On The Fun (But Pointless) Debate Between Rick Santelli And Rich Bernstein On What The Yield Curve Indicates (In A Time Of Central Planning)

Tyler Durden's picture

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Salinger's picture

CNBS loves the traffic to their site nice of ZH to help them out

Guinny_Ire's picture

pictures? we don't need no stinking pictures!


8 images under the video aren't coming down

mynhair's picture

Where the hell did those charts come from?  They weren't in the 'story'!

What part of 'buy the fugging dip' don't you understand?

Refer:  the Wanker.

mynhair's picture

market dips = we who trade, may God have mercy on our souls

tickhound's picture

Lmao! Market dips = a phenomenon once seen in ancient markets

RobotTrader's picture

Amazing recovery in the broads.

Perhaps the broad market is celebrating the imminent collapse in commodity prices?

i noticed that the banks were strong all day long.

No short lines laid out yet, until I see a definitive break of the banking or semiconductor sectors. I was close to tagging some shorts on the XRT or IWM, but on a closing basis, they didn't violate any support levels.

goldmiddelfinger's picture

"Perhaps the broad market is celebrating the imminent collapse in commodity prices?"

Hey! That's not inflationary!

mynhair's picture

U gonna post more broads?  Just askin'.

Maybe some shortie pics?  Please?

VegasBD's picture

Agreed. Lets see some hot midgets.

tickhound's picture

Your now repeated, borderline historic, anticipation of an "imminent commodity collapse" is in direct contradiction to the word "imminent"

goldmiddelfinger's picture

You just watch CFNBC for the laughs?

mynhair's picture

What happened to CNBS?  Dang, I hate my wireless carrier.  Oh, that's right, he videoed and is no more.

bob_dabolina's picture

This may sound ignorant but I'm starting to believe that higher rates won't do much to housing.

Banks aren't handing out mortgages to shitty credit risks anymore. It takes someone with good credit and responsibility to get approved for a mortgage today. I don't think a 5% mortgage vs. a 6% mortgage rate is going to deter someone who can actually afford the house and is willing to throw down some cash on a 10% (at least) down payment.

I don't think we are living in a day where an extra $500 on a mortgage payment is going to be the straw that makes someone walk away from purchasing a home. I don't even think its enough to deter consumer spending because the only people buying IPADS are i. people who can afford their mortgages, or ii. people who don't care to pay their mortgages.

Maybe it has something to do with the loans getting ready to reset/recast? I just don't know what the fuck is going on anymore. 


centerline's picture

The relationship is basically that rising interest rates causes a higher mortgage payment which means you can afford less house for the same payment.  This is driven by typical front-end and back-end ratios to income that are supposed to be the "norm" for prudent lending along with good credit, decent % down, etc.  Thus, rise in the interest rates = housing prices drop.

bob_dabolina's picture


What I'm saying is if I want a $100,000 home and put let's say 34% down on a 30 year I'll be paying $354 a month @5% interest rate. Lets move that rate to 6% my monthly payment goes to $395 per month.

Thats not a big deal especially if credit worthy and qualify to begin with. I mean...is that difference of $41 per month enough to change my mind or even influence me? Is that really going to stimulate my market enough to make any meaningful difference especially when commodity prices are moving the way they are?

I think they are doing the wrong thing...like I said unless it is for all the loans that are supposed to reset/recast this year.

ElvisDog's picture

Your example is silly. Someone in the market for a $100K will most likely not have saved up $34K for a downpayment. And how many $100K homes are out there anyway in a place that you would want to live? Re-do your calculations with a more realistic example - someone buying a $300K house with 3% down.

XPolemic's picture

Maybe it has something to do with the loans getting ready to reset/recast?

Correct. Option-As, ARMs, Alt-As: millions of them reset in 2010 (at surprisingly low interest rates), millions of them reset this year, next year and the year after that.

