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The End of the Bernanke Put is Here

Phoenix Capital Research's picture




 

 

For well over a year, even after Ben Bernanke admitted that the consequences of QE outweighed the benefits, the financial media world is awash with claims that QE 3 is just around the corner. It doesn’t matter than it’s been over a year. Nor does it matter that the Fed has staged 10 FOMC meetings without launching more QE, everyone claims QE is coming.

 

Guess what? It’s not. And I’m going to lay this idiotic theory to rest right here and now.

 

First off, the Fed cannot launch QE because of the political climate in the US. In case you missed it, the last time the Fed engaged in a large monetary move (outside of just extending some pre-existing policy) was in November 2011 when it facilitated a coordinated Central Bank move to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements.

 

The political response to this was extreme. Every GOP candidate under the sun began to target the Fed. Some began calling for Bernanke to be fired.  Meanwhile, Obama became totally silent on defending the Fed. Let that sink in for a moment. Obama, who reappointed Bernanke, didn’t defend Bernanke’s actions. In fact he acted as if nothing had happened.

 

The message was clear: the Fed had become politically toxic and if Obama wanted a shot at re-election, he needed to distance himself from the Fed.

 

It was only a few months later that the Fed went into full on damage control mode by increasing its town hall meeting efforts (Bernanke now goes to colleges to explain why the Fed is great), writing complaints about how the media is presenting its moves during the financial crisis along, and of course the now famous “Bernanke’s a normal guy who drives a Sebring and reads a Kindle” article in the Wall Street Journal.

 

Consider that Bernanke, only a few years ago, lied to Congress about monetizing debt. Around that same time the Inspector General in charge of oversight of the Fed said that the Fed:

 

1)   Didn’t know where it was sending hundreds of billions of Dollars.

2)   Had not launched any investigations into where the money had gone

3)   Had not launched any investigations into why Lehman Brothers had been allowed to fail

 

Has everyone forgotten this? Bernanke, the savior of capitalism, Time Magazine’s Man of the Year, and arguably the most powerful human being in terms of monetary clout ON THE PLANET is now going into classrooms to explain why the Fed is wonderful and should continue to exist.

 

Even more than that, he’s having his favorite mouthpiece at the Wall Street Journal portray him as a normal American who drives a US car and reads his kindle. This is the HEAD OF THE FED we’re talking about. Since when does Bernanke need anyone to depict his private life? The guy used to tell the media to get stuffed when it snooped around the Fed’s actions… now he’s openly going to the media asking to get profiled?

 

Folks, the political game has changed in the US. The Fed is no longer invulnerable. In this climate more QE cannot possibly happen. End of story. Indeed, if the Fed were to launch QE at any time between now and the election, Obama is DONE. The last possibly chance for QE without it being a clear hand-out to Obama (and a gift from the political gods to Romney) was June. The Fed passed on that.

 

Don’t believe me? Why do you think Obama is privately begging Germany and EU leaders to keep the EU together until after November? He knows the Fed cannot step in and save the day without killing his chances at re-election. END. OF. STORY.

 

Finally, there’s a simple monetary reason the Fed cannot engage in more QE: BANKS NEED TREASURIES. Treasuries are the ONLY senior asset on bank balance sheets that are increasing in value (don’t even try to claim that mortgage bonds, corporate bonds or muni bonds are attractive to banks given what the banks know about the ongoing debt crisis in the world).

 

More QE pushes the US Dollar down. So for the Fed to engage in more QE would mean the Fed would be buying appreciating assets from the banks (which can be leveraged up for trades… remember all the big banks are now basically hedge funds) in exchange for cash which yields next to nothing and would be depreciating in value if more QE was announced.

 

The banks need all the Treasuries they can get their hands on. I know, I know, ultimately Treasuries will be worth much less when the debt crisis hits the US. But it hasn’t yet.

 

If you’re a large bank what would you rather own? Treasuries or some other sovereign bond which either yields nothing (Germany, Japan, France) or which is about to default (the PIIGS and others)? 

 

The answer is obvious. You want Treasuries. We’re not talking about ideals here; we’re talking about reality. And in today’s financial reality, Treasuries are the best senior most asset a bank can buy. WHY would a bank want to hand these off to the Fed for cash, which yields nothing?

