Rosenberg Joins Chorus Of Those Accusing Bernanke Of Asset (Read Stock) Price Targeting

Tyler Durden's picture

Over the past 6 months, Zero Hedge has presented its extensive thoughts on QE 1.5, 2.0, and all the upcoming ones all the way through version infinity. Here are Rosenberg's.


There was nothing in the Fed press release yesterday that was really surprising. In fact, the market’s initial dramatic reaction (all over the map) was what’s most surprising. The Fed is going to be buying $600 billion of Treasuries (in the 5-10 year part of the curve) through mid-2011 and another $250-300 billion via coupon reinvestments, which they were going to do anyway.

The “number” that was key for the markets is that $600 billion figure, which is about $75 billion per month. That is in the middle of consensus expectations of $50-100 billion. Not “shock and awe”, based on what was broadly expected, but not “light” either considering that the economy, at least so far, has managed to avoid double-dipping.

For all the excitement, this further expansion of the Fed’s balance sheet will add between 0.25-0.5% to real GDP growth; however, this will take the size of the Fed’s balance sheet to a Japanese-style 20% of GDP!

What the Fed is clearly trying to do is reflate asset values in order to generate a more positive wealth effect on personal spending and pull the cost of debt and equity capital down in order to re-ignite business “animal spirits” and hence corporate investment and hiring. In a balance sheet or deleveraging cycle, success is not always guaranteed even by the most aggressive of monetary policies.

Through its actions, the Fed creates excess reserves in the banking system. But with one-third of the household sector gripped with a sub-620 FICO score, 1-in-7 mortgage debtors are either in arrears or in the foreclosure process, and with an estimated 25% of homeowners “upside down” in their mortgage (negative equity), there is at least some non-trivial probability that, as was the case with QE1, there will be no visible impact on the willingness to borrow, the money multiplier or velocity, which is what we would need to see to declare this radical policy experiment a success.

In a nutshell, with core price trends running below 1% and the economy past the peak of growth for the cycle, the Fed is not far off the mark in its deflationary concerns. The critical aggregate here is the unemployment rate — policy is aimed at redressing the glaring “gap” or chronic excess capacity in the labour market.

Go back two years ago when the Fed was on the brink of cutting the Fed funds rate to zero and the central bank was expecting to see, by now, a 7% unemployment rate. On the eve of QE1 in the opening months of 2009, the Fed’s base case was an 8% jobless rate by now. Instead, the jobless rate is sitting near 10% and only an atypically low participation rate has prevented the official unemployment rate from being higher than 12%. Moreover, counting in the vast degree of “under-employment”, the real unemployment rate is closer to 17%.

The one asset that has responded miserably to the Fed announcement is the long bond — it is getting clobbered, in part because the Fed bond buying is in the mid-part of the curve. Looking at the huge spread between 30-year bonds and the 5-year note, if inflation does not rear its ugly head, the best risk-reward is now really at the long end, which is universally despised and may be one reason to like it even more!

The U.S. dollar is on the verge of breaking down — the recent countertrend rally in the DXY may well be snuffed out quickly. The 50, 100, and 200-day moving averages in gold are all in major uptrends despite the corrective phase from overbought levels.

It’s difficult to see how equities can rally on this Fed move alone or the election results for that matter seeing as a GOP victory in the House and QE2 had both been widely discounted in recent months. There have been no surprises here over the past 24 hours. Just confirmations on what had already been priced in.

Meanwhile, risk assets from equities, to credit, to emerging markets have, in recent months, become correlated with a weaker U.S. dollar in an unprecedented fashion. A weaker dollar, in turn, fits in very well with Ben Bernanke’s reflationary strategy by cheapening exports and buying jobs from abroad, not to mention adding extra impetus to foreign-currency translated corporate earnings. The question is whether the dollar’s descent becomes destabilizing or what the responses to this overt weak dollar policy will be in other parts of the world. Currency wars tend to lead to trade wars and trade wars do not tend to end very well (gold being an exception).

  • The five million 99ers who are about to lose their jobless benefits (can even a lame duck Congress be that heartless?);
  • The looming tax hikes on January 1 if a GOP-White House deal isn’t brokered, and;
  • The bite into discretionary spending from the spike in food and energy prices — at exactly the most important shopping time of the year.

Look out for a big bite out of GDP from what will likely prove to be at least a sharp upward move in the price deflator (have a look at Food Sellers Grit Teeth, Raise Prices on page B1 of today’s WSJ as well as Apparel Makers To Lift Prices on page B2).

