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Goldman Attempts To Answer The $2.9 Trillion Question: "What Happens When The Fed Stops Buying?"

Tyler Durden's picture


Goldman's just released look at what the end of QE2 would mean should certainly be taken with a grain of salt: after all lately (and in general), the firm's sellside recommendations traditionally are a gateway for its own prop traders to take the other side of what its clients are doing (observe recent performance in WTI). That said, probably the most insightful piece of data is that we now know what the upcoming Greece bankruptcy will be called in polite circles: wait for it - a "liability management exercise." As for the overall impact on rates, Goldman is not surprisingly bearish on rates, and sees the bulk of the upcoming weakness as focused on the 5 Year point. Franceso Garzarelli summarizes his view as follows: "together with our forecast of above-trend growth in coming quarters
and the idea that the compression of bond premium will decay as the
Fed’s balance sheet (organically or voluntarily) shrinks, we think that
short positions in 5-yr Treasuries remain attractive."
In other words, Goldman is expecting some flattening in the short end. Does that mean a steepening is inevitable. As for the broader perspective on the curve, Goldman says: "assuming the Fed’s bond holdings passively run off as securities mature, the bond premium should gradually rise. And our macro forecasts are consistent with higher real rates in coming quarters." In other words, another extremely non-committal report from a firm that is rapidly losing its Master of the Universe status. Key highlights below.

  • Concerns that a combination of higher energy prices and fiscal tightening will dent growth have supported global bonds. These concerns are overstated, in our view. Meanwhile, core inflation has turned (admittedly from low levels), and more European central banks are likely to follow in the ECB’s footsteps and tighten policy over the coming months.
  • Our estimates indicate that ‘QE2’ could have shaved as much as 40-50bp off intermediate US bond yields. The effect of purchases is most visible in the 5-yr sector of the Treasury curve, which continues to look ‘rich’ relative to 2s and 10s.
  • When the flow of purchases ends in June, there should be little immediate effect on bond yields—provided expectations are that the Fed will not sell securities back into the market any time soon.
  • However, even assuming the Fed’s bond holdings passively run off as securities mature, the bond premium should gradually rise. And our macro forecasts are consistent with higher real rates in coming quarters.
  • In Euroland, Portugal formally requested conditional financial support and talk of a liability management exercise on Greek sovereign debt has intensified. Although the latter could lead to bouts of risk aversion, we continue to expect further spread compression between the larger ‘non-core’ issuers (i.e., Spain, Italy and Belgium) and Germany/France.

And the full report:

What Happens After the Fed Stops Buying?

The Fed’s QE2 program could be keeping intermediate maturity US Treasury yields around 40-50bp lower than would otherwise be the case. The effects of the central bank’s purchase are most visible in the 5-yr sector of the yield curve, which still looks ‘rich’ relative to adjacent maturities. When the flow of purchases ends in June, and on the assumption that the stock of bonds held by the Fed does not change, there should be little immediate effect on bond yields. Nonetheless, the ‘term premium’ should gradually rise as the Fed’s bond holdings passively run off as securities mature. Moreover, expectations of the Fed selling securities back into the market—which is not our baseline case but could admittedly pick up as the economy continues to recover—could amplify the increase in yields we expect based on our macro forecasts.

Fed’s Bond Purchases Soon Drawing to an End

Through its asset purchase program (‘QE2’), the Fed has delivered a stimulus to the economy by-passing the nominal zero policy rate constraint and influencing directly longer-dated discount factors. In the December issue of our Fixed Income Monthly, we estimated the Fed had broadly succeeded in bringing intermediate and long Treasury yields close to a level consistent with negative policy rates as implied by a ‘Taylor Rule’.

As the purchase program draws to an end in June, we are frequently asked whether there will be an adverse impact on the bond market. We tackle this issue with an ad hoc regression analysis, cross-checking our findings through the suite of valuation tools we regularly employ in the formulation of bond strategy.

Our main conclusion is that the announcement of the total size of Treasury purchases, rather than their implementation, could have lowered intermediate maturity Treasury yields by as much as 40-50bp. As long as the Fed does not announce its intention to sell bonds back into the market any time soon (which continues to be our baseline case), this effect is likely to fade only gradually, assuming no intervening change in the macro landscape.

Our central forecasts, however, are consistent with a progressive increase in real bond yields over coming quarters. And, as the recovery takes hold, it is conceivable that market participants’ expectation of asset sales could increase, thus amplifying the sell-off in yields. With this in mind, we continue to recommend short positions in the 5-yr area of the Treasury curve, which looks to have been the most influenced by the Fed’s interventions.

The ‘Announcement Effect’

Assuming financial markets are liquid and forward-looking, bond prices should be affected by the announced total amount of purchases the central bank intends to conduct, rather than the subsequent flow of purchases. Chairman Bernanke has been among the proponents of this approach, which researchers often refer to as the ‘portfolio balance channel’ or the ‘stock view’.

If this theory is correct, when the flow of purchases is discontinued there should be little effect on yields provided expectations are that the Fed will not sell securities back into the market any time soon.

Empirical evidence appears to support the notion that the ‘stock’ effect dominates the ‘flow’. For example, 10-year US Treasury yields fell sharply following the surprise announcement of the ‘QE1’ program on November 25, 2008 and March 18, 2009. However, there is little evidence that yields increased following the termination of those purchases at the end of October 2009 (when the Fed stopped buying Treasuries) and March 2010 (the end of the mortgage-backed security purchase program).

The chart at the bottom of the previous page compares actual 10-yr US Treasury yields with the ‘fair value’ implied by our Bond Sudoku model. The latter describes US bond yields as a function of 1-yr-ahead consensus expectations on short rates, real GDP growth and CPI inflation, both domestically and in the other major advanced economies. The effects of the asset purchase program (or shifts in the net supply of government bonds) are captured by the model only indirectly, i.e., to the extent that these influence expectations on the future course of the relevant macro factors.

As can be seen, ‘QE1’ led to a fairly rapid move in bond yields right on the announcement date. In the case of ‘QE2’, the effect largely preceded the FOMC meeting in which the decision was taken. This can be attributed to the fact that, in a number of speeches through the Summer, Fed officials had hinted at a resumption of bond purchases to stimulate the economy.

