This page has been archived and commenting is disabled.

Thoughts On Future Monetary Policy, As Rumors Kocherlakota Leaked Tomorrow's NFP Number Mount

Tyler Durden's picture





 

Tomorrow's NFP number will be one of the most critical releases from the BLS: if on one hand the number is far greater than expected, it will effectively mean that QE3 will not begin immediately after the end of QE2, just like QE1 ended on March 31, 2010 only to see QE Lite implemented 4 months later. That the Fed is not willing to take a political gamble and send oil to $150 is conceivable, which is what would happen should Jon Hilsenrath start leaking QE3 rumors. On the other hand, the economy is once again turning lower as recent diffusion data (not to mention housing) has been indicating. Should the Fed implicitly tighten, by not loosening, the economic contraction will accelerate drastically, and capital markets will follow suit. And since as Hugh Hendry noted earlier, there is no China to pick up the slack, the stakes on the all in gamble in this bet that the virtuous cycle has picked up, will likely cost Bernanke his job if he ends up wrong and QE3 is needed anyway. Of course, as many believe, and as Bernanke himself has said, manipulating the market and stimulating inflation is and continues to be the Fed's only objective. Obviously, the waterfall effects in either direction here are huge. Which is why if tomorrow's NFP number is a beat and not just any beat but a massive one (read well over 250,000), it will be an attempt by the administration to cement the idea that the economy is now recovering. Anything at or below consensus will merely push the decision one month forward, however it will be too late to prepare the political landscape for QE3 in May, just two months ahead of the end of QE2. So tomorrow is likely D-Day on QE3 (or at least a direct continuation of POMO past the June 30 expiration date).

In this light, it is interesting to note what Morgan Stanley has to say of Narayana Kocherlakota's interview from late in the afternoon, which stipulated a 75 bps hike in rates as normal, and which caused a minor sell off into the close. According to David Greenlaw there are rumors that Kocherlakota may have seen, and therefore leaked, tomorrow's NFP number, which by implication would have to be very bullish, in order for the Minneapolis Fed chairman to have such strong words encouraging tightening.

From Morgan Stanley:

Kocherlakota's interview with the WSJ is getting a lot of attention (see article below).  My own read is that the hawks are simply getting more concerned about inflation risk given the recent turnaround in the core CPI and the elevation in some measures of inflation expectations.  The logic that Kocherlakota uses to arrive at the possibility of a rate hike of more than 50 bp later this year is fairly straightforward.  If you assume that policy was appropriate at the end of 2010 and core inflation rises by one-half a percentage point, then the policy rate should be hiked by more than 50 bp.  Of course, there are a couple of key assumptions involved here.  Kocherlakota's estimate of a one-half percentage point rise in core PCE (to 1.3%) is actually quite close to the FOMC's central tendency forecast of +1.0 to +1.5% at the January meeting (note: our own estimate is a little higher -- +1.5%).  But, Kocherlakota's starting point -- i.e., the assumption that policy was appropriate at the end of 2010 -- is one that many FOMC members would vehemently disagree with.  They would counter by arguing that the policy rate would have been much lower were it not for the zero bound. Also, they would argue that the Fed is still missing on both elements of the dual mandate -- and is likely to continue to do so for quite some time.  However, Kocherlakota has argued previously that the size of the output gap is unclear and the NAIRU could conceivably be as high as 7.5%.  This means he is less wedded to the notion that there is no inflation risk until a lot more slack is absorbed.  So, the split on the FOMC continues to widen.  Along these lines, we are anxious to hear what Dudley has to say tomorrow and what Bernanke says next Monday evening. 
 
Finally, I've heard some claims that Kocherlakota has seen tomorrow's employment report and that explains his hawkishness comments.  However, there is no way this is true.  Only the Fed Chairman gets the report ahead of time (late in afternoon on the day prior to release) and he doesn't even share it with the other governors -- never mind the regional bank Presidents.

If Morgan Stanley says there is no way something is true, it means absolutely the opposite. As if Ben Bernanke can keep anything to himself with Larry Meyer always holding on Line 293. But that's not the point: the issue is that if NFP comes surging then all is well, and indeed Kocherlakota indeed leaked his advance knowledge of the payroll number to the public. If on the other hand NFP comes inside of expectations, then the Fed hawks will have a reset, and a fresh opportunity to reevaluate their tightening expectations. Which is precisely what happened exactly a year ago.