The equity market loves the liquidity boost but as I said, it is priced in. There are twice as many bulls as there are bears in the sentiment surveys and the stock market is trading near the top end of the 2010 range. Moreover, the two “critical” events that got Mr. Market all excited in the last two months are now yesterday’s news. The recent Barron’s Big Money Poll smacked of the complacency we saw in the fall of 2007 when nobody seemed to see a recession looming. Today, 4 in 5 surveyed in the Barron’s poll are dismissive of double-dip risks, perhaps prematurely. The mistake here may be in confusing derailment with delay.


The Fed, in some respect, did as little as possible yesterday. Not so much in size, though they could have done more on that score (equivalent to a rate cut of 50-75bps), but more in terms of where the central bank is focusing its bond buying activity. The bulk of the bond purchases are in the mid-part of the curve where yields are already 1%. What good is another handful of basis points decline really going to do for the economy at this part of the curve? Not much. Only 6% of the bond buying is in maturities of 10 years or longer and that is what matters most for the economy and that is the only part of the curve where there is any juice left, in terms of basis point yield impact.

It would be one thing if the Fed radically shifted its forecast, we could understand why the Fed did the least amount of easing possible under the situation of having boxed themselves in. Household spending is increasing, though “gradually”, and at the same time “constrained” by a variety of impediments. Housing is “depressed” and the recovery “continues to be slow”. Business spending is rising “less rapidly”, and nonresidential construction activity is deemed to be “weak”.

So while the Fed may not have downgraded its forecast, as it seemed to be thinking at the last meeting that the economy could be double dipping by now, the description of the economic backdrop in the press release was certainly one of a listless recovery at hand.

I can only surmise that the Fed had a view six-weeks ago that the economy would be contracting by now and it clearly isn’t. Or that Bernanke would have faced more dissents had he targeted the 10-year and above part of the Treasury curve, which would have been far more stimulative. It is truly hard to believe that targeting a part of the curve that is already yielding 1% is going to have much of a macro effect. And, much of what happened was already priced in. Perhaps the biggest news is that, as soft as it is, the U.S. economy is not falling apart at the seams and that seems to be all the equity market needs to see to grind higher. The two outcomes from yesterday that have some certainty attached to are: (i) the steeper Treasury yield curve, which along with a GOP controlled House, is positive for the financials that have been lagging, and; (ii) a further weakening of the U.S. dollar (good for anything negatively correlated with the greenback, from basic materials, to energy, to precious metals).

Bottom line: While the Fed could have done more yesterday, it didn’t because the economy is doing better than expected at this juncture, even if still quite fragile. Auto sales, for example, did rise to 12.3 million at an annual rate in October from 11.8 million in September (best result since August 2009). However, recall that motor vehicle sales also jumped 2.4% in September and all that translated into was a +0.08% inch-up in total real consumer spending, which was one of the weakest months of the year. Consumer spending excluding auto will now be key to watch.

I have to admit that the news out of MasterCard SpendingPulse is amazing considering what wage growth is doing (perhaps the stimulus from strategic mortgage defaults is at play here): “retail sales showed a noticeable improvement versus a year earlier, fueled by online sales and strong demand for luxury goods, jewelry and apparel” (see page A2 of the Investor’s Business Daily). And for Q4 GDP, the critical question will be real final sales growth and the extent to which net exports swing positively, if at all.

In the past, Bernanke discussed how useful the Fed’s communication skills can be in terms of being a policy tool. One of the reasons why the Fed did not have to resort to ‘shock and awe’ or target longer-term Treasuries is because all the talk since late August had already produced the desired results. This is what Bernanke had to say about it in today’s Washington Post:

“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

Notice how he mentioned the stock market twice — in just one paragraph. And, as the legendary Dennis Gartman emphasizes in his commentary today, what former Fed Governor Larry Meyer had to say yesterday on CNBC was very telling indeed (“What happens over time to the equity market”). Asset prices have always played a role in monetary policy and in the wealth effect on spending but never as much as is the case today. And, just by talking the talk for the past two months, the equity market has managed to rally 14% — creating $1.7 trillion of incremental “paper” wealth without having to lift a finger (yet). Poof! Yes indeed, for Dr. Bernanke, it is a case of the hand being quicker than the eye.

Finally, it seems that a new theme has emerged, which is that the risk-on/risk-off trade is taking its cue increasingly from the U.S. dollar. The correlations are high, intensifying and unprecedented.