 

I could go on and on, but the reality is the above arguments alone erase any reason for the Fed to launch QE any time soon, if ever. The ONLY reason the Fed would launch QE would be if liquidity needs were so desperate for the banks that the would be willing to give up their senior most assets in exchange for cash to meet day to day liquidity needs.

 

And if we get to that point in the US again, QE will be the LAST of our worries.

 

So, QE is not coming. End of story. You can continue to argue otherwise based on some idealistic view of the world, but the reality is Europe and Japan’s bond markets are both on the brink of collapse. US banks want all the Treasuries they can get. In a perfect world, they’re not great investments, but they’re far more attractive that the alternatives in the REAL world.

 

So… if you’re still investing based on the idea that QE is coming and that the Bernanke Put is firmly in place, you’re going to be in for a HUGE surprise in the coming months. QE isn’t coming. And the Bernanke Put is losing its credibility rapidly.

 

Which means… the primary prop underneath the US stock market and financial system (namely Fed intervention) is slowly being removed. What follows will not be pretty and smart investors should be taking steps now to prepare in advance.

 

If you’ve yet to take steps to prepare for this, I can show you how: my Surviving a Crisis Four Times Worse Than 2008 report is chock full of information on how to not only survive but thrive during the months to come.

 

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

 

Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.

 

Good Investing!

 

Graham Summers

 

PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years, or how to stockpile food (where to get it, what to buy, and how to store it) our reports cover this information in great detail.

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com

 

 

 

 

 

 

 

 

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Tue, 07/17/2012 - 08:55 | 2623760 orangedrinkandchips
orangedrinkandchips's picture

Ever notice how out-of-character this market is?

 

Not just equities.....

 

Govt debt= highest ever/lowest yields

S&P= within 5% of all-time-high

VIX= soon to go the way of the do-do.....extinct!

World Equity markets- all down....average 25%

 

One of these things is not like the other!!!

 

So the SP tanks, bonds go up more??

So the SP rockets to 1600....VIX is no longer a part of option pricing as it's 0??? while bonds come back down

 

Either way, the level of one of these indicators is gonna go bezerk....whether it's VXX to 0, TLT to 150, SPY to 800....

 

Doesnt make sense....very manipulated market as the REAL market would never get itself in this mess! EVER!

Tue, 07/17/2012 - 08:54 | 2623758 Quinvarius
Quinvarius's picture

I am not a QE hopeful.  I simply recognize that QE is going to happen because the math, the goals of the Fed, and the trend say it is going to happen.

If the Fed leaves the Treasury market, Treasury prices will crater.  I don't understand the argument being made here about why the banks need to keep buying into the bubble.  There is plenty of Treasury paper out there to go around.  The problem is keeping the prices up.

Tue, 07/17/2012 - 08:52 | 2623749 KidHorn
KidHorn's picture

I think the average american is more concerned with the DOW than the feds balance sheet. I think QE is coming before the election. If not QE, then something like ARRA2 which will ultimately have to be paid for with printed money from the FED.

Tue, 07/17/2012 - 08:49 | 2623741 orangedrinkandchips
orangedrinkandchips's picture

I have to agree with the writer on this....Fuck the politics which have a big say so in this matter, but the financial impact of this QE3, 4, 5

Theory dictates that a zero coupon bond pays nothing...you get your money back and that's it pal!

Common sense says...that makes no sense....Im going to make like a tree and get out of here (It's leaf you butt-head!!!)

While it is not showing now probably because of agreements,

BUT AT SOME POINT INVESTORS GIVE UP AND STAY IN CASH.....

Tue, 07/17/2012 - 09:02 | 2623785 eddiebe
eddiebe's picture

Well, can't really stay in cash either because of actual inflation.( As opposed to nominal.) And what about all the fund managers that are mandated to buy whatever?

Tue, 07/17/2012 - 11:12 | 2624321 JeffB
JeffB's picture

But not everyone is required to keep their money in the funds which mandate those fund managers buy absurd assets. The cash they're required to invest stupidly could drop.