The current shadow inventory is ~6.5 million homes (mortgagees in default), if rates rise over the next 3 years, then there will be at least double that number, and perhaps tripple, as many of those notes were written at teaser rates of 1-2%, resetting to the floating rate in 5 years.

The US residential mortgage market is unusual (on a worldwide basis) in that there is a lot of fixed rate notes written. Elsewhere in the world, the majority of notes are floating rate, and the fixed rate notes are usually short (5 years) and price in IR term volatility into the rate.

What should be noted though is that commercial RE notes in the US are often floating rate notes, and if rates rise there will be carnage in the CRE market. (Actually, there is already carnage in the CRE market, but that would turn into a permanent rout if interest rates rise.)


ElvisDog's picture

I don't think we are living in a day where an extra $500 on a mortgage payment is going to be the straw that makes someone walk away from purchasing a home

Oh, I disagree. I think the unwashed masses that make up 80% of the population don't have an extra $50 at the end of the month let alone $500.

rlouis's picture

"Until governments stop punishing innovation, stop rewarding incompetence, stop distorting economic signals with arbitrary econometric targeting, stop coddling failures--we will continue to walk with this pneumonia indefinitely. The solution, as always, is nothing. Stop intervening and let the chips fall where they may. Markets will correct things faster than you might think."

Japan is still suffering from zombie banks after 20 years.  gawd am I sick of the sh*!  

virgilcaine's picture

4.50 % on the long Bond looks pretty good in this high risk envronment. Even If Bernank raised rates that Long Bond is going to just sit there or move lower.. collect 4.5% in a zirp environment.

When the Euro goes byebye (and it will) more $$ into USD and USB. Then when USD and USB crashes back into Pm's..easy stuff.


crzyhun's picture

"...to Bernstein's childish argument of "where is the stagflation" maybe he should take a look at...."

I suggest Mr B read Barron's, Abelson's run down from the King Report about how things have gone on the inflation front. VERRY BADLY!! It was in last weeks issue. Read it and ask "Where the F is the CPI, PCE on this?" Govvie man-ip-pu-la-tion! Some people really do live in ivory towers or a shack by the river!


cocoablini's picture

The yield curve inverted in July 2007. Thats when the depression started. Then the markets couldn't hold on after 1 year. Even I know that.

Santelli needs to shut up on occasion and listen. The yield curve inverted 1 year before the crash and anyone who paid attention to it stayed dry.

Right now the system is complacent, so the curve is steep. Earlier in the summer it flattenedout and then Europe went tits up for 2 months in a currency crisis which the FED had to print a trillion for.


Red Neck Repugnicant's picture

And there is Rick Santelli, once again, offering his daily dose of useless commentary that is only slightly more insightful than Steve Liesman, yet pathetically worthless and propaganda-driven nonetheless. Yes, there he is, in the pits of the CME where American's who need to eat and drive truly, truly get fucked.

May I refer you to the following video (erroneously titled) from the summer of 2008 where he defends the rocketing price of oil as not being driven by his speculative friends (only a little distortion), but rather by true supply/demand concerns - after all, why does the roll continue? Somehow he musters these claims while inventories were rising, consumption was declining and the world was just a few months from total economic implosion. If all your friends are speculators and traders, then reality is nothing but a bid.  


Shamelessly defending the greedy speculators that have driven the price of everything higher, he pathetically claims that the Roll (see GSCI) must meet reality on the last day of the month, and since the roll continues ever higher, then the market is presenting true price discovery. In other words, don't blame oil on my speculative friends.  

Pay particular attention to 2:21, when he - quite accurately, though he doesn't know it at the time - claims that if oil was part of a vast "evil conspiracy you would have a mammoth dive straight down." The roll would stop rolling, so to speak. 

The next day, oil began its "mammoth dive" driven by "evil conspiracy" to $30, an 80% collapse. How's that for "mammoth dive"?

That is the true Rick Santelli, reporting live from the Devil's Den, broadcasted on CNBC for your viewing pleasure and always shilling for his friends at the GSCI and his trading buddies who gather all the crumbs.  