  • Over the past six months, the inverse correlation between the trade-weighted dollar and the S&P 500 has risen to 80%; and to 90% in just the past two months.
  • The inverse correlation to emerging market equities is even stronger, at 90% in the past six months and 92% over the past two months.
  • The positive correlation with corporate spreads is now 70% on a six-month basis and 80% over the past two months.
  • There has always been a strong inverse correlation with the CRB index but that relationship has firmed dramatically to 90% in the last six-month and 95% in just the past two months.
  • Even with the VIX index, the positive correlation is now running at 80%.

In other words, all one needs to do today is follow the greenback to be a successful investor. Hard to believe it’s that easy, but this seems to be the environment that Ben Bernanke et al have managed to create in their quest to reflate the global economy.


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SheepDog-One's picture

'Accusations of price targeting'? I thought theyve admitted freely thats what theyre doing.

Forget all this stuff people, watch out for the false flag attack soon. All Im sayin, just watch out and dont have anything parked in markets youll never see it again.

functionform's picture

What are you talking about.  I'm tired of sound bite ZH chicken littles.

SheepDog-One's picture

'Chicken Little' therefore youre saying 'all is well'...ok good luck with that!

WaterWings's picture

I hate disturbing the hens but the wolf isn't at the door - he's already inside. In every town across this nation. Heavily funded, and heavily armed - there is no question our border is wide open. Wonder what it will be like when the cartels are still funded and our local police force isn't. Americans will buy drugs until they are unavailable at any price.

11/4/2010 5:41:32 AM ET


ACAPULCO, Mexico — In another grisly turn in Mexico's drug war, police have recovered 18 bodies from a mass grave announced in a YouTube posting — a video saying the victims were from a tourist group kidnapped in Acapulco a month ago.


Mass killings have become more frequent amid raging, drug-fueled violence in Mexico. In the most horrifying attack, 72 migrants were massacred in northern Mexico near the border city of Matamoros in August, apparently because they refused to work for the Zetas drug gang.

It's just surreal, ain't it!

FEDbuster's picture

McDonald's "Dollar Menu" to be repriced to $1.50 per item.  Homeless bums enraged!

Future headlines "Un-happy Meals now $10."  Soccer moms surround suburban McDonalds with mini vans and SUV's in protest of the new pricing!


SheepDog-One's picture

Yep and $3 gas here today will soon be replaced by $7 gas before year end. Hey Im just recalling what Obama himself said a few months ago.

Cpl Hicks's picture

What was it The Won said about gas prices?

All I remember him talking about the past few months was who got to drive the car and who had to sit in the back seat with their Slurpees.

unwashedmass's picture

the only stocks not already pricing in Bennie's lunacy are the gold and silver stocks. Most are where they were when gold was 700

why is this happening?

uh, dunno....maybe we should ask JPM, and ask how they've also sat on the HUI for the past couple of years

anyone want some EXK? its about where it was when silver hit 9.

wiskeyrunner's picture

Dollar is not tanking today, just more tinkering I guess. I do like energy, but thats about it.

SheepDog-One's picture

'Dollar not tanking from 76.4 to 75.6'...ok...everyone keep chasing stocks higher you might even get lucky and match parity.

umop episdn's picture

"Not tanking?" OK, it is in decline, rolling over, etc, on the way to the choir invisible. Gold at 1380, silver at 25.60. Perhaps paper and ink prices will increase even faster than PMs.

SheepDog-One's picture

I guess thats the key play, buy ink and paper futures! Sure glad the US LOLar isnt tanking over or anything. Rolling over, falling, swooning etc are the correct terminology I guess.

MrSteve's picture

Expiring is spot on. The dollar is expiring so slowly that the public can't figure it out and the media can't report on such a slow process, even though its fatal to its viewers

Chemba's picture

Bernanke admits freely and openly that he is targeting asset prices, so I don't really see the big deal of someone "accusing him" of doing what he openly admits to himself.

Turd Ferguson's picture

No shit they're steepening the curve.

They've only been able to perpetuate the myth of TBTF solvency by handing said banks free $ through the discount window to reinvest in treasuries. The flattening curve has wrought havoc on this trade and lessened its effectiveness.