 

Tue, 07/17/2012 - 08:45 | 2623727 dcj98gst
dcj98gst's picture

"""The ONLY reason the Fed would launch QE would be if liquidity needs were so desperate for the banks that the would be willing to give up their senior most assets in exchange for cash to meet day to day liquidity needs."""

Yes and that will happen.  There will be a move to assets with less counterparty risk.  Assets will move from leveraged TO underlying assets TO electronic cash TO physical cash TO precious metals. 

Bank runs will come here eventually.  Everyone should own some cash and PM

Tue, 07/17/2012 - 08:42 | 2623721 Carl LaFong
Carl LaFong's picture

What will the banks do with all these wonderful treasuries when the interest rates begin to rise?  Or does the author believe these are market driven rates?  QE will come...not to save the world economy, but to save the banks, especially the TBTFs with trillions of CDO / CDS exposure.  The banks' balance sheets are still very broken and until everything is marked to market, this will be the case.  QE was and will be always about saving the banks and the fiat / fractyional system.  The leverage must REALLY come out...sooner or later, but until then....CTRL P

Tue, 07/17/2012 - 08:43 | 2623717 GCT
GCT's picture

Disagree with this Graham.  The Fed is just waiting on the timing and the crisis to do another QE to have the greatest impact on the re-elections.  If QE is too early the effect will not help this administrations re-election.  Does not matter what party would be sitting in the office the Fed would do this for any sitting president.  I think in the coming months politicians will be crying for more QE.  After all the people in Congress want to be elected as well.

He may also print if the Euro keeps losing ground to protect our exports.

Tue, 07/17/2012 - 08:42 | 2623716 DogSlime
DogSlime's picture

Graham, your article says:

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest,

You can tell us PRECISELY how this will unfold?  Really?

You're going to be the richest guy on the planet.  Why even bother with your snake-oil business?

Tue, 07/17/2012 - 08:36 | 2623693 digitlman
digitlman's picture

How's Greece doin, asshole?

 

I thought so. 

 

Hey ZH - stop accepting posts from this guy.

Tue, 07/17/2012 - 09:35 | 2623887 Winston Churchill
Winston Churchill's picture

You might want to find out why De La Rue's bank note division is

running THREE shifts at their UK plants  at the moment.

Nobody is talking about which notes they are printing.

His timing is wrong,thats all.

A little premature,its happens to us all at some time.

Tue, 07/17/2012 - 10:40 | 2624154 Uncle Remus
Uncle Remus's picture

*cough*Deutschmarks*cough*

Tue, 07/17/2012 - 08:35 | 2623687 andrewp111
andrewp111's picture

You are wrong. QE3 is coming, but this time Bernanke can't buy Treasuries. He will wait until the current containment of the Global Great Depression starts to fail, and obviously so.  He may wait to see the whites of the Depression's eyes before pulling the trigger. He will do a global coordinated action with all major Central Banks in the world as a political fig leaf. This gives him plausible deniability as to political intent.  Every big central bank in the world will buy massive amounts of gold, mortgages, corporates, and munis, and do it on a continuing basis. This will inject trillions into the Private Sector worldwide.

Tue, 07/17/2012 - 11:10 | 2624305 pupton
pupton's picture

+1...Bernanke won't show up until he can do it looking like a superhero.  That means waiting for the SHTF moment, when everybody knows this suckers going down, and then to ride in on his white Fed horse like he's God and save the world.  Anything short of that is premature financial ejaculation, and may just leave him with egg on his face.

EDIT: I forget to say that Graham licks the sweat from a dead man's balls.  That is all.

Tue, 07/17/2012 - 08:34 | 2623681 LawsofPhysics
LawsofPhysics's picture

Right, but then after November, no matter who is elected, all bets are off.  Sorry Graham, nothing changes so long as there a no consequences for bad behavior.

Tue, 07/17/2012 - 11:46 | 2624483 lynnybee
lynnybee's picture

after the election, the sky is the limit for gold&silver.    accumulate now or be left holding the empty paper bag when this ship sinks.    these criminals should all be tried for treason.    it is the final looting of AMERICA.     & we allowed it; ill-educated, ignorant, complacent populace.