On the other hand, statistics are not on the side of the employment bears: as John Poehling demonstrates, the March "Adjustment Factor", due tomorrow, has added on average 834,000 jobs with a median of 895,000 jobs and a range of 619,000-1,035,000: a 419,000 range. Which means that there are all the makings for a good spillover effect from the seasonal adjustment into the actual NFP number.

But no matter which way the NFP pendulum swings tomorrow, and if there is a blow out jobs number look for the market to take a deep dive as that loud sucking noise you hear will be the NPVing of the excess liquidity out of the market, the practical reality of the Fed selling any of its $1.4 trillion in Treasurys at the same time as the Treasury has to offload about $2.5 trillion in gross debt in the next 12 months (a rather necessary precondition to tightening), seems beyond incredulous.

Which leaves just one possibility in the open, and one which has received no discussion by the general public: namely, that the Fed will continue to monetize debt even as it hikes: a perfect compromise for the Hawks and Doves, and a process that will likely be tinkered with by Jean Claude Trichet as soon as a week from now. While the two processes are somewhat mutually exclusive, the ongoing monetization of the US debt is critical, while hiking rates may do wonders for inflation expectations. Furthermore, since the market will have no idea how to react for a good 6-9 months, the Fed will have bought the ever critical time it needs for at least one more bonus season on Wall Street before there is a another major market puke on the realization that this last ditch attempt at kicking the can down the road is a failure.

Whether this is the outcome considered by the Fed currently, we have no idea, but expect to find out soon enough.

All we know is that tomorrow's NFP number will most certainly be one very much appropriate to the whole April 1 tradition, courtesy of the BLS.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 03/31/2011 - 23:22 | Link to Comment Teaser
Teaser's picture

Guess we'll know in a few hours.

Thu, 03/31/2011 - 23:24 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

As long as Bernanke gets the info 15 minutes ahead of time, everything will turn out fine.  Just fine.....

Fri, 04/01/2011 - 00:07 | Link to Comment Michael
Michael's picture

So let me see if I get this strait;

The Federal Reserve Corporation regulates the amount of money in the system, prints up trillions of dollars, sets interest rates and gives the money at near zero percent to the people in their friends network. This causes my savings to lose purchasing value, causes inflation worldwide which in turn sparks revolutions worldwide.

I'm not in the Fed's friends network so I get shit on. Did I get that right? It can't be that simple a ponzi scheme can it?

 

Fri, 04/01/2011 - 00:25 | Link to Comment traderjoe
traderjoe's picture

Yes, that's about right. Cheers...

Fri, 04/01/2011 - 01:01 | Link to Comment Harlequin001
Harlequin001's picture

do the same crazy shit day after day and it soon becomes normal...

Fri, 04/01/2011 - 00:32 | Link to Comment SheHunter
SheHunter's picture

Well said.  A concise, articulate summary of the fashion in which you are getting hosed by Bennie et al.

Fri, 04/01/2011 - 01:02 | Link to Comment Doña K
Doña K's picture

That is correct and it also telegraphs that the money will flow into commodites. Food, oil, coal, PM's and even good art.

Those who read this blog and have some investing money, should be doing well for themselves until.....

Fri, 04/01/2011 - 01:03 | Link to Comment BT310
BT310's picture

You'll get nothing and like it.

http://www.youtube.com/watch?v=5jn1p7SXM1w

Fri, 04/01/2011 - 07:24 | Link to Comment scatterbrains
scatterbrains's picture

The easy answer is to assume your only worth half what you thought you were by going long 50% gold and 50% cash "free from the banker's clutches". Which ever way the teeter todder  collapses, one side will more then make up for the other's loss.

Fri, 04/01/2011 - 01:14 | Link to Comment MisterAmbassador
MisterAmbassador's picture

"The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered."

-Thomas Jefferson

 

End the Fed.

Fri, 04/01/2011 - 02:41 | Link to Comment CD
CD's picture

Some previous opinions/viewpoints from Mr. Kocherlakota's 'theoretical' work:

"Planner must deter individuals from saving as much as they would like.

Intuition: unregulated asset accumulation leads to tendency to save and shirk ... [...] 

 

It is optimal to deter savings - a lot!

How do we best accomplish this deterrence?"

http://www.econ.umn.edu/~nkocher/toulouse_lec1.pdf

For a full book of unmitigatedly delightful Fedspeak, check out:

 

 

The New Dynamic Public Finance

Fri, 04/01/2011 - 09:28 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

Thanks for this.  Looked over the first paper.  Intuitively I always knew this was true.  But to see it in this form gives me a chill.  Over the last 100 years this citizens of this nation have been abused by "social engineers", but this is worse than I expected.