HellyBenny buys 5-7 year and less maturities is a double win for the TBTFs. Clearly, its exactly what he's trying to do.

pat53's picture

DDDUUUHHH !!  LOL  Rosenberg is just figuring it out now that the FED has been targeting stock prices  !!! ?  What an idiot ! Needless to say, the rally in equities has NOT fully priced in QE2, if it had, we wouldn't be up 200 today. Wrong again Rosy !! Why does ANYONE listen to this moron, he has done nothing but make incorrect forecast for the markets for months now. Do the opposite of this fool and you'll make money !  LOL

SheepDog-One's picture

And these are considered the 'SMART' people pat!  <:P

All_Is_Well's picture

Nothing is "price in"! The fed is going to pump in 100 bil. a month, hell it's going to take a major act of congress to cut that much from discretionary spending for the year! 

SheepDog-One's picture

Pumping 100 billion of what though, rapidly declining $US LOLars? OK we'll see how that ends.

All_Is_Well's picture

Totally agree. Goes to show what a joke and total disconnect from reality this is.

ElvisDog's picture

The purpose of the $100B a month is so Congress *doesn't* have to cut discretionary spending. The amount of QE2 over the next 8 months matches pretty closely the expected amount of deficit spending by the US.

Prof Gulliver's picture

Agreed. Rosie keeps predicting the collapse is imminent, and when the Fed blindsides him again, he then decides "the Fed is all in now" or "the Fed is out of bullets." Then when he's blindsided again, he snarkily critiques the move, because, you see, he'd be right if only the Fed didn't intervene. Rosie should stick to what he knows -- predicting the collapse of the Canadian housing market in 2009-2010 and the Candian economy with it. Oh, wait, that didn't happen either.

Fur Trader's picture

Hmmm, I could do this but maybe one of you (us) has it...

What does the DJX chart look like using Gold-as-money? i.e. inflation adjusted stocks vs their 'worth' in gold at spot.  Or am I wasting my time?  My weak thesis is stocks are experiencing inflation, not growth.  Therefore there must be better ways to hedge inflation other than equities (obviously).

Minion's picture

Of course.  Commodities (DBA) and value retailers for do-it-yourselfers (AZO, AAP) are beating the index.  But for how long............?

I hate trading on blatent manipulation because it's obvious the punch bowl is spiked, yet the clock has no hands.  The door out is a very thin market that will shut down entirely if the herd panics.  The macro picture is painting a bleak picture, even though the micro picture is being used to justify dividend yields of around 2%.  It's clearly speculation that will eventually end when greater fools can not be found. 

Insiders are (still) going to cash:

Clearly the driving force behind the markets is not insiders or the public.  I wonder who is on the buy......... would you trust a bankster to take the other side of your trade when they already unloaded their 2% bag on you? 


UGrev's picture

Any one for dead parrots? because that's what this is..

razorthin's picture

This coxxucker makes the arrogant assumption that there are many citizens left speculating in the stock market after the recent fed-inspired crash.  And should they want to, with who's freaking money?  What a miscreant.

SheepDog-One's picture

This idea that this insanity continues unabated for years is pure horseshit. Thats what theyd like everyone to believe, but someone (China) will step in and stop it. Thats what we'll see, an external force black swan, not internal.

UGrev's picture

I keep asking why China hasn't taken the hit and done it already. Is there an explanation for this from someone who comprehends that delicate situation better than I do?

MrSteve's picture

China has seen a huge gain in the price of its US Treasury holdings, purchased when rates were higher. They sold a lot of them off in the past quarter, so they are probably still above water re: Treasuries. The cash flow from American consumers keeps China's investment and FX accounts going forward, until they don't. At that point, the PLA hopes to be able to run on the domestic demand in the Chinese slave labor economy.

UGrev's picture

so basically we're right in the middle of a cluster fuck as our demand drops and their labor starts to demand higher pay?

Aunty Christ's picture

ZH Please stop sending Rosenberg articles. This assclown has been dead wrong for a long time. He belongs in the scrap heap along with Roubini, Whitney etal.

No Mas's picture

If your suggestion were followed, this site would increase its credibility.

Right now, the majority of consensus of this board, with the exception of gold and silver, has just been wrong.

Rosie is just one who seems to write what ZH'ers want to hear.  For that reason, I would guess he will remain a staple without regard to his predictive accuracy.  You know, preaching to the choir is a very easy and lucrative business. 

SDRII's picture

Assuming monetary inflation can press assets higher and inspire virtual spiral is locked in "ice age" thinking that the US still owns the monopoly on consumption (oil). As the credit destruction decimates demand at the margin and presses down overvalued discretionary to include housing the inflating base money wil chase up at an accelerating rate nondiscretionary. Mako may be correct about the math which is likely why economists jettisoned the numbers in favor of behavior factors long ago  

gerd's picture

of course it's asset price targeting.  if it's inflation that they wanted, all they'd have to do is go back to calculating it as they did before!  see

Printfaster's picture

Go ahead.  Please please tell me that the GM IPO will be a failure.