By the time the Fed announced the intention to further expand its balance sheet on November 3, 2010, 10-yr government bonds were already trading around 1 standard deviation (or roughly 40bp) below their macro equilibrium. Our GS Curve model—which links the term structure of constant maturity Treasury yields to consensus macro expectations at different horizons—indicates that around the same period bond yields in the 5-to-7-yr maturity range (the main target area of purchases) stood at very depressed levels relative to their historical relation with the 2-yr and 10-yr sectors (see chart below).

Once again, most of the effect precedes the actual decision to conduct asset purchases, but expectations of such an outcome had been building ahead of the FOMC meeting. A parallel can be drawn to the Fed’s decision to cut policy rates to 1% on June 25, 2003. Intermediate maturity bonds rallied strongly in the 3 months before the policy meeting, only to sell off aggressively after the event.

Fed Holdings Keep Bond Premium Lower

In order to test the empirical validity of the ‘stock view’ more formally, in previous research Jari Stehn ran a regression between the nominal 10-year US Treasury yield against four factors: the stock of announced purchases, the actual weekly flow of these purchases, a number of economic variables (including payrolls, the ISM survey and the University of Michigan/Reuters 5-10 year inflation expectations) and measures of the Fed’s other unconventional monetary policies (such as its guidance that it would keep interest rates “exceptionally low for an extended period”). The results, summarised in the first column of the table above, indicate that the effect of the announced stock of purchases is negative and statistically highly significant.

One issue with this simple specification is that the coefficient on the flow of purchases takes the ‘wrong’ sign, suggesting that the flow of purchases raised bond yields. This counterintuitive finding has a simple explanation: just about as the Fed started to purchase assets last November, bond yields rose sharply because growth expectations improved and, partly as a result of this, market participants revised down their expectations of further easing. But because the statistical exercise controls for the contemporaneous rather than the expected macroeconomic landscape, the increase in yields is attributed to the flow of QE2 purchases.

To address this shortcoming, rather than focusing just on the 10-year yield, we explore how the Fed’s purchase program has affected the yield curve across maturities. This allows a differentiation between the impact of economic factors (which affect the entire term structure) and the Fed purchases (which could differ by maturity bucket). Making use of the relative movement of yields at different maturities provides more information and should therefore provide better identification.

The Box above outlines the approach we have taken and the main results are summarised in the second column of the table on the previous page. Once again we find a significantly negative and economically meaningful effect from the stock of purchases on the 2-10-year part of the yield curve, while the coefficient associated with flows is now insignificant. Specifically, the estimates suggest that yields in the 2-10-year maturity range have been reduced by around half a basis point for each US$1bn of announced purchases. This suggests that the Fed’s Treasury holdings could be currently holding down 10-year yields to the tune of 40-50bp. This numerical result is clearly subject to the usual caveats applicable to the outcome of statistical analysis, but is reassuringly not far from what other studies have found. In addition, similar regression analysis on 10-year yields for the UK also found a significant and meaningful effect from the stock of purchases but not from the flow of purchases (for more details, see “A Modest Impact on Markets from the End of QE2” Global Economics Weekly 11/14).

To Sell, Or Not to Sell?

The empirical analysis reviewed so far allows us to draw the following conclusions for bond strategy:

  • The starting point for 10-yr US Treasury yields is not far from a notion of ‘fair value’ consistent with the historical relationship to the current set of consensus expectations on macroeconomic factors. Going by this result, longer-dated US nominal bond yields are not abnormally low relative to where the average investor expects the economy to be heading. Rather, they do not incorporate the additional premium that is typically in place when the monetary policy stimulus is at full throttle.
  • Expectations on what the Fed will do with its bond portfolio—hold on to securities until maturity or sell them beforehand—matters more than the distribution of flows. So, whether purchases are tapered off or ended on schedule should have little effect on bond yields. Put differently, no ‘cliff effect’ should be expected at the end of June.
  • Our central view continues to be that the Fed will not announce asset sales for a long time to come. That said, even assuming the Fed’s bond holdings passively run off as securities mature, the term premium compression we have identified through our empirical work should gradually decay. Moreover, as the economy continues to expand along our baseline forecasts, it is plausible to think that investors’ expectations could shift towards assigning a larger probability to asset sales. This would amplify the underlying tendency for bond yields to rise.
  • According to our GS-Curve calculations, the 5-yr sector of the Treasury curve has not completely realigned itself to its historical relationship with shorter- and longer-maturity bonds, conditional on consensus views on how the US economy will perform over different time horizons. In light of this observation, together with our forecast of above-trend growth in coming quarters and the idea that the compression of bond premium will decay as the Fed’s balance sheet (organically or voluntarily) shrinks, we think that short positions in 5-yr Treasuries remain attractive.



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Wed, 04/20/2011 - 16:07 | 1189701 Silver Bug
Silver Bug's picture

Basically, the game of musically chairs comes to a end. And we quickly realize. There just isn't that many chairs. It won't be pretty. Better have your Gold and Silver for that Hurricane.

Wed, 04/20/2011 - 16:11 | 1189735 camaro68ss
camaro68ss's picture

Is this serious or am I suppose to laugh because I’m laughing right now.

We are all fucked

Wed, 04/20/2011 - 17:04 | 1189958 MarketTruth
MarketTruth's picture

Who is this 'we' you talk about? Only the stupid sheeple will be left as bag holders as physical gold and silver holders will have the security of not seeing their hard earning being inflated and devalued away.

Wed, 04/20/2011 - 17:22 | 1190029 camaro68ss
camaro68ss's picture

 I hold silver, I just talking in general

Wed, 04/20/2011 - 18:22 | 1190243 cranky-old-geezer
cranky-old-geezer's picture

Not exactly. 

PMs aren't the only way to store wealth safe from currency debasement.  There are other ways also.

But we agree that any dollar-denominated asset will lose value as the currency looses value.

Thu, 04/21/2011 - 02:44 | 1191470 Michael
Michael's picture

Get this strait you fucking morons, not you MT; It is impossible for Ben Bernank to stop QE to infinity, for the exact second he does there will be an immediate complete and total worldwide economic collapse of biblical proportions that will make the great depression look like a fucking picnic. Got it?

Wed, 04/20/2011 - 16:30 | 1189829 Popo
Popo's picture

So you're saying at the cusp of our deflationary implosion you should buy metals?