"Intuition: unregulated asset accumulation leads to tendency to save and shirk"

They're talking about retirement here, IMHO.

Here's my intuition: The ability to front run the actions of social engineers can lead to substantial asset accumulation while allowing the accumulator solid political cover.

Fri, 04/01/2011 - 06:58 | Link to Comment Mentaliusanything
Mentaliusanything's picture

Mick, Mick, Mick -------- Yes we can!!!! (fuck you over anally and spit in your ass while doing it)

Normally I am the most polite person on the whole Planet, but I can see your awakening, as being one of the patsies that will pay, along with your children and great grandchildren, for this simple folly.

Can you say  


Obfuscated !!!

 

Fri, 04/01/2011 - 10:45 | Link to Comment A Proud Canadian
A Proud Canadian's picture

The issue isn't that you or the rest of ZHers understand it....the issue is that 95% + of the public don't/can't.  Sigh.

Thu, 03/31/2011 - 23:51 | Link to Comment G-R-U-N-T
G-R-U-N-T's picture

Cement does a pretty good job repairing leaks...

http://chronicle.augusta.com/latest-news/2011-03-31/srs-concrete-pump-he...

Thu, 03/31/2011 - 23:20 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The future of monitary policy:  it will be based on gold.  But, 'It is based on gold now, because all of the central banks hold gold as their main asset!' you say.  Yes, but it will be public information then...in the future.

Thu, 03/31/2011 - 23:22 | Link to Comment SparkyvonBellagio
SparkyvonBellagio's picture

I suggest a Ron Paul / Rick Santelli 2012 ticket.

It's the only way to be sure these A'Holes who currently pull the levers and push the buttons behind the curtain are EXPOSED as COMPLETE AND UTTER FRAUDS TO THE MASSES. I know and understand many here see this already, but it's the MASSES that need to see the proverbial light.

Cheers

Thu, 03/31/2011 - 23:28 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

What about wes get some poets......

....Dylan/White '12

Or we gets some dudes that could beat some ass....

....Ventura/Piper '12

Or we get a ticket that would make Ben Franklin blush....

...Durden/Singer '12

But I would probably vote for Paul.  Then again, I have not voted for awhile, and I may never again.  I am still  bitter that I voted for that idiot Gore.  What did I know back then?

...Paul/Kucinich '12

Thu, 03/31/2011 - 23:32 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

The '12 lineup:

Ventura/Stallone

Schwarzenegger/Whethers

Alien/Predator

Thu, 03/31/2011 - 23:35 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

At least the ads will be entertaining.

Thu, 03/31/2011 - 23:49 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

If only Don Lafontaine were still with us to do the spots..

 

In a world, where suicide bankers rule the streets and the congress....

 

*oops, should be Weathers, not Whethers.

Thu, 03/31/2011 - 23:34 | Link to Comment tip e. canoe
tip e. canoe's picture

willie/jesse '12

Thu, 03/31/2011 - 23:45 | Link to Comment EvlTheCat
EvlTheCat's picture

Willie Tyler is still alive, but I thought Jessie Owens was deceased???  Does that make, and Lester, Secretary of State?

Fri, 04/01/2011 - 00:10 | Link to Comment tip e. canoe
tip e. canoe's picture

that's nelson/body, not tyler/owens

(tho golden jackass/cafe americain would be interesting as well)

Thu, 03/31/2011 - 23:38 | Link to Comment tip e. canoe
tip e. canoe's picture

Dylan/White '12

...from hopium to opium...

Fri, 04/01/2011 - 00:14 | Link to Comment francis_sawyer
francis_sawyer's picture

Who TF really cares what the ticket is in this "Dancing With The Stars" culture...

Might as well be...

ASTAIRE/ROGERS

BABYLONIA/GARDNER

OBAMA/PALIN

http://www.jamesmaurer.com/images/obama-palin-dancing.jpg

 

 

Fri, 04/01/2011 - 00:19 | Link to Comment JustPrintMoreDuh
JustPrintMoreDuh's picture

Bend/Over '12

Fri, 04/01/2011 - 00:22 | Link to Comment francis_sawyer
francis_sawyer's picture

++ & C. HOWARD FIELDS as Secretary of State

Fri, 04/01/2011 - 03:36 | Link to Comment mrfr0gz
mrfr0gz's picture

there you go

Paul/Kucinich '12

buy shares in Kaopectate

+1

Fri, 04/01/2011 - 00:15 | Link to Comment francis_sawyer
francis_sawyer's picture

The RISK with a PAUL/SANTELLI ticket is that they get the "JFK" treatment...

