negligence.

Bernanke will not go to jail for fraud nor gross negligence. You seem to forget my friend that this is Amerika!!

Problem Is's picture

Yeah, we tried hope... aka Hopey McChange...

Let's try facts and reality...

carbonmutant's picture

He could be subpoenaed by a Federal grand jury...

Howard_Beale's picture

Forced resignation may be the best we can get. What BB said in 2009 (although Chris Martenson pointed out that monetization was taking place in August 2009) most likely is not perjury since lying under oath is usually confined to what happened in the past, not what he claimed he would NEVER do in the future.

He also said he would throw money out of helicopters (as he is doing but only into the airducts of Primary Dealers) to stop deflation. Problem is, he is completely clueless.

Ben would make a very good Wal-Mart greeter. He has a kind smile and is able to say the same thing over and over very well.

Stuck on Zero's picture

Perjury would apply if Bernanke stated that he would never monetize the debt but documents revealed that that is precisley what he planned.

cswjr's picture

There was a POMO the very same day that Bernanke testified.  If it's monetization now, it was monetization then, too.

repete's picture

Ben would make a great Robosigner.  He would be signing documents he doesn't understand  to benefit big banks just like he is now.

Problem Is's picture

Analogy of the week.

Bennie IS Rocket Man:
"And all this science I don't understand,
  It's just my job five days a week..."

NotApplicable's picture

Ummm... as far as I know, Bernanke, like Greenspin before him, has absolute immunity from the consequences of any of his actions, by being a director of the BIS.

ATG's picture


0 is President and UN Security Council, BSB Fed Chair and BIS Director

Our Constitution Article I Section 9 clearly states:

No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.


piceridu's picture

The Chairman of the Fed is appointed by the President for a 14 year term, but can be impeached by the House of Representatives and thereafter tried by the Senate. In the past, there have been several attempts to impeach officers of the Fed. http://en.wikipedia.org/wiki/Impeach..._Reserve_Board The most recent attempt was against Chairman Paul Volcker in 1985 and successive years.

There was an attempt, but that would be challenged on a constitutional basis. The Federal Reserve Act makes no provisions for removal of Bernanke.



ATG's picture

Either the Federal Reserve is accountable to Congress as they claim,

or it is neither Federal nor a Reserve, but a foreign power controlling US

Not possible to have it both ways

So when will Comgress do its job?

ATG's picture

Either the Federal Reserve is accountable to Congress as they claim,

or it is neither Federal nor a Reserve, but a foreign power controlling US

Not possible to have it both ways

So when will Congress do its job with a thorough audit and perjury impeachments of deliberate financial frauds decimating Amerika?

http://www.youtube.com/watch?v=ZZy6SDrdyOM 2:11


Confused's picture

looks like Ben might be teaching in the near future? I'm not sure which job he is less qualified for. 

TBT or not TBT's picture

By the Peter Principle, the job he is less qualified for is the one he has now.

Confused's picture

Fair enough....but look at Rubin. 


Just saying. He won't go to jail....so where else would he go? 

earnyermoney's picture

Gas pump attendant at "South of the Border" in his native South Carolina.

Problem Is's picture

Robert "What Me Worry About Insider Trading at Citi" Rubin:
A Classic Example of Crony Oligarchy Capitalism.

Always failing upward from one spectacular fuck up to the next...

ToNYC's picture


He is a fine choice for teaching the course on how being an expert on the Great Depression 1929-WW2 allowed him to produce a Greater Depression...call it IronyEconomics 101..at Princeton of course, home of Woodrow Wilson, the president on whose watch allowed the Jeckyll Island coup d'etat.

sandorgb's picture

Not negative on gold, just questioning whether the FED can successfully reflate. The market has become a paper chase once again in the past 2 months, which is all well and good. But there seems to be an overwhelming complacency on the part of market participants when it comes to believing the FED and the ECB can bail out everyone ad nauseum. No.

There are constraints to monetizing the debt. There are negative feedback loops in the form of higher commodities prices and political reactions. It is not a one-way ticket to ride. The debt burden is unsustainable, and it must be addressed. Further QE only exacerbates the crisis. The only answer is restructuring and it will be done. Infinite USD inflation will not be allowed to happen. The central banks are not driving the bus here. A quick perusal of history demonstrates that when it comes to a showdown between the markets and the central banks, the need for market rebalancing will win out in the end. In the short term, sure the central banks can play balance sheet games, pretend to inflate, and drive assets higher. But there is a point at which the debt will not be rolled over, and haircuts must be taken, whether by the bondholders or the taxpayers. Either way, it is deflationary. Today's riots in the UK will become the norm in the age of austerity. Coming soon to a theater near you.

sschu's picture

There are negative feedback loops in the form of higher commodities prices and political reactions.

Nice post, I agree.  There are a number of global forces aligned against QEII:

China - not at all happy to see their treasury holdings devalued

Other BRICs - not happy to see someone confront their mercantilist ways

Europe - strong Euro hurts them, outliers are going down.

Oil - $100 oil spells our doom, the economy cannot stand this shock

Commodities - gold is not going to "behave" during this Bennie Helicopter ride

Food - yes, let's make the poor really poor by increasing their living costs substantially

QEII was/is ill-considered and will be a disaster.  At the same time the global trade imbalances cannot be maintained, China cannot take every good job in the world.  Bennie has taken his shot and the world has said no thanks.

IMHO, we are close to an impasse.  We in the US will need to decide if we put our house in order or let the bankers run wild.  As many have said, this will not end well.


ATG's picture

Not negative on gold, just questioning whether the FED can successfully reflate

The Fed did not reflate in real lasting terms from 1929 to 1959, how could they now?