Robotrader?  Anyone?

SheepDog-One's picture

Yes I guess the FED will buy all of GM IPO, wow thats going to be great. Soon the FED will own everything in the country, pleases reference France/England war and what Rothschild did there. Spread the rumor France had won, England markets crashed 95%, Rothschild bought everything...rumor reversed to England won and Rothschild owns England. 

Same deal here, just with HFT computers and a way stupider population.

Minion's picture

FED and their PD minions are going to buy everything.  That's how it works.  The object of the bankster game is for them to own everything at the end, with your very life at their mercy....

It's a game spread across generations.  Never trust a serpent when he speaks soothing words.  He's a liar and a thief, and will prey on your innate human desire to trust, and think everything is going to be OK.

goldmiddelfinger's picture

The insanity will end next week, it's no coincidence that Obama's going to India with all the government and 34 warships while the G-20 meets in Seoul.
SheepDog-One's picture

I think youre right, something big comin and it all changes in a few days, not month after month monetizing. Somethin big is on deck.

Groty's picture

"The more the plans fail, the more the planners plan." -- Ronald Reagan

stumped's picture

How to stimulate the economy the easy way: take that $750 billion and divide it equally between everyone with a social security number. Instant stimulus. The Nobel prize committee can send my check now.

gerd's picture

what's that, $2,500 each?!

Minion's picture

FED banksters want inflation, but inflation is not about prices, it is about control.  This is how the game works:  they get the money first.  Then you have to buy the commodities they acquired as they ring the cash register.  Kachingo.  You lose.

Prof Gulliver's picture

Job 1 for the Fed is not jobs. Job 1 is getting stock prices higher for their Wall Street patrons. There is no Job 2. How has this ever been different in the history of this elitist organization?

dcb's picture

Rosenberg doesn't want to talk the dirty secret. the thing that has to be asked is who will this help the big financials, their future potential suits, etc.

remember the gaol of the fed is to cover for the baks so they can earn their way out of this. does this mena they now borrow from the fed, buy the long bond and earn record spreads to increase profits.

I don't know, but what I do know is that despite of all the fed says it is always about bailing out the banks and nothing more. so figure out this and you have the reason.

they ask the pomo how big the QE needs to be. this is because they know they actually size of the hole in their balance sheets based on real market values. So the fed then gives them what they need. simple as that.



Caviar Emptor's picture

And now you're all going to witness a nation in the vice grip of biflation. 

It's the Fed's nightmare, the black swan that they never expected because it doesn't even exist in their textbooks. And the politicians don't get it for sh*t sure. 

In fact QE2 couldn't have set up the situation more perfectly: not only will they get their wet dream of paper-asset inflation (stocks, bonds and commodities), but they've just locked in the ultimate deflation too! Watch in shock and awe as capital goes flying off to foreign nations in search of anything not nailed down: currencies, sovereign bonds, corporate debt, stocks, villas, condos, farm land, arable land, food stores, supermarkets, undeveloped real estate, oil wells, gold mines, rare earth pits, sweat shops, high tech start ups, and any kind of hard asset.

They'll be chartering C-130s to carry all the cash overseas. 

And along with the capital, jobs. Offshoring of the US economy will continue and amplify. Undeterred. 

And so that sets up the ultimate biflationary grip here in the US: surging cost inputs with deflating demand. 

For businesses this means eroding margins (happening already). Only way for corporations to weather the storm is to shift focus overseas. 

For individuals that means more declining incomes, net worth, job and advancement opportunities and real estate values in the context of rising cost of living. No wealth effect. Just constrained consumers unable to support a rise in net demand. 

Add in a Congress hellbent on "austerity" and we're going Bi, big time! 

Only PMs can shelter your net worth, savings, and wealth. I advise everyone to take their tax cut checks and run...don't stick it in Gold and Silver before it evaporates.

WaterWings's picture

Until death do us part.

john_connor's picture

People buy stuff because 1) they have a job and are confident in that source of income moving forward and 2) they have access to credit.

The wealth effect is a joke, and doesn't apply to 95% or more of the population.

Meanwhile input costs will rise and further shrink profits everywhere.

jtmo3's picture

All this talk and speculation is nice. We pretty much have a good idea what he's doing and why. The big question the hell do they unwind all this? There is no freakin way. When that day comes, I'm hiding.