 

 

Thu, 03/31/2011 - 23:23 | Link to Comment SparkyvonBellagio
SparkyvonBellagio's picture

If you look at Gold/Silver/Platinum futures as of right now you know the answer already.

Thu, 03/31/2011 - 23:33 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

+1

Thu, 03/31/2011 - 23:36 | Link to Comment gosseyn
gosseyn's picture

They're flat.  What's your answer?

Thu, 03/31/2011 - 23:44 | Link to Comment Bubbles...bubbl...
Bubbles...bubbles everywhere's picture

Oil is up. I guess is all that extra demand.

Thu, 03/31/2011 - 23:27 | Link to Comment Cleanclog
Cleanclog's picture

Fed's gonna buy JGBs,  Munis, PIIGS and encourage people to stop paying mortgages.  A different kind of stim while "managing"global interest rates even while lifting FF rate.  Put a dinky bottom under $ for a few secs, then return to monetization with distraction of confusions.  All of this blur and haze is intentional.  And the Bernank, ECB and other institutions are not in charge.  It is the I banks that "get it" and control it.  In my humble opinion.

Fri, 04/01/2011 - 03:33 | Link to Comment mrfr0gz
mrfr0gz's picture

and thus, we have elevated ourselves to 3rd world status?

I suppose if a loaf of bread and a gallon of gas are five bucks apiece, then the dollar becomes irrelevant.

Thu, 03/31/2011 - 23:26 | Link to Comment TruthInSunshine
TruthInSunshine's picture

The NFP number is not likely to be robust tomorrow, assuming seasonal employment factors were a big catalyst for upward trending "official" (although still very weak, and atypical of what they should be at this point if we were truly in economic recovery mode) employment numbers through February, and given that layoffs at local units of government have probably increased in the last couple of months.

I can't envision that robust retail, manufacturing or construction hires are in the cake, either.

As always, with highly manipulated "official" BLS numbers, subject to massive revisions (usually downwards), anything is possible, I guess.

Thu, 03/31/2011 - 23:28 | Link to Comment Milton Waddams
Milton Waddams's picture

Let's connect the dots.  On one hand you have Kocherlakota making the case for a 75 basis point increase.  On the other hand you had Bernanke rationalizing the size of QE2 as follows:

 

BERNANKE: We tried to make an assessment of -- of -- we asked the hypothetical question, if we could lower the federal funds rate, how far -- how much would we lower it?

And a powerful monetary policy action in normal times would be about a 75 basis point cut in the federal funds rate. We estimate that the impact on the whole structure of interest rates from $600 billion is roughly equivalent to a 75 basis point cut. So, on that criterion, it seemed that that was about enough to be a significant boost, but not one that was excessive.

You don't need to be a Choctaw Code Talker to figure it out.

 

 

Thu, 03/31/2011 - 23:29 | Link to Comment RobotTrader
RobotTrader's picture

I can assure you that TPTB have their "men" at the controls, ready to push whatever buttons or levers are necessary to get the appropriate reaction after the McJobs number comes out.

One popular tactic is to let the bears have their day for 24 hours by letting the markets fall.

Then, the day after, they jam futures to incite an "in your face" 175 point rally in order to show us who the boss is.

At the end of the day, the market will go whichever way the Plutocrats want it to go.

And the PigMen already have the playbook in hand as we speak.

Once again, JPM, MS, GS, etc. will probably have another quarter with maybe only a couple of single losing sessions.  It will be another banner quarter of trading profits.

And the stocks like BID, JWN, COH, TIF will skyrocket even further as more trinkets are purchased for the incoming wave of high-end European and Russian escorts hitting the Hamptons beaches this spring.

Thu, 03/31/2011 - 23:59 | Link to Comment JohnG
JohnG's picture

You make good points.

And....

I took the idea of high end retailers doing well ~1.5 years ago, and it has paid off.

Can I get through another bonus season?  I think yes.

And the ponzi goes on, until it doesn't.

Fri, 04/01/2011 - 00:01 | Link to Comment JohnG
JohnG's picture

And, don't be dissin' the hookers.  They actually provide an honest service.

Fri, 04/01/2011 - 01:49 | Link to Comment nyse
nyse's picture

"Don't call my escorts 'whores'." - Gob B.