ElvisDog's picture

I think you're a little hard on Santelli. You expect someone who works on the floor of the Chicago exchange to be Mother Teresa? He's there to make money. It's like expecting a Repo-man not to take possession of the single mom's car. At least Santelli is smart enough to know what is really going on and to give the viewers some insight into it.

Red Neck Repugnicant's picture

Did you not read my post?

Giving viewers insight?  How did that "insight" on oil speculation pay out?

fedspeak's picture

For those of you who do not understand what an inverted yield curve is, here is the explanation..


Looking at the last 7 years in the Market Rick Santelli is once again spot on when he asks Bernstein..."When did it invert??"  Bernsteins answer of I do not know exactly when is because it never did in those 7 years...Toche' Rickster!!



Red Neck Repugnicant's picture

You need to view this chart:


Then perhaps you might want to peruse through the following page, and brush up on your own perception of an inverted yield curve: 


JW n FL's picture

Nice, its all there... if people would only read... some? more? at all?

Stanley Lord's picture

"In sum, the fears of Obama's harshest critics are justified. The president of the United States is a socialist."
-- Stanley Kurtz, writing in Radical-In-Chief: Barack Obama and the Untold Story of American Socialism

cocoablini's picture

Here is the yield curve inversion for 2007 with examples that show when the yield curve is food for growth.
The curve clearly flattens and then invest- badness.

This portends a business cycle recession. A depression is not a business cycle of supply and demand but a credit explosion followed by a deflation of money supply extended via credit.
So, now after the inversion, yields historically begin rising not for return but because of DEFAULT risk.
These are 2 different phenomenon.
If anyone is expecting the yield curve to portend a double dip, thats not going to happen because we are now in the next stage where people are not asking for higher yields to get returns versus other vehicles, but they are pricing in a high likelyhood of DEFAULT or zero return. Therefore, I ask for 10% because I think you suck for return of principle. Not return ON principle.
See 1929-1939

cocoablini's picture

Sorry, link. This is what I got from a friemd that said to get the hell out in late 2007:

Bob Hoye of institutional advisors also updated the inversion weekly and called this the greatest trainwreck in history.

He wasn' t wrong and neither was the yield curve

cocoablini's picture

Sorry, link. This is what I got from a friemd that said to get the hell out in late 2007:

Bob Hoye of institutional advisors also updated the inversion weekly and called this the greatest trainwreck in history.

He wasn' t wrong and neither was the yield curve

Mark Beck's picture

After the holidays its back to the trenches. So we look towards the end of Q1, and in conversations, after a few drinks, there are the wild ideas of what may happen.

My favorite unsubstantiated supposition, so far, is what will happen to equities if there is political debt ceiling deadlock? Will the FED/PDs kill equities to send a message?

For example; DOW inflicted pain over a couple weeks of interspersed declines of 1.3%, 1.7% 2.1% and 1.5%, then flat. In other words, a clear signal to raise the ceiling or else. So I monitor the approaching ceiling to get my bearings on when this may play out. I know its a wild idea, but none in my group could rule out the tactic given the available liquidity to repair what ever reduction is needed to end deadlock.


The statement from Goolsbee about default (which particular default?) based on not extending the debt ceiling was so incredible that everybody just laughed, and then I found out it was true. As hard as we try, none of us could identify what he was talking about. What default? in what time frame? to whom exactly? due to what particular shortfall? In April? What?

Does anybody know?

The full faith and credit part seems to point towards us not processing redemptions or paying interest. But there is a huge amount of slack before this would become critical and hurt spending after April. Perhaps up to three months, maybe more if Treasury become highly selective.

The real problem could be on dangling budget items that still need to be resolved. But, this would largely be for new outlays.

I still can't beleive Goolsbee actually made these statements.

Mark Beck

g3h's picture

Berstein said "trade weighted dollar index has appreciated a lot".  That is a flat lie.  It fooled Santelli.


Here is the chart