It took Irving Fisher 4 years to figure out debt deflation after the 1929 plateau of permanent prosperity

Moses, Vedas, Zoraster and the Austrians knew it the thousands of prior years they banned usury

We have ERU about to implode, the Deficit Commission Panel cutting Medicare and Social Security and gold down 40 bucks in a day, with Alex Jones advertising Gold Specials below market price

Who are we to believe, our own eyes and account statements, or mass media voices?


DollarDive's picture

I find it curious that the following events have all transpired over the past several days - as the US needs to sell more 30 year bonds.  If you watch corrrelations - 30 year bond futures dump as the dollar is rallying.


  • Unknown Missile is fired off CA coast
  • CME starts to raise margin requirements on precious metals
  • Spreads blow out on European Debt (Ireland)
  • Gold Rallies hard - then takes a BIG correction
  • Silver - Ditto
  • Dagong Downgraded US Debt
Isn't this curious ? It would seem that there's definite manipulation going on with regards to the dollar.  It's being pushed to the top of its' range for this afternoon's auction.  I'm guessing that next week, after the holiday the dollar will selloff.  The ES futures are moving right to the bottom of their recent up channel on the 4hr chart...........CNBC is also showing riots in UK etc.


nedwardkelly's picture

I like Rosenberg... But, I'm getting a little tired of comments like "may well have been a watershed event". My headache when I woke up this morning may well have been terminal brain cancer.

Why is he even wasting his breath on what Cramer said yesterday?



oddjob's picture

Rosenberg and Cramer eat from the same table each day.They both have vested interests in keeping current system alive.They will talk their own book with their last breath.

Any why the love affair with that windbag Cashin on ZH?...that guy is the system,years of pumping on CNBC every morning and now he is worried?...fuck him.

SheepDog-One's picture

Yea the article is based upon Cramers comments? I see that and turn off.

Bearster's picture

With President Clinton, we established the precedent that "who cares if he's lying, we like the job he's doing." Is it any surprise that no one (in the mainstream) cares if Bernanke is lying or not?

No One's picture

Bernanke wasn't "lying", per se. He just "forgot" to put the answer in the proper context.

What he meant to say was "as of this microsecond, we are not going to monetize the debt. However, should conditions warrant, we reserve the right to do whatever the fuck we want, and you can't stop us. Neener Neener Neener."



DollarDive's picture

Rosie is dead on fundamentally - but unfortunately - fundamentals are really for buy and holders.  He's been bearish on the world as the market's have gone from March 09 lows to current levels.  I'm not sure what value he's adding - given that view - I find his anti-wall st. columns entertaining and thought provoking.  I view him as a barometer.  If he get's bullish....that's a signal.

sandorgb's picture

Rosenberg is an economist, not a trader. And he is spot-on in identifying the fundamental issues which plague this "recovery." The recovery will not begin until the debt burden is addressed. Period. Riots are part of the healing process. Rosenberg is not going to turn bullish anytime soon. There is no reason to. That is a separate question from whether prices go up or down in dollars, euros, or yen.

In this environment, it is vital to know how to play the currency markets or to know how to gamble with ETFs if you want to preserve your debt-money wealth during the race to the bottom. There aren't enough PM's to go around for everyone to buy insurance. These policies are ugly for 98% of the population. Think about who benefits from inflation followed by deflation.

SheepDog-One's picture

True, what the hell do 'fundamentals' matter when we're dealing with people who change the rules mid play if they dont like what theyre seeing?

Rogerwilco's picture

Where are all the goldbugs today? Hot knife though butter, $1500/oz, USD toilet paper, etc., etc.

Could it be we're in for a rerun of Q4 2008? Nuthin' says lovin' like DXY in the oven, and Ber-nan-ke does it best!

SheepDog-One's picture

I dont know where all the gold bugs are. Just like I dont know where all the '36,000 DOW' stock pumper monkeys are either. Seems suddenly everyone is rather quiet.

Vampyroteuthis infernalis's picture

They are all getting arse raped by the markets.

SheepDog-One's picture

Hmm looks like the stock bulls and basically everyone else is also getting ass raped too!

web bot's picture

we're here... just wait a little longer....

SRV - ES339's picture

Not sure about the rest of them but I'm here... been kind of quiet lately though... to busy counting profits (>100% in 12 mths) on my PM Miners Fund.

Missed the boat did we... life's a bitch (my first bitch on ZH), so they say!

MGA_1's picture

Man, I get this feeling the next several months are going to be kind of nuts

SheepDog-One's picture

No one is talking much about FUEL prices either, which just rocketed up here to $3.40/diesel...just let that go up another $1 and the country shuts down.

Nevermind the poor crop warning just out this morning too, while everyone is fixated on gold and bullshit stocks and ridiculous bonds.

MGA_1's picture

Oh, some people are talking about it.  Inflation + Currency Wars + Euro Debt Problems (again) + US Financial Troubles seems like recipe for trouble.

sandorgb's picture

China is delevering right now while the West continues to pile it on. Which strategy do you think will win? 



SheepDog-One's picture

China in Geithners face daily now, the Gaijin has no chance! Again with a trade surplus, raising rates, deleveraging, thats not what Timmah told them to do!

gwar5's picture

I see market manipulation. The timing of the ups and down is too convenient.

Up in overnight Asian buying, selling with Western bank suppression here.

This was the pattern confirmed over time previously.

Amsterdammer's picture

Bennie and the Inkjets will be in 

deep trouble soon, wait fo the

FCIC's report and the FED audit, and Bennie will

be applying for running a smalle

casino, Macau or Singapore ?

They also have a private one

going on at the ECB...

bpilch's picture

any idea how Pimco's bond strangles are working out???