Fri, 04/01/2011 - 02:02 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"She is a Chechnian prostitute and you will address her as such!" - Master Shake (ATHF)

Fri, 04/01/2011 - 01:10 | Link to Comment Doña K
Doña K's picture

My hubby said he wanted to go to the Hamptons this summer while I would be on a business trip. Now I know why.

Thanks for the tip.

Fri, 04/01/2011 - 08:17 | Link to Comment The Profit Prophet
The Profit Prophet's picture

Great post....but I junked you based on historical idiocy.  Yes I agree...total  market control is theirs, and only a fool would say no to the free money being offered by Mr. Manipulated Market. And that's exactly what the Klepocrats need everyone to do....and that's exactly why I will never do it!!!

Greed will destroy this world.....only charity can save it......and that is why there is no hope.

T.E.I.N everyone!

Thu, 03/31/2011 - 23:33 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

Life without fed money and Pomo? They better get some 12 step programs in order. And nets and clean up crews.

Fri, 04/01/2011 - 04:15 | Link to Comment barliman
barliman's picture

 

Non-levitating bankstas would give new meaning to suicide bombers

barliman

Thu, 03/31/2011 - 23:36 | Link to Comment Seasmoke
Seasmoke's picture

sounds like a Catch-22

Thu, 03/31/2011 - 23:36 | Link to Comment monopoly
monopoly's picture

Do you really think this jobs report will change anything for more than a day or two. It is over. It is too late to "take back" and start over. The massive debt, the crap that many banks still have is not going away. Derivities are still out there, trillions of them and they will haunt us until they are disposed of, and that will not be pretty. Housing is not coming back for many years. At some point we will have our own Japanese disaster, but instead of it being a nuclear one it will be a monetary tsunami.

The "funding crisis is getting closer", that is when all hell will break loose.

Nothing new here, lets move on.

Thu, 03/31/2011 - 23:38 | Link to Comment TWORIVER
TWORIVER's picture

off topic here. how about they put some damn booms around the fukorama plant in japan so they contain some of that beautiful slick in the water. If you can tell me why it won't work I appreciate it. I'm not ignorant, I am mad.

 

http://www.bbc.co.uk/news/special/world/japan_earthquake/feature_inc/img...

Thu, 03/31/2011 - 23:43 | Link to Comment savagegoose
savagegoose's picture

cant they just publish some bullshit numbers?

i mean " we dont do body counts " worked in iraq

Thu, 03/31/2011 - 23:46 | Link to Comment Mark McGoldrick
Mark McGoldrick's picture

Judging by the notable increase in daily articles on ZH, it appears this website has recently contributed to the NFP numbers.

Irony is funny. 

 

Fri, 04/01/2011 - 00:02 | Link to Comment nah
nah's picture

i want to see the bitch dance... AND KEEP DANCIN'

Fri, 04/01/2011 - 00:04 | Link to Comment Cdad
Cdad's picture

Well...eh hem...sorry, I'm trying to figure out where to begin with this.  You see, in the new Marxist/Banker nonmarket market, I'm not sure that any reaction to any result could be anticipated.  I don't have one correlation left that works in these last two weeks. 

Oil went out at a nasty high tonight.  PMs were ambiguous.  Discretionary stocks were all over the place.  Casual dining stocks, my personal fav, were ramping...as grains and other commodities ramped...uh huh.  Apple has been weak as the NASDAQ moves higher even though Apple is 25% of that index.  Lately, gold and the S&P have several times climbed towards highs...together.  Sure.

I get that good jobs news is now bad market news.  Bad jobs news being good market news is harder to believe, however, because we have had such miserable jobs reports now, and for so long, that I would not expect the inverse relationship to work in this case.  I think folks would simply take profits.  But what do I know?  And more importantly, who really cares?  

Today's Fed revelations [thank you, Tyler] suggest that we will be standing on the floor of the NYSE tomorrow when those jobs numbers are released...but unfortunately, its a holodeck version of the NYSE.  To which I can only think to say, "Computer, end program."

But now that I look back at these thoughts, looking like the rubble at the Fukushima nuclear plant though they may, perhaps the prediction we should make for tomorrow is that it will be a good day for a false flag.  Now that would make sense.  Rogue ICBM anyone?

Fri, 04/01/2011 - 01:00 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

It will happen, most likely, on a Friday.

Fri, 04/01/2011 - 00:05 | Link to Comment nah
nah's picture
by Mark McGoldrick
on Thu, 03/31/2011 - 23:46
#1124021

 

Judging by the notable increase in daily articles on ZH, it appears this website has recently contributed to the NFP numbers.