Wed, 04/20/2011 - 16:52 | 1189854 redpill
redpill's picture

Actually I don't think he's really saying anything, he's typing some words and pasting a link to his blog.

But to your point, typically a deflationary environment would result in a rush to cash as a haven, but with the current dollar devaluation situation, we may see a reversion from the historical norm and witness PMs resist the decline because they have begun to supplant the dollar a crisis shelter.

Wed, 04/20/2011 - 17:06 | 1189966 The Profit Prophet
The Profit Prophet's picture


T.E.I.N. everyone.

Wed, 04/20/2011 - 18:28 | 1190266 cranky-old-geezer
cranky-old-geezer's picture

But there won't be deflation. 

Inflation is baked in now.  To keep the federal govt operating if no other reason.

Wed, 04/20/2011 - 22:06 | 1190853 Ned Zeppelin
Ned Zeppelin's picture

Be ready for the 180 degree head fake.  I think it may be coming. Engineered from the very top.  

Wed, 04/20/2011 - 22:32 | 1190931 JFK.4PREZ
JFK.4PREZ's picture

I agree- IMO no immediate QE3.  Banksters want to see a sell-off in PMs and commodities.  They may be shorting them on one side with fiat, but I wouldn't be surprised if theyre buying out the other end (for personal gain).   fucking douche magooshes.  But right before SHTF - helicopter ben will fly by with money bags for all!   QE3 YAY!  

Where's the best place to get a degree in Ponzinomics?  Princeton?

Thu, 04/21/2011 - 04:53 | 1191594 MadeOfQuarks
MadeOfQuarks's picture

Yep, could definitely happen. I purchased a fairly large amout of cheap stock puts to hedge my silver, could be worth considering.

Wed, 04/20/2011 - 19:14 | 1190403 long juan silver
long juan silver's picture

Dont expect change from your GOLD eagles when I sell you a ham sandwich.

Wed, 04/20/2011 - 20:33 | 1190588 Max Hunter
Max Hunter's picture

Pre 65 quarters and dimes will be quite suitable in most cases.. Not to mention, most people with PM's also have food and other necessities stocked up as well..  I wouldn't be holding my breath waiting for someone to offer you a gold eagle for that ham sandwich..

Thu, 04/21/2011 - 01:56 | 1191389 Clancy
Clancy's picture

See this gun?

Wed, 04/20/2011 - 16:09 | 1189712 Cleanclog
Cleanclog's picture

VIX just dropped to 14.99. Is anyone REALLY asking any questions? Suggests all is just dandy. Japan, Euro debt, future earnings, consumer purchases, or is it all just US dollar dropping so prices all look better?
Goldman doesn't answer client questions. They profit off their guidance to clients when they go the other way.

Wed, 04/20/2011 - 16:09 | 1189731 SheepDog-One
SheepDog-One's picture

No one is actually in the markets except for the 401K zombie brigades, totaly asleep after seeing some not so terrifying statements in the mail. All is well for now until placating the 401K zombies is no longer beneficial to banksters.

Wed, 04/20/2011 - 16:24 | 1189803 Misean
Misean's picture

My guess is the palcation is to roll through the next election cycle. Get the Baby bumblers another year toward exhaustion and age. Leave them hopeless, hungry and terribly frightened...

Wed, 04/20/2011 - 16:33 | 1189842 SheepDog-One
SheepDog-One's picture

I dont believe they can buy another calm 18 months with all the money they could print day and nite. Within a couple months, rocketing food prices, $5 gas, and a dollar that wont buy you what a nickel used to buy. Election schmecktion.

Wed, 04/20/2011 - 17:18 | 1190019 Misean
Misean's picture

I think they're gonna try...doesn't imply success.

Wed, 04/20/2011 - 22:09 | 1190860 Ned Zeppelin
Ned Zeppelin's picture

oh, and ever more heavily armed. . . . 

Wed, 04/20/2011 - 16:24 | 1189814 10kby2k
10kby2k's picture


Market closes daily where it was after 30 minutes of trade. No intra day action....let alone intra day reversals.  With all the obvious problems the economy faces....this is astounding. I've never seen anything like this.  Do all the trading desks have the same software? or is there a conspiracy? or both?

Wed, 04/20/2011 - 16:39 | 1189861 NotApplicable
NotApplicable's picture

They are all operating on behalf of the Fed.

All hail the POMO.

Wed, 04/20/2011 - 16:08 | 1189721 American idle
American idle's picture

Empirical evidence?

Wed, 04/20/2011 - 16:09 | 1189736 KTAISA
KTAISA's picture

is the answer yes?

Wed, 04/20/2011 - 16:15 | 1189760 Boilermaker
Boilermaker's picture

REITS just hit a 52 week high and up AH just make sure you don't dare fucking think about shorting those steaming piles of shit.

What difference does this garbage even make anymore?

Seriously, this has just become a pathetic comedy at this point.  Nobody believes it.  Nobody will believe it.  Slamming this shit even higher isn't going to convince anyone either.


Wed, 04/20/2011 - 16:17 | 1189772 SheepDog-One
SheepDog-One's picture

At this point its all they can do. As an earlier article mentioned their only game now is get thru today, and probably tomorrow...after that who cares. Its total lunatic policy at this point.

Wed, 04/20/2011 - 16:21 | 1189799 Boilermaker
Boilermaker's picture

I suppose so.  The comedy of it is that you can't hide the sale of CRE, it's publicly available.  Yet, they'll just slam it higher and higher anyway.  In some ways, the worse it gets the more they jack it higher.  I guess it's to force 'maximum pain' on anyone that dares to try to capitalize on the stupidity of it.

In any event, it's just fucking pitiful now.  But, as always, there are some stump-jumping fucking idiots that will buy into it.  So, what the fuck ever.

Wed, 04/20/2011 - 17:23 | 1190031 A Man without Q...
A Man without Qualities's picture

As I have said before, the bankers were fond of selling these things to pension funds.  

Quite often they'd sell the properties owned by the public sector, then arrange a sale and lease back and sell the equity from the REIT to the pension fund of same public sector.  It was a very lucrative racket for the banks, but obviously, they're terrified if it generates losses for the fund.  The idea that a government entity sells a building for a grossly inflated value to their own pension fund and pays the banks about 10% in the process doesn't look good, so the easiest thing is keep it propped up and hope nobody notices..

Wed, 04/20/2011 - 17:59 | 1190157 Boilermaker
Boilermaker's picture

I noticed.

