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Monsters With Ominous Acronyms: From A Nation of Investors To A Nation of Fed Watchers

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Wolf Richter   www.testosteronepit.com

People are holding their breath. Fed Chairman Ben Bernanke is to speak in Jackson Hole on Friday. QE3 or not to be, that’s the question. There isn’t a soul in the markets that can shrug off even a single syllable of what he’ll say. And if his answer isn’t a clear and solid yes—with details on how much, by what mechanisms, and until when—market participants, analysts, bloggers, and TV economists will parse his speech down to the last iota and look for commas that they haven’t seen before, and they’ll interpret it and reinterpret it ad infinitum until the desired outcome has been established, namely more QE—regardless of what he says. Headlines have been stirring the excitement. My blood pressure is up, my nails are bitten down to the quick. I haven’t slept in days. I’m ready. Oh dear Ben, I’m praying, let us have more QE.

ECB President Mario Draghi had his moments recently, but his outfit isn’t an omnipotent institution like the Fed, not yet at least. It has been designed as a curiously emasculated place, subject to its treaty-imposed single mandate of price stability and language that precludes any kind of QE. But these aren’t times for normal interpretations, and so the treaties have proven ineffectual in keeping the printing press unplugged. But what’s hampering the ECB in living out its wildest dreams à la Fed? Strong opposition from the Bundesbank. While it only has one vote within the ECB, same as Cyprus, it has a bully pulpit, and it has turned up the megaphone.

Investors are also watching the Bank of Japan, which buys just about anything, including equities, to keep them from crashing further. The Bank of China is now expected to prevent a hard landing, or a soft landing, or any kind of landing, though China’s landing gear is out, and the flaps are extended all the way. There are other central banks we keep an eye on. They all coordinate their moves and hobnob at shindigs, like the one in Jackson Hole, and they whip us into a frenzy with their words. Central planning at its best.

And so we have become watchers of central banks, and we bet on their pronouncements rather than invest in what we think might work economically. Meanwhile, the Fed is pulling, or perhaps pushing, on a variety of strings to accomplish its goals, whatever they may be. It’s setting prices and yields, it’s causing capital to be shifted in the wrong directions, it’s propping up banks. And it works. Central planning has been successful in the past as well.

For example, among the famous German car makers there was, you might recall, VEB Sachsenring Automobilwerke Zwickau. It produced one model, the Trabant. This was in East Germany under the communist regime. It was the best-selling car of all times in East Germany. And just about the only one. It was even exported to other east-bloc countries. Designed in the 1950s and produced without major updates for 30 years, it sold over 3 million units by 1989! Today, 32,997 “Trabbis” are still registered in Germany. Its two-stroke engine, if it runs at all, leaves a toxic cloud of oily smog behind. Despite its tiny size and nearly imperceptible acceleration, it gets a lousy fuel economy. It’s slow, uncomfortable, unsafe, malodorous... one of the worst cars ever built. The proud product of central planning.

But rather than create decrepit manufacturers that build things that belch oily smoke, modern central planning has created monsters with ominous acronyms... TBTF, ZIRP, NIRP. And like the central planners in charge of the Trabbi, they have mastered the art of repression, but this time its financial repression—so the government and banks can borrow at near zero cost, and below the rate of inflation, while demolishing whole classes of investors and savers, or worse, inducing them in their desperation to chase after the next bubble, only to be blown up.

Ray of hope: the Trabbi has become a collectors’ item of sorts, admired for its failings and showered with derision. Prices have soared from zero after Reunification to well, not a whole lot more. And people take them out for drives on sunny Sundays and gingerly coax them down side streets and country roads. Just don’t get on the autobahn.

Central banks shroud themselves in secrecy. But when shenanigans seep to the surface, they just get worse and worse. The latest is a sordid bribery and kickback scandal at the Reserve Bank of Australia that appeared to be neatly contained to two subsidiaries, until now. Read.... Central Banks, The Veil Of Secrecy, A Hotbed of Corruption, And Now Another One Got Ensnared

And here is the next nightmare for California’s cities and counties struggling to keep their chin above water. Read..... California Bondholders Watch Out: State Controller Pounds Municipalities, by hard-hitting Chriss Street.