.

I CANT TELL IF YOUR BEING A JOKER... OR IF YOUR JUST BEGGING FOR A TASTE

Fri, 04/01/2011 - 09:39 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

Please don't feed the trolls.

Fri, 04/01/2011 - 00:07 | Link to Comment californiagirl
californiagirl's picture

When Bernanke hints at no more QE, isn't he just saying that he will stop expanding the FED's balance sheet?  Of course, it is so huge now that he can surely continue several hundred billion of "QE" from the Treasury maturities and taxpayer-backed Fannie/Freddie MBS principal collections.  To stop QE, he would have to actually shrink the balance sheet and start repaying the $1.46 trillion in "other deposits help by depository instutions" that he borrowed from the banking industry.

Fri, 04/01/2011 - 00:21 | Link to Comment chairsatan
chairsatan's picture

So if NFP > 250k, then there is a recovery and markets should rally tomorrow.

If NFP < 250k, then QE3 is more likely and markets should rally tomorrow.

The only way markets will not rally is if NFP = 250,000 exactly. 

Fri, 04/01/2011 - 06:49 | Link to Comment EvlTheCat
EvlTheCat's picture

NFP = 250,000 = Divide by zero error!

Restart and Try Again!

Fri, 04/01/2011 - 02:32 | Link to Comment erik
erik's picture

If the Fed raises the Fed Funds rate then LIBOR will increase with it, which makes the Option ARM situation deteriorate just as it will be peaking over the next 6-12 months.

Of course as long as FASB 157 is suspended, then that means many more billions in consumers' pockets from not paying their mortgage, and banks claiming a cash flow that they don't really have.

Fri, 04/01/2011 - 01:32 | Link to Comment TruthInSunshine
TruthInSunshine's picture

There's very little demand for loans, and the intractably high unemployment/underemployment in the U.S., along with lower wages, and the housing depression grind, all will conspire to ensure it stays that way for a long time.

Someone mentioned liquidity trap.

Yeah, Bernanke is knee deep in one, like a big pit of quicksand.

Fri, 04/01/2011 - 03:14 | Link to Comment erik
erik's picture

The Fed has painted itself into a corner now.  They had space to try monetization because inflation was so low.  Now inflation is rising very rapidly.

So do they raise rates to tamp down inflation (mostly commodities) and subsequently kill the housing market?  Or keep rates low and risk a potential loss of faith in the USD and subsequent hyperinflation?

Subprime peaked in late 2007, Option ARMs peak in late 2011.

Fri, 04/01/2011 - 01:34 | Link to Comment QQQBall
QQQBall's picture

"Fed Fund rate too low to STOP any lending that is occuring..."

 

Explicame por favor?

Fri, 04/01/2011 - 02:27 | Link to Comment erik
erik's picture

The Fed traditionally raises rates in order to slow economic activity because higher interest rates are supposed to decrease new loan activity.  However, raising rates from 0% to 1% is not likely to stop any lending that is occurring because 1% is still a very low rate.  As has been pointed out, there is very little consumer lending occurring compared to historical norms, so there isn't much lending to curtail.  Corporate lending is very active but again 1% is still a very low Fed Funds rate.

Thus raising rates initially will be more symbolic than anything, though it will have a negative impact on Option ARM loans because it will increase LIBOR and most Option ARM loans are indexed to LIBOR.

I don't see how they can actually continue QE via Treasury purchases and raise the Fed Funds rate at the same time because raising the Fed Funds rate requires selling Treasuries back into the market.  In other words they'd be both buying (QE) and selling Treasuries (raising Fed Funds rate) concurrently. 

Inflation will be stopped when money printing (QE) stops AND money is removed from the system (Fed balance sheet shrinking or debt default).

 

Fri, 04/01/2011 - 05:21 | Link to Comment zenon
zenon's picture

I don't see how they can actually continue QE via Treasury purchases and raise the Fed Funds rate at the same time because raising the Fed Funds rate requires selling Treasuries back into the market.

Raising the FF rate doesn't require selling Treasuries back to the market, they can simply pay interest on excess reserves and thus set the FF floor.

 

Fri, 04/01/2011 - 09:52 | Link to Comment erik
erik's picture

i should have said "usually requires" as buying and selling treasuries is one of their main tools for Fed Funds rate manipulation.  thanks for pointing it out though.