Wed, 04/20/2011 - 21:03 | 1190678 Matto
Matto's picture

It used to be you'd have to say something truly ludicrous to junked around here - there was space for all comments and all points of view. Look at it now, cant believe people junked your comments, whether they agree with them or not.


Pull your fkn heads in junkers - if you're gonna run around junking everything then provide an explanation & add to the discussion at least!

Wed, 04/20/2011 - 22:08 | 1190863 Ned Zeppelin
Ned Zeppelin's picture

Noticed the junker assholes are on the increase. Pay no attention.  

Wed, 04/20/2011 - 19:02 | 1190365 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

No one will go to jail as a result of banksters, unions, and public workers greasing their pockets.

No one will go to jail.

What have they got to fear? The MSM will blame Bush and Zero will win the next election.

F***king Republicans........../s

Wed, 04/20/2011 - 16:18 | 1189774 d00daa
d00daa's picture

Short RWR?

Wed, 04/20/2011 - 16:20 | 1189785 Boilermaker
Boilermaker's picture

Are you short several dozen IQ points?

Wed, 04/20/2011 - 16:46 | 1189888 Bear
Bear's picture

Why not AAPL when you are at it

Wed, 04/20/2011 - 16:23 | 1189790 hedgeless_horseman
hedgeless_horseman's picture

Boilermaker, as you and I have discussed before, most apartment REITs should continue to do well, so long as more people continue to rent apartments.

Wed, 04/20/2011 - 16:25 | 1189807 Boilermaker
Boilermaker's picture

SPG, VNO, and BXP are not apartment REITs.

Wed, 04/20/2011 - 16:32 | 1189831 hedgeless_horseman
hedgeless_horseman's picture

Three of thousands, a minority, and you never specify, but rather always generalize.  Were you victimized by a bad REIT deal as a child? 

Speaking of victims, listen to this stuff:

Wed, 04/20/2011 - 16:44 | 1189871 Boilermaker
Boilermaker's picture

I'm not referring to the 'thousands'.  I'm referring to the giants which is what the Fed is monkey hammering higher every day.  Those are SPG, VNO, BXP, and GGP -OR- IYR and RMZ in ETF form.

I'm just fine.  I'm just so damned interested for anyone to justify the valuations and / or daily cornhole-the-shorts action.

I guess it could be organic buying from retail investors <barf>,

Wed, 04/20/2011 - 16:53 | 1189908 unununium
unununium's picture

I have lost a chunk of change shorting VNO but your idea sounds intruiging.

I think I could drink one little drink and if it doesn't work out, that would be it forever.  Just one little drink.

Wed, 04/20/2011 - 18:32 | 1190286 sunkeye
sunkeye's picture

@bolier that's the thing it makes no sense yet it continues

Wed, 04/20/2011 - 16:13 | 1189762 SheepDog-One
SheepDog-One's picture

Go ahead clowns, end QE, I dare ya! Damned if they do, more damned if they dont...and the realization when the music stops that theres only 1 termite eaten chair available and GS has dibs on it wont make for a very nice scene.

Wed, 04/20/2011 - 16:14 | 1189768 Practical Irrat...
Practical Irrationality's picture

Great write-up on what would happen IF the Fed stops buying.


The Fed will never be able to stop buying.

Wed, 04/20/2011 - 16:16 | 1189779 SheepDog-One
SheepDog-One's picture

Well they dont just keep buying to infinity. This game is on a timeline, it must end at some point.

Wed, 04/20/2011 - 16:21 | 1189789 Misean
Misean's picture

What happens? Cascading cross defaults. What does this BS from Goldman Sucks mean? Positioning the rubes for a buying frenzy from the squid at the end of QE2 before QE3 is announced. Of course Goldman Sucks has no inside information and has NOTHING to do with Feral Reserve bosses...

Wed, 04/20/2011 - 16:22 | 1189801 Sudden Debt
Sudden Debt's picture



Wed, 04/20/2011 - 16:24 | 1189802 zaknick
zaknick's picture

Aren't "conspiracy theories" fun???

Henry Kissinger, together with his international political directorate known as Kissinger Associates, is the individual who stands at the intersection point of every one of these networks: the back-channel with the Soviet Union, the drug and terror networks from Italy to Ibero-America, and the highest levels of finance, including his directorship in American Express, the entity into which has merged a major portion of Dope, command structure.

This command structure contains the following main groups:

* The British combination that controls offshore banking and precious metals trading, i.e., the Hongkong and Shanghai Bank, the Oppenheimer gold interests, top British financial institutions such as Eagle Star Insurance and Barclay's Bank, and their Canadian cousins such as Bank of Montreal and Bank of Nova Scotia;

* The major Swiss banks;

* The continuity of Venetian-Genoese financial manipulations in the personage of the late Roberto Calvi of Banco Ambrosiano, and the shadowy Edmund Safra of American Express;

* The combined offspring of the Swiss bankers and the old European fondi, the international grain cartel of Cargill, Continental (Fribourg family), Bunge, and Louis Dreyfus;

* The Boston Brahmin families and the big American financial institutions associated with Henry Kissinger, including Citibank, Chase Manhattan Bank, and American Express.

We identify a tightly closed financial network whose origins lie in the Dutch and British East India Companies and the modern origins of the narcotics traffic in the British Opium Wars of the 1840s. The paradigm for this network is the London Committee, or British-based directors, of the Hongkong and Shanghai Bank, the central bank for Dope, Incorporated. It ties in directly and immediately to the five big London clearing banks, the five London "gold pool" dealers, and the big Canadian international banks.

This network provides the offshore banking, precious metals, and related capabilities to cause several hundred billion dollars per year to disappear from the streets of New York, Amsterdam, Frankfurt, and Hong Kong, and reappear as apparently legitimate assets wherever convenient. We showed further that Anglo-Chinese collaboration in the Asian opiates traffic was a matter of official policy on the part of the People's Republic of China, and "business arrangements" of the British elite dating back to the first corruption of the Imperial Chinese bureaucracy by the British East India Company.

The Oppenheimer mining group, heirs to the empire of Cecil Rhodes, is the dominant force-in collaboration with HongShang and its Mideast subsidiaries-in the illegal traffic in gold and diamonds through which so much dirty money is turned into untraceable, portable assets. Through its diamond monopoly, De Beers, its mining corporations, Anglo-American Mining and Consolidated Gold Fields of South Africa, through its commodity trading organization, Phibro, the Oppenheimer group has expanded its tentacles across the world and, most of all, in the United States.

