What prompted these moves? I think it was the threat of QE-2. The
market was full of rumors that the Fed was going to initiate a $1
trillion POMO buy to re-grease the economic wheels. The talk was that
this very significant step could come as early as next week. This rumor
had legs. It was repeated by the TV talking heads and also by some
‘white spats’ boys from Wall Street. The following was the opening line
to an article written by Morgan Stanley early on Tuesday the 14th.
Let's start with policy and economic uncertainty – the Fed may open the door to QE2 at the September 21 FOMC meeting.
You can bet that if MS was writing this on Tuesday they were telling
their clients well before this was published. As that talk spread,
market players made bets. The bets were against the dollar and in favor
of anything that was not paper money (gold). The long end of the
Treasury curve suffered while the near end benefited. The market
conclusion: “We hate QE”.
But then came the most amazing thing. A reversal by Morgan Stanley on the timing of QE-2. I was floored by this retraction:
"we now believe the likelihood of additional easing being announced at the Sept FOMC meeting is quite low (perhaps 10% to 20%)."
This type of flip flop does not happen very often. One has to ask the
question, “Why?” For MS to turn on a dime like this means to me that
someone whispered in the ears of MS: “You have the story wrong, There
is no chance that we will introduce a major QE program in September.
November is the earliest that could happen.”
There is only one source that could convince MS that they had to reverse
their published position. It had to be the Fed doing the talking, In my
opinion the Fed must have been talking to more than just MS. I think
the Fed must have talked to most of the Street. As the concerns of an
imminent QE eased, so did the tensions in the market. Save for gold, all
of the early week “I’m afraid of QE” trades were reversed.
You could argue that I am reading too much into the MS flip-flop. I did
not come to the conclusion re MS right away. My initial thought was that
it was just laughable. Not nefarious. But then there was an article
by Neil Irwin at the Washington Post. This article first appeared on
Wednesday the 15th. This means that it was written based on information
received on Tuesday (the same day as the MS flip-flop). This article was
clearly written with input from Fed officials. Consider some of the
phrases used in the article:
Fed analysts are exploring whether new bond purchases can do much to lower interest rates.
Fed officials are also looking for unintended consequences of new measures.
Top Fed officials will be preparing formal forecasts for the economy over the coming years in advance of their meeting Nov. 2 and 3.
Fed officials are also weighing whether lower rates would spur business investment.
Economists at the central bank are undertaking a new round of analysis on the likely impact of such moves.
The WaPo does not say things like this unless they have in fact gotten
some clarity from Fed officials on what is the thinking and what is the
timing. The paper ran an important article with no attribution for the
quotes from “Fed officials” and "Top Fed Officials" (Bernanke is the
only Top Official). They describe what "Fed Economists" and "Fed
Analysts" are currently doing. Irwin has no idea what the Fed
economists and analysts are currently working on. And I assure you that
those economists and analysts do not speak with the press unless they
are specifically told who to talk to and what to say.
The critical conclusion that one gets from the WaPo article is that nothing will happen at next week's Fed meeting.
No action is likely at the policy meeting scheduled for Tuesday.
The use of the word “likely” is just press talk. The actual words from the Fed “Officials” to Irwin were probably:
“As of today it is 95% sure we are not doing anything on QE next
week. Please get that message out. The market thinks we are rushing into
things too fast. We want to use the WaPo to change this thinking. We
don’t want the markets to get ahead of us on this. It has having
negative consequences in the markets and we are taking flack from the
Japanese and Swiss CBs”
If you believe in my interpretation of these facts then you have to draw some troubling (and dangerous) conclusions.
(I) The Fed is using the press to shape public perception on what and when it will do things.
(II) The Fed is providing guidance to major Wall Street firms so
they too can spread the message that the Fed wants. In the process they
give those same firms a significant trading edge.
(III) The Fed was made acutely aware of the market’s
dissatisfaction of a new major round of QE. They responded with sub rosa
“Official Guidance” to redirect the market. This is intervention. It
uses words not cash. But the result (this time) is the same.
In my opinion the Fed has provided information to the press on numerous
occasions this year. Articles from the WSJ, NYTs and the FT have all
contained information that had to have come from Bernanke’s lips. But
there was never a confirmation that he was the actual source. It was
always “Senior Fed Officials”. Editors of these big papers do not run
stories like this without first confirming that the quotes are solid.
They were solid. They were whispers from Ben.
I am troubled by the Fed’s attempts to use the media like this. If the
Fed has anything to say they should make it public. If they want to talk
to the media they should do it for attribution. Hints and
disinformation are no way to run an open monetary policy.
I am quite comfortable about my assertion that the Fed is using the
media. I am not alone in that observation. I am less confident regarding
my conclusion that MS got a call from someone and as a result they
quickly published a clarifying comment that reversed their opinion
publish only hours before. To me, that would be more than just
disinformation. That would be inside information that was very
trade-able. The markets backed and filled for the rest of the week. The
talk of an imminent QE died as of Tuesday. Big money was made in the
process.
Tyler Durden at Zero Hedge got me thinking on this. He wrote about the MS flip-flop on Tuesday. From the article:
False Alarm: Morgan Stanley Recants From Its Expectation Of A QE2 Event In One Week
Today's peculiar stock trading action was exclusively due to Morgan
Stanley's previously highlighted expectation that the Fed would announce
QE 2 in one week.
The Fed talk is moving the bond, stock currency and gold markets. I
would say that it worked rather well this time. But it is a losing
strategy. To me it shows a weak hand.
The market showed Bernanke and Co. that it does not like the prospect of
QE-2. That does not mean it will not happen. It means that when it does
happen in November (conveniently one day after key elections) the
markets will react accordingly. We are not done with the weak dollar,
strong gold, scared 30-year and generally “risk off” markets. Ben just
hid them in the closet for a few more weeks.
Great analysis on how mainstream medias manipulate market perception for the "chosen ones" like FED, MS, GS, JP Morgan...
Regarding price of silver and gold and their paper derivatives - it's enough to just monitor Comex reports and you get a glimpse in what direction this "chosen ones" are directing price of paper silver and gold.
Comex analysis from yesterday's reports about open interest contracts, delivery notices for gold and silver and some other valuable indicators,
you can read in my latest blog post at
http://AgAuPM.com/comex-dealers-lease-silver-from-customers-again/
I also have a hunch that coming week we might see drop in price of silver and gold.
Will it be just a small correction or waterfall drop, is yet to be seen.
It wont matter to those who have the actual.
Just charmin
I also have a hunch that coming week we might see drop in price of silver and gold.
Charts of silver (SI) and gold (GC) futures appear to indicate a similar sentiment.
SI: http://www.screencast.com/t/ZmJjYTNlMmE
GC: http://www.screencast.com/t/OTkwOTQ2Y
Yep. But those sure are some purty charts! The trend is your friend.
That would be perfectly timed to haul in a net full of longs to be processed on the decks of the bullion banks. Gut 'em and fillet 'em. The timing is perfect if taken in context with the above article. Gold being the last survivor of the mirage that there will be no QE2. I'd call that some damn good market manipulation. They have it down to nearly a science. I'm keeping my powder dry for the next buying opportunity -- say the end of next week?
Please please let gold fall to $1180 again....