Fri, 04/01/2011 - 01:49 | Link to Comment nyse
nyse's picture

Oops.

Fri, 04/01/2011 - 02:06 | Link to Comment dcb
dcb's picture

sometimes I read your editorial comments and I say what the F'k. Do any of you people trade, have you seen the algo patterns. how many times do you need to see the same thing, and yet you always have some "rational" reason for it. the reason for the sell off at the end for example. At the same time ZH talks about the algo's ramping the market up, etc. haven't you noticed the same pattern almost hundreds of times now on the rally up. do you draw the trend lines. There are no "reasons" for this, it is computer code. So instead of letting any random post under the tyler durden name, why doesn't ZH get some intellectual consistancy.

 

you go down a little today, to break higher from the trend line. With end of quarter and end of banks window dressing we shall see what happens tomm.

 

Ahnother thing. The bernanke can't loose his job, he can resign, he can not be reappointed.

I am not aware that he can be fired. sure criminal stuff ect.

Fri, 04/01/2011 - 02:46 | Link to Comment 10kby2k
10kby2k's picture

Even the bulls joke about how the market goes up every day.

So:  Bad jobs report--market up  more QE

      Good jobs report--market up  economy is getting better

BUT a reversal is long overdue and tomorrow might blindside everyone---market down regardless of number

The markets reaction to the jobs number is all that matters. The actual jobs number means little.

 

Fri, 04/01/2011 - 03:03 | Link to Comment ebworthen
ebworthen's picture

 

I can't find it onlnine but Jim Grant gave a great interview on Larry Kudlow on CNBC tonight (Thursday, March 31st).

He lambasted the FED, the endless liquidity, and government statistics.

Jim Grant referenced a Financial Times reporter who said:

"I think I finally understand QE, but what I don't understand now is money"

and Grant went on to say that it was one of the most lucid quotes about what is going on he had heard to date.

"What is money?"

Exactly.

When dollars are not anchored by gold, or even any physical mainfestation, a TRILLION dollars can be sent from Kansas City to San Francisco in a nanosecond. 

So...what is "money"?

If there are no financial consequences for failure, and accounting can be ginned to fit whatever you desire, and exists primarily as binary data manipulated by a centralized bureacracy...money has NO MEANING!

 

Fri, 04/01/2011 - 03:22 | Link to Comment erik
erik's picture

fiat money is like religion i guess.  it requires faith and obedience, and is not backed by any physical manifestation.

Fri, 04/01/2011 - 04:34 | Link to Comment Unlawful Justice
Unlawful Justice's picture

Ironic "In God We Trust" on U.S money.  When both are a sacred sham propitiated/propagandized by TPTb.  The parallels are mind numbing.  Have blind faith in something you don't understand, then the lights go on and see the matrix for the first time.


Fri, 04/01/2011 - 03:32 | Link to Comment Papi_Al-Mahdi
Papi_Al-Mahdi's picture

Ron Paul asked Bernanke that very question a few weeks ago and most people here who posted a response to his questioning tore him a new asshole. http://www.youtube.com/watch?v=xV6MElf8xpo

Fri, 04/01/2011 - 03:43 | Link to Comment Ted K
Ted K's picture

I can explain "money" to Jim Grant, you, and all the retard goldbugs out there.  Money is mostly currency/paper which represents a certain value, say hours worked.  It was invented to replace the barter system, so little retards like you wouldn't have to go to Wal-Mart or 7-11 with a chest of gold bars in your trunk.  If there's any part of this that confuses you, just hoard all your gold in the garage, and when a real crisis comes pour some homemade giblet gravy on top of a bar and eat it.

Wish you, Glen Beck, Alex Jones, and the rest of the freak brigade good luck.

 

Fri, 04/01/2011 - 03:50 | Link to Comment Papi_Al-Mahdi
Papi_Al-Mahdi's picture

With that kind of logic, 'when a real crisis comes' you are going to be seriously fucked, Ted

Fri, 04/01/2011 - 04:33 | Link to Comment taraxias
taraxias's picture

He already is, it's just that he doesn't know it yet.

Fri, 04/01/2011 - 06:55 | Link to Comment EvlTheCat
EvlTheCat's picture

Don't you have some booze to slam, a car to crash and a women to kill?

Fri, 04/01/2011 - 08:21 | Link to Comment Jim B
Jim B's picture

"Money is mostly currency/paper which represents a certain value, say hours worked."  Actually, that is the problem!  What happens to the value of money when the FED endless prints money and monetizes the debt?