The old United Fruit Company, renamed United Brands in the 1960s, has been the center of American organized crime since the turn of this century ... United Fruit's banana boats coming into Baltimore harbor have been the freest vehicle for the physical passage of contraband into the United States. In its successive corporate reorganizations, United Brands has since wound up in the hands of Cincinnati, Ohio insurance financier Carl Lindner, the principal business partner through the last three decades of Michigan organized crime heir Max Fisher. And through an entanglement of financial interests that might have been invented by a gaudy but unimaginative mystery novelist, the fate of United Brands has been intertwined with that of American Express, the world's most efficient silent money-mover, and the prince of Levantine money-laundering, Syrian-Swiss financier Edmund Safra. American Express, the monster that devoured half the old great houses of Wall Street, ties together the United Brands crime and smuggling capability, the financial networks who created and funded the Argentine Monteneros and other terrorist organizations, as well as the Swiss-based interests who have acted, for a generation, as the private couriers of the Soviet Union in the international gold markets.

Investment banking in the United States is now almost wholly controlled by the ancient European fondi, that is, family trust funds whose pedigree goes back to the financing of the Crusades by Genoa and Venice.

From 1971 to 1981, in the decade after then-Treasury Undersecretary Paul Volcker removed its gold backing, the U.S. dollar fell to a mere 60% of its pre-devaluation level, while the combined effects of inflation and lower stock prices devalued American equity to about 30% of its 1971 level in terms of gold. From the standpoint of the old oligarchical fondi, secured through gold, American equity could be had for a fifth of its pre-1971 price during the late 1970s.

Wed, 04/20/2011 - 16:29 | 1189839 magpie
magpie's picture

There have always been conspiracies, but most of them fail.

That's the theory.

Wed, 04/20/2011 - 16:39 | 1189860 gordengeko
gordengeko's picture

+p2, (propaganda due

popped in my head when I saw your p's.  

Good post by the way.  I wouldn't go believing in those conspiracy theories, I hear they are all horse puppy nonsense.


Wed, 04/20/2011 - 17:54 | 1190145 DavidPierre
DavidPierre's picture


This didn't need to happen

Greek bonds have completely collapsed with 2 year notes paying over 20% interest.

In today's world, it is impossible to run an economy with these kind of interest rates because the absolute debt levels have blown out to unsustainable proportions. Just a month ago the Euro would have been slaughtered, not today though as the Dollar is weak across the board versus nearly all other currencies and commodities.

The world has caught on to the structural flaws of the Dollar and are fleeing with both feet!

Forget about 20+% interest rates, can you imagine what will happen in the U.S. were rates to rise 2 or 3% from here?

Can you imagine the housing sector?

Can you imagine how destroyed the current budget numbers will look with higher rates?

 The U.S. Treasury (and Fed) simply cannot afford higher rates as this would expose the rotten and bankrupt financial corpse for what it is.

We know for a fact that currency markets are manipulated by central banks, we know from the mere existence of the PPT (working group on financial markets) that equity markets are manipulated and we also know for a fact from "QE" that the bond markets are manipulated.

 However, we are told that Gold and Silver are absolutely free markets!

Ask anyone, Gold and Silver are the ONLY free markets on the planet. For what possible reason could governments want to bother with such stupid markets as Gold and Silver? Well duh!

None of the current problems ever could have existed if Gold and Silver were allowed to reach the current levels say 5 years ago where they belonged then.

Interest rates would have blown much higher and the real estate bubble would have been nipped in the bud but no, it was always inflate or die.

None of what we now face was necessary had TPTB allowed a true recession to wash away bad debts and allowed Gold to perform its function as a warning bell. "They" didn't allow it so now WE will bare the consequences.

A true debt and currency panic is the mathematically guaranteed result and we may be entering this zone right now. S+P finally pointed the crosshairs at U.S. fiscal irresponsibility and can anything now turn the attention away.

It is over from a fiscal standpoint plain and simple.

Hold your insurance policies (metal) close because you will surely need to call on them!

Wed, 04/20/2011 - 16:26 | 1189811 honestann
honestann's picture


Wed, 04/20/2011 - 16:28 | 1189830 metaforge
metaforge's picture

Who else, pray tell, is going to step into the batters box and buy?  Great Aunt Edna is tapped out.

Wed, 04/20/2011 - 16:31 | 1189835 Robot Traders Mom
Robot Traders Mom's picture

There sure seem to be a lot of steepner trades set up by the banks on the 30's-5's...Now I see why. Cheap funding for them when the 30-5 spread gets cut in half.

Wed, 04/20/2011 - 16:39 | 1189858 buzzsaw99
buzzsaw99's picture

It is hilarious reading some squid hack talk as if fundamentals matter.

Wed, 04/20/2011 - 17:01 | 1189942 AccreditedEYE
AccreditedEYE's picture


Wed, 04/20/2011 - 16:41 | 1189867 I am Jobe
I am Jobe's picture

The vampire Squids must be losing their touch and looking to get back in by creating another Ponzi Scam and their analysis. Hang the bitchez and dissolve GS. No one in the USA has balls I must say. Buch of Zima Drinking a holes at the SEC and the DOJ.

Wed, 04/20/2011 - 17:08 | 1189977 css1971
css1971's picture

Had to google vampire squid. I thought it was Cthulu.

Wed, 04/20/2011 - 16:41 | 1189870 Hedgetard55
Hedgetard55's picture

Goldman's conclusion essentially, then is: no biggie. Carry on.

Wed, 04/20/2011 - 16:45 | 1189877 Fast Twitch
Fast Twitch's picture

Freakin Joe Six Pack doesn't even know what he's paying for and that it will never get easier....Living the American nightmare.

Wed, 04/20/2011 - 16:45 | 1189880 Spalding_Smailes
Spalding_Smailes's picture

" What Happens When The Fed Stops Buying? "


Commodities get Monkey Hammered .......

Wed, 04/20/2011 - 17:10 | 1189994 The Profit Prophet
The Profit Prophet's picture

"Equities get Monkey Hammered..."

There...fixed it for you.

T.E.I.N. everyone!