Tue, 07/17/2012 - 09:03 | 2623790 SheepDog-One
SheepDog-One's picture

I think everyones got it wrong....one of these mornings something no one saw coming turns the whole thing upside down.

Tue, 07/17/2012 - 12:47 | 2624688 Spastica Rex
Spastica Rex's picture

Sudden, catastrophic failure is always a possibility: high complexity = low predictability. It will all look pretty much like it does now - until it doesn't.

Tue, 07/17/2012 - 10:38 | 2624148 Uncle Remus
Uncle Remus's picture

See - that's what I'm talkin' about.

Tue, 07/17/2012 - 10:12 | 2623736 Widowmaker
Widowmaker's picture

Absofuckinglutely right.

The Fed turned the dollar into moral hazzard dripping with incorporated risk.

Record bonuses and failure/fraud rewarded = zero credibility.

 

"This sucker could go down." - G.W. Bush Inc.

"We saved the banks but lost America."  - T. Dipshit Geithner

"I didn't run for president for a bunch of fat-cat bankers."  - B. Hussain Obama

One giant crock of politicially-incorporated shit.  The Federal Reserve has liquidated US jobs, eliminated local finance, and made utterly certain (in the name of hurting those it protects) that fraud goes unpunished, racketeering unfettered and TBTF is entrenched. End the Fed, it is nothing but the Itchy and Scratchy show with other people's wealth.  Make no mistke about it, as soon as the regular guy even gets a breath of air the Fed will see it buried. The average fuck on the street is supposed to believe that outright confiscation from savers and risk averse by the Federal Racket of Money Inc. is promoting price stability and high employment??  THAT AINT SOUND MONEY, THAT IS POLITICAL-RACKETEERING FOR THE 1% VOTE, FUCKERS!

 

Tue, 07/17/2012 - 11:58 | 2624527 lynnybee
lynnybee's picture

thank you, Widowmaker, for that wonderful comment.     my sentiments exactly.

Tue, 07/17/2012 - 08:32 | 2623674 SheepDog-One
SheepDog-One's picture

FED now just trying to tapdance and baffle everyone with bullshit.

Tue, 07/17/2012 - 09:32 | 2623874 engineertheeconomy
engineertheeconomy's picture

The economic "pyramid" looks more like an economic "radioactive mushroom cloud", with people elbowing eachother in the face for a dollar at the bottom and the filthy rich building their own personel stadiums to fill with hundred dollar bills at the top

Tue, 07/17/2012 - 09:36 | 2623870 Popo
Popo's picture

"Within its nine pages I explain precisely how the Second Round of the Crisis will unfold"

Graham,  when you write things like that do you consider how retarded it makes you sound?   First off, you've been repeatedly wrong.  Secondly,  no serious analyst -- no matter how good -- would ever say something so idiotically one-dimensional.   Any educated, aware person knows that there are half a dozen ways this could play out:  All of which are valid predictions.   The reason we're all here is not to find some snake-oil salesman to gaze into his crystal ball and pull a half-baked "definitive" answer out of his ass -- it's to constantly monitor the situation with the latest and most up to date analysis there is.

WTF are you snoking in your suburban shit-box in Phoenix that you think you've got it all worked out (literally years in advance), when literally *everyone* else on this site is constantly exchanging data and plotting the next 24 hours.   You're a complete and utter lightweight.  A fraud.  A huckster.  And to top it off, you don't even write well or sound remotely convincing.

Here's some advice:  Find another career, Graham.  Nobody's going to subscribe to your shitty little newsletter written by a guy with zero experience, living in suburbia and making grandiose claims about his own accuracy while exhibiting a track record of being flat wrong.  

You're an amateur and it shows.

 

 

Tue, 07/17/2012 - 11:12 | 2624284 BigJim
BigJim's picture

 Finally, there’s a simple monetary reason the Fed cannot engage in more QE: BANKS NEED TREASURIES. Treasuries are the ONLY senior asset on bank balance sheets that are increasing in value...

And how long will treasuries be 'increasing in value' once the market decides the Fed will stop buying them, Graham?

When the UST bubble finally pops the world ends. Ergo, 'they' will move heaven and earth to prevent it popping. And QE is the main tool they have to do this.

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