Fri, 04/01/2011 - 09:42 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

"What is money?"

It is a religion for those who believe.  For those who don't, there varying levels of coercion to ensure compliance

I think that's it.

Fri, 04/01/2011 - 03:04 | Link to Comment alexwest
alexwest's picture

hey @tyler , quesion to you

###
NFP pendulum swings tomorrow, and if there is a blow out jobs number look for
the market to take a deep dive as that loud sucking noise
###

TO ALL IDIOTS TO WHO EVEN BOTHER TO ARGUE THAT EXIST JOB CREATION IN USA
heres the facts..

according REAL TIME LABOR INDICATOR called 'SS taxes'
ss taxes down y/y -4.7%
see http://cbo.gov/ftpdocs/120xx/doc12088/MBR_March_2011.pdf

I know, I know SS taxes clipped started jan 2011, but it was only reduction of ~2% out of ~16%? , so make adjustment..

SO QUESTION IS HOW IS IT POSSIBLE TO HAVE NOMINAL WAGES UP BY BEA/NBER and
number jobs up by BLS.. but aggregate SS taxes that being paid for each legally worket are down y/y..

only explantion that salaries of new worketrs are way less than laid off workers..

but number of jobs dont indicate anything.. aggregate demand /salaries is everything.. so no matter how much shitty jobs are being made , big if , if aggreagte salaries are down.. that means

NO JOB CREATION, NO INCOME , NO DEMAND... NO GDP GROWTH..

THINK ABOUT IT

alx

Fri, 04/01/2011 - 05:26 | Link to Comment zenon
zenon's picture

2% cut out of 16% SS rate is a 12.5% cut. The fact that taxes fell 4.7% y-y means that adjusted taxes would have risen 8.9%, or that is how much salaries rose.

Fri, 04/01/2011 - 03:12 | Link to Comment Ted K
Ted K's picture

Mr. Durden,

I noticed Jim Rickards took some cheap shots at you on the KingWorld broadcast relating to your knowledge of the Federal Reserve.  Do you have any response to that???

Fri, 04/01/2011 - 03:17 | Link to Comment alexwest
alexwest's picture

yep i did too...
not much resprect for mr. Rickards

here's not even real money manager.. some kind of CIA/Treasury/insider/etc type of guy..

seems like knows price of anything, and value of nothing
alx

Fri, 04/01/2011 - 04:14 | Link to Comment barliman
barliman's picture

 

The Chairsatan has been joked about, verbally assaulted, denigrated, prejudged (myself included) and made into art by WB7 ...

... but what if he is just completely, bat-shit crazy? Snapped. Rowing in mental circles endlessly.

Wouldn't that fit with the Fed presidents & govenors distancing themselves? The Walmart executive warning people to brace themselves for significant inflation? Bill Gross dumping PIMCO out of the game?

Screw "Red October" madman with nukes scenarios; what if Ben Bernanke lost his marbles last August when it was obvious he couldn't Humpty Dumpty put the economy back together again?

... or maybe I've just stayed up too late.

barliman

Fri, 04/01/2011 - 04:25 | Link to Comment BeeTee
BeeTee's picture

Remember, there is no cap on QE2.

Whilst everyone is speculating about QE3, QE2 will continue as QE3 in disguise...

Fri, 04/01/2011 - 07:07 | Link to Comment rawsienna
rawsienna's picture

There will be no QE3. Headline inflation too high. They are likely to keep FF rate very low vs inflation for some time but there will be no QE3 - despite how much Dudley wants to destroy the dollar. 

Fri, 04/01/2011 - 09:10 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

"Headline inflation too high."

Having lived through the 1970s I can tell you that the FED and the government will be perfectly happy to moan about inflation and listen to you moan about inflation while pursuing polices that promote inflation. 

The Goldilocks economy will be about the level of inflation that is just right.  Which is the the amount that keeps the social fabric from being torn in the short term.  I'll guess at 5% annual inflation for 10 years.  While the frogs simmer, the housing bubble should be repaired nicely  And the non-indexed ATM should keep tax receipts humming.

The deficit bothering you?  Feel free to discuss it among yourselves for the next 10 years.

Fri, 04/01/2011 - 07:27 | Link to Comment ziggy59
ziggy59's picture

i think we will have a Goldilox number...

just right..

 

or if its a crazy number, they can chuckle over it as an April Fool's joke..sad thing is, we've been Fools for 365 1/4 days for a looong time

Do NOT follow this link or you will be banned from the site!