Wed, 04/20/2011 - 17:17 | 1190007 Spalding_Smailes
Spalding_Smailes's picture

Nope. See my post below, the market is being driven by solid growth .....

Wed, 04/20/2011 - 17:18 | 1190021 The Profit Prophet
The Profit Prophet's picture

Nope. See my post below, the market will collapse because of the Japanese black swan...

T.E.I.N. everyone!

Wed, 04/20/2011 - 17:43 | 1190090 tmosley
tmosley's picture

"I wanna have it both ways!"

Wed, 04/20/2011 - 19:17 | 1190411 long juan silver
long juan silver's picture

Thats what you tell your boyfriends pickle lips.

Wed, 04/20/2011 - 18:41 | 1190316 alexanderstollznow
alexanderstollznow's picture

that is an interesting theory, but if you actually look at when the commodities rallies started you will find there is no correlation with QE.  some of them started some years before, others have been very recent only eg silver.  ag commodities have had quite diverse paths on the way up. 

Wed, 04/20/2011 - 18:44 | 1190321 alexanderstollznow
alexanderstollznow's picture

that is an interesting theory, but if you actually look at when the commodities rallies started you will find there is no correlation with QE.  some of them started some years before, others have been very recent only eg silver.  ag commodities have had quite diverse paths on the way up. 

Wed, 04/20/2011 - 16:52 | 1189899 Hugh_Jorgan
Hugh_Jorgan's picture

The B3rnank wants everyone to believe that if he props up the edifice for awhile, the economy will magically catch fire again and take the load off of his hands. Unfortunately all of the ruling class are Keynesians, which means they espouse stimuli that require a relatively stable underlying economy as a prerequisite for success, and they rarely examine the possible outcomes beyond step one. So, we are not hearing that the unfortunate side-effect of the Fed's actions is that markets and the economy are destroyed while they are holding up the roof.

Ol' Bennie sold the dipsticks in Congress on an experiment was about as inspired as the "Amazing Automatic Leaf-Yanker from Ronco", the new "cleverly designed" appliance that will actually make plants grow faster!!! (Act now, don't try this at home, your mileage may vary, etc, etc, etc.)

No one should be surprised when grotesque experimentation like this ends up killing the test subject. Unfortunately, this time it is the world economy that is dismembered.

Hmm... I wonder who/what is waiting to rescue everyone when we are all face down in the muck? I wonder if the B3rnank knows them?

Wed, 04/20/2011 - 19:35 | 1190328 cranky-old-geezer
cranky-old-geezer's picture

The B3rnank wants everyone to believe that if he props up the edifice for awhile, the economy will magically catch fire again and take the load off of his hands.


Bernokio's plan is destroy the dollar.  Always has been.

Everything is going according to plan.  No worries.

Wed, 04/20/2011 - 16:53 | 1189906 russwinter
russwinter's picture

China to revalue and what does it mean?

Wed, 04/20/2011 - 17:09 | 1189988 squexx
squexx's picture

I was just going to post the same thing! So, the dollar will sink further?

Wed, 04/20/2011 - 18:21 | 1190227 russwinter
russwinter's picture

I am thinking the biggest imapct will be on US rates which will spike. Since the USD is used as a massive carrytrade, and there are so many shorts, the USD could actually surge higher in an unwinding against non-Yuan currencies. China needs to have a stronger currency in terms of BR real, Aussie Dollars, etc,   Interest rates in the US would have to price in even higher import prices as well. 

Wed, 04/20/2011 - 17:06 | 1189978 AldoHux_IV
AldoHux_IV's picture

Fuck Goldman-- bunch of criminals that belong in pound-me-in-the-ass prison.

Wed, 04/20/2011 - 17:14 | 1189980 Spalding_Smailes
Spalding_Smailes's picture


UP 1Q Net Jumps 24 Percent to $639 Million

Union Pacific Railroad saw its profit rise 24 percent from a year earlier to $639 million in the 2011 first quarter as traffic grew across the board in its major cargo categories.

"We saw volume growth in all commodities," said CEO James R. Young, "and effectively leveraged that growth by running a safe and efficient network despite spiking fuel prices and winter weather challenges across most of the nation's rail network. These efforts produced a best-ever first quarter operating ratio and record cash from operations."

Young, also board chairman and company president, said for the rest of 2011 "the economy is showing signs of continued, gradual improvement, and we're optimistic about the growth opportunities ahead."

The company's profit margin - net income as a share of total revenue - rose to 14.2 percent from 13 percent in the 2010 first quarter. Its operating ratio of expenses to receipts declined to 74.7 percent from 75.1 percent. Total revenue rose 13.2 percent to $4.5 billion.

Truck Maker Paccar Profit Nearly Triples

Net income rises 183 percent to $193.3 million on 47 percent increase in sales

Strong heavy-duty truck sales drove first-quarter revenue up 47 percent to $3.28 billion at Paccar. Excluding financial services, net sales were up 53 percent.

The manufacturer's net profit soared 183 percent, rising from $68.3 million a year ago to $193.3 million. Higher utilization of truck facilities increased gross margins.

Economic recovery fueled Paccar's truck sales in North America and Europe, said Chairman and CEO Mark Pigott. The company is expanding in South America.

"Our on-highway customers are benefiting from increased freight tonnage and freight rates which are driving improved fleet productivity," said Pigott.

Paccar builds and sells Kenworth and Peterbilt trucks in the U.S. and DAF trucks in Europe. The truck brands are sold in other overseas markets as well.

Georgia Port Volume Grows as Ro-Ro Surges

Containers up 4.5 percent as ro-ro climbs 36 percent to record total

The volume of containers handled by the Port of Savannah increased 4.5 percent in March from the same month last year, at the same time as the number of roll-on, roll-off units passing through the Port of Brunswick surged 36 percent to a new monthly record.

Savannah handled 238,030 20-foot equivalent units in March, compared to 227,860 TEUs in March 2010. Volume to date for the 2011 fiscal year ending June 30 is 12.6 percent higher than for the same period in fiscal year 2010.

The Port of Brunswick posted its best month ever in March for automobile and machinery units or ro-ro cargo at Colonel’s Island Terminal, which handled a total of 42,740 units.

Wed, 04/20/2011 - 17:21 | 1190012 The Profit Prophet
The Profit Prophet's picture

AAPL outlook - WEAK!

T.E.I.N. everyone!

Wed, 04/20/2011 - 19:19 | 1190416 long juan silver
long juan silver's picture

Every Q since Gil Amelio was CEO APPL has given weak guidance. Then? Bam.

Wed, 04/20/2011 - 19:53 | 1190488 The Profit Prophet
The Profit Prophet's picture

Really?....well now there is little thing called the worst nuclear disaster in history that is going to ensure that this time around, weak means WEAK!

T.E.I.N. everyone!

Wed, 04/20/2011 - 17:12 | 1189993 Seasmoke
Seasmoke's picture

just keep changing the rules of the game in the middle of the game and all will be just fine

Wed, 04/20/2011 - 17:13 | 1189997 poydras
poydras's picture

My call is for a formal devaluation directed by the President.

This is really the '70s except materially worse.

Wed, 04/20/2011 - 17:14 | 1190002 sbenard
sbenard's picture

John Hussman wrote about what would happen as the Fed ends QE2. It's very technical, with formulas and a lengthy explanation. I recommend it.

He explains why the Fed will have to liquidate ALL of its QE2 treasuries or risk inflation of 40%!

Wed, 04/20/2011 - 17:18 | 1190014 poydras
poydras's picture

The President directed the devaluations of the '30s and the '70s.  The Hussman piece suggests that QE by the Fed is over.

Wed, 04/20/2011 - 17:36 | 1190077 Global Hunter
Global Hunter's picture

I have to admit I didn't understand that Hussman piece.  I'm going to relax for 10 minutes and try again.

Wed, 04/20/2011 - 17:21 | 1190024 AboutAverage
AboutAverage's picture

Does it really matter?  How many of your friends, family are under water in their house by $100k or more?   Be honest with yourself.  Do you really believe they will pay this off or eventually be tossed onto the street.   How many of your friends and family have declared bankruptcy or in the process of doing so in the next 3-5 years?   

Even you ridiculous gooned out trolls who work for the machine and read my posts with anger have many family and friends (perhaps yourself) who have been devasted financially by the corrupt games being played.  triple digit inflation but they keep you fed for now anyway.  I did not cause this for you.  No ordinary Americans caused this disaster we are simply telling the truth.  It was caused by greed and criminal activity which is being covered up at the highest levels of authority.

At some point when the bankers come knocking for the debt repayment that they created (like they are doing in Ireland, Greece, Portugal, Spain), tell them to go F*ck themselves.  And if - or I should be optimistic and say when we get a legitate authority in the whitehouse and congress, then perhaps we will serve some justice and set things straight again so we can go back to normal and put these goons behind us in textbooks of American history - categorized under dirtballs.

Thu, 04/21/2011 - 05:15 | 1191608 Non Passaran
Non Passaran's picture

>At some point when the bankers come knocking for the debt repayment that they created (like they are doing in Ireland, Greece, Portugal, Spain), tell them to go F*ck themselves.

Pension funds (what's left of them) wouldn't do so well in that case.
I doubt it'd hurt banksters as much - they aren't stupid and have bet on both sides.

Wed, 04/20/2011 - 17:21 | 1190026 topcallingtroll
topcallingtroll's picture

It is 420 on 420 central standard time.

Time for the heartland to light up.

Its the end of the world as we know it and I feel fine.

Wed, 04/20/2011 - 17:20 | 1190030 werealldoomed
werealldoomed's picture

What the better trade at the end of qe2? Surely they won't implement qe3 right away. Short equites?

Wed, 04/20/2011 - 17:28 | 1190053 redpill
redpill's picture

Well the US government has already announced its intention to dump all its GM shares this summer, so I can't see any reason not to short the snot out of it, except the patheticness of it all.

Wed, 04/20/2011 - 17:27 | 1190047 MichiganMilitiaMan
MichiganMilitiaMan's picture

I will be replacing my current favorite terms: "Double Clicking the Mouse" and "Roughing up the Suspect" with "Liability Management Exercise."

Wed, 04/20/2011 - 17:43 | 1190095 Glitch
Glitch's picture
Long time lurker, first time poster. I think most of you guys are a bit more educated in the debt markets than I am but I like to simplfy and pan out sometimes. So,, let me ask you guys a question. Ya always here about the Chinese and others buying and selling our debt and yada, yada. Well is what we really have here just that for practical purposes nobody is buying our debt anymore and we're just printing the money because we have no reallistic choice? So call it QE or monetizing or what ever, nobody will loan us money anymore so we just print it. So I guess my question is, is it that simple? If it is, considering .govs numbers, we are fucked and apparently shortly. Am I missing something?
Wed, 04/20/2011 - 18:00 | 1190158 buzzsaw99
buzzsaw99's picture

1) the bernank wants the stock market higher and the bankers richer.

2) if rates are allowed to rise it will drain cash away from 1)

3) the usa does not need the fed to print "money" and buy treasuries, they are parasites that make the cost-push inflation situation worse.

Wed, 04/20/2011 - 18:39 | 1190311 Glitch
Glitch's picture


"1) the bernank wants the stock market higher and the bankers richer."


"2) if rates are allowed to rise it will drain cash away from 1"


"3) the usa does not need the fed to print "money" and buy treasuries, they are parasites that make the cost-push inflation situation worse."

It appears to me that not only do they need the fed to print, they have no further options, unless I'm missing something.

Wed, 04/20/2011 - 18:53 | 1190347 cranky-old-geezer
cranky-old-geezer's picture

Pretty well sums it up.

Nice avatar too. 

Wed, 04/20/2011 - 17:51 | 1190126 johny2
johny2's picture

There is $110 oil, wars all over Africa and Middle East, Debt Crises in Europe, Japan with its huge debt and radioactive disaster, China overheating, Inflation already raging, huge imbalances in world economy and huge imbalances in income....House prices still down, jobs not created....I am tired of pointing out obvious, but the stock markets are totally out of tune with the Economy. We are going to witness something spetacular.

Wed, 04/20/2011 - 17:55 | 1190141 sschu
sschu's picture

I cannot even read these type of articles anymore.  The issue is just not that hard.

Until the federal government gets its fiscal house in order, some sort of monetization scheme will be required or rates will have to go up significantly to attract borrows (not likely).

The goverment at all levels (local - federal) has over 10 milliion workers too many (see report by Steven Moore and do the math).

They were hoping by now the economy would be recovering and tax revenues would help close the fiscal gap.  Instead we get Obamacare and chronic high unemployment.  Read Rogofffs book, this was all so predictable.

Do we have any politician willing to pink slip 10 milliion people?

As this crisis moves from the Political to the Public phase, we will see claims that you need to fork over your 401K for the good of the children. 

Unless a miracle happens.


Wed, 04/20/2011 - 18:35 | 1190298 cranky-old-geezer
cranky-old-geezer's picture

... we will see claims that you need to fork over your 401K ...

Yes, it's coming.

Thu, 04/21/2011 - 01:50 | 1191385 Don Keot
Don Keot's picture

The 401k values and continued contributions will bankroll the gov. for an indefinite period of time, after all that is how Japan has survived for the last 20 years.  Their debt is carried by the public.  So, your 401k contributions will continue to buy treasuries.

Wed, 04/20/2011 - 18:07 | 1190188 doubleplusgood
doubleplusgood's picture

The USFed can never stop. It must continue to the bitter end, which is 12/21/2012. That's when the USFed's 99-year charter ends and they are not seeking renewal. Their operators are going to blow the legs out from underneath it and hand the mess to you and me.

I find this finding doubleplusgood.

Wed, 04/20/2011 - 19:51 | 1190499 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Do you have a link concerning the Fed's charter?

I can go google but the fed links are insanely insane written by PHDs who know they are insane.

Thu, 04/21/2011 - 05:37 | 1191622 Non Passaran
Non Passaran's picture

Junked you for spreading crappy rumors that waste my time.

The first "proof" of this idiotic claim that Google listed was Mr Shapeshifter's Web site. Enough said.

Good info:

Wed, 04/20/2011 - 18:11 | 1190200 TrustMeImADoctor
TrustMeImADoctor's picture

I tried to find the report on the internet. Is there a link?

Wed, 04/20/2011 - 18:19 | 1190215 cranky-old-geezer
cranky-old-geezer's picture

What Happens After the Fed Stops Buying?

Simple.  U.S. government implodes.

This is why inflation is baked in.  Fed can't stop creating currency and buying govt debt.

Wed, 04/20/2011 - 18:20 | 1190232 Boilermaker
Boilermaker's picture

Wrong, the US government starts over.

Wed, 04/20/2011 - 18:32 | 1190287 cranky-old-geezer
cranky-old-geezer's picture

It's not going to start over.

Wed, 04/20/2011 - 18:28 | 1190275 slaughterer
slaughterer's picture

For such a $2.9 trillion question, GSspeak seems to be getting ever further away from formulating an actionable and profitable trade for this event.  These guys are foundering, IMO.

Wed, 04/20/2011 - 22:29 | 1190278 cranky-old-geezer
cranky-old-geezer's picture

Dollar index hovering around 74.35 after dropping like a stone since Monday. 

They're desparately trying to keep it above 74.18.

Edit: It's actually 71.18, my error. 

Below that it's freefall.

Wed, 04/20/2011 - 19:02 | 1190364 FromGaltsGulch
FromGaltsGulch's picture

So let see if I have this straight..we're going to have deficits over the next 4 years of roughly 4.2 trillion dollars. Plus we have around 4. 5 trillion in debt maturities. Sadly the Japanese wont be buyers(probably..and they may in fact be sellers). The chinese are pissed to the gils at us. And GS doesn't see a problem with the end of QE2?.Really


Be afraid people.very afraid.

Wed, 04/20/2011 - 19:23 | 1190425 XRAYD
XRAYD's picture


Wed, 04/20/2011 - 20:20 | 1190560 New American Re...
New American Revolution's picture

Question:   Given that QEIII is politically unfeasible, how is the US Federal Government going to finance its deficit spending without QE?   This has been sticking in my craw and I can't answer it.   Anybody have an idea?

Wed, 04/20/2011 - 21:34 | 1190763 Max Hunter
Max Hunter's picture

My guess the FED will covertly print the money for "unknown" and "untraceable" 3rd parties to purchase the debt.. After a few months of this, those holding the most US paper will call bullshit and start dumping..  Just a guess. Who the fuck knows what these parasite psychopathshave in store.. I just hope they get the Mussolini treatment someday..

Wed, 04/20/2011 - 22:12 | 1190867 cranky-old-geezer
cranky-old-geezer's picture

Agree.   Deficit financing by proxy.

If QEIII doesn't come, watch the "other assets" part of Fed's balance sheet start growing rapidly.

Fed is *NOT* going to stop the game.

Wed, 04/20/2011 - 21:01 | 1190667 tempo
tempo's picture

Could an economic collapse be the President's goal?? (Believe it or not.. no one from Columbia/Harvard law ever remembers his attending one class, actual college transcripts will not be released. He use a stolen social security number gotten from Ct. when he was 17, and he only has a short form birth certificate with no physican signature or hospital name. This whole situation is very dangerous and very, very strange. Think of who benefits if this is true.

Thu, 04/21/2011 - 05:46 | 1191631 Non Passaran
Non Passaran's picture

I think you would benefit the most - suddenly people could find you sane.

Wed, 04/20/2011 - 21:01 | 1190669 tempo
tempo's picture

Could an economic collapse be the President's goal?? (Believe it or not.. no one from Columbia/Harvard law ever remembers his attending one class, actual college transcripts will not be released. He use a stolen social security number gotten from Ct. when he was 17, and he only has a short form birth certificate with no physican signature or hospital name. This whole situation is very dangerous and very, very strange. Think of who benefits if this is true.

Wed, 04/20/2011 - 22:14 | 1190871 Ned Zeppelin
Ned Zeppelin's picture

I dunno, go ask Trump you birther knucklehead. 

Obama and Bush are opposite faces on the same coin, bought and paid for by the TPTB and the TBTFs.  


Wed, 04/20/2011 - 22:12 | 1190866 Ned Zeppelin
Ned Zeppelin's picture

Goldman Sux

Wed, 04/20/2011 - 22:22 | 1190901 Stuck on Zero
Stuck on Zero's picture

It looks like QE3 is necessary.  The Baltic Dry Index is headed for new lows.  Oooops.

Thu, 04/21/2011 - 01:58 | 1191398 Don Keot
Don Keot's picture

I think I will send them an "Easy Button" from Staples.  I think that would be just as effective.

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