 


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Fri, 08/31/2012 - 10:35 | Link to Comment Snakeeyes
Snakeeyes's picture

We have to watch the Fed. They are manipulating both interest rates and the stock market for political reasons.

http://confoundedinterest.wordpress.com/2012/08/31/bernanke-hints-a-more-monetary-easing-chicago-and-milwaukee-prints-disappoint/

Fri, 08/31/2012 - 12:20 | Link to Comment mac768
mac768's picture

In the end, we will remember ZIRP and NIRP as some old-fashioned, malodorous relicts of the past like the Trabi during the East-German Central-Planning regime.

but it will take some time

hopefully, there will still be something around as the "Paulaner Hefeweizen" since 1634, brewed according to the same "Purity Law" which only allows water, barley and hops as ingredients.

Unfortunately, todays toxic brew of central banks contains some ingredients that could harm your financial wellbeing for the long term....

Fri, 08/31/2012 - 10:16 | Link to Comment dannynewmexico
dannynewmexico's picture

soon enough the entire system will come crashing down......,,

 

 

survivingsurvivalism.com

Fri, 08/31/2012 - 09:08 | Link to Comment Nachdenken
Nachdenken's picture

The Big O R / Obama Romney will deify the disease.  We are the dead, writing wisdom on the walls of our ward.

Fri, 08/31/2012 - 08:55 | Link to Comment boiltherich
boiltherich's picture

Take chill pill and stop biting your nails Wolf.  He will say that QE 3 is big and bright and ready to go, or he will say there is no more QE left in the bank, or he will say something in between like that they can do more but will hold off for now and resort to more QE if the economy gets worse.  With the Dow set to open triple digits higher in front of a three day weekend when it is already steeply overbought I think someone leaked, option #1 is my guess.  Also, he needs an Obama win in November or he is out, at the very least audited. 

Sat, 09/01/2012 - 16:08 | Link to Comment boiltherich
boiltherich's picture

mmm-huh

Was I right or was I right?

Fri, 08/31/2012 - 00:36 | Link to Comment Count de Money
Count de Money's picture

I'm one of the very few who's actually rode in a Trabant. I never drove one because I couldn't figure out the crazy shift lever next to the steering wheel. Yes, it's as bad as the author says except he doesn't mention that the body panels were fiberglass and the gas guage was a dipstick that you stuck into the fuel tank.

A couple of fun facts: The waiting time to buy a Trabant was 10 years. People would order Trabants when their kids were small so that it would get delivered by the time they were old enough to drive.

The color you got was whatever they happened to be making that month. Hopefully you wouldn't get one which was a particularly hideous burnt orange color.

I think the top speed was around 80 km/hr although you would be taking your life in your hands on their crappy cobblestone roads at that speed.

A used Trabant cost more than a new one. The difference? Immediate delivery. One way to get a new one immediately was to pay for it in West German Marks (at a one-to-one exchange rate).

Fri, 08/31/2012 - 12:12 | Link to Comment NotApplicable
NotApplicable's picture

Hey, I'd love to have a dipstick gas gauge. My old truck has neither a working gauge, or an odometer.

 

Fri, 08/31/2012 - 12:51 | Link to Comment Count de Money
Count de Money's picture

I should have explained a bit more. This was the process for measuring how much gas you had left: Stop the car and get out and open the hood. The gas tank was located above the engine (!) so that the gas could be gravity-fed into the carburetor. They did this so that they wouldn't need a fuel pump. Unscrew the cap on the tank and stick this plastic stick into the tank. Look at it and you can see how much gas you have left.

Fri, 08/31/2012 - 07:36 | Link to Comment TrumpXVI
TrumpXVI's picture

Good post, Count de Money.

I particularly liked the part about the spot market for Trabbis and the backwardation in their futures curve. 

Thu, 08/30/2012 - 22:02 | Link to Comment nathan1234
nathan1234's picture

Dont' let that asshole Ben affect your health Wolf.

Ben fuck's up all the time.

He will do what he should not do and keep doing it.

 

Fri, 08/31/2012 - 06:16 | Link to Comment falak pema
falak pema's picture

Carpe Diem.... becomes a philosophy even for people who think they are on the Titanic. If you can't avoid it lie back and enjoy the slide into foggy bottom. 

It is said that Voltaire contributed more than anybody else to bring about the age of Enlightenment, by FIRST tearing down the two pillars of the old order : the Monarchy and the Clergy; through ridicule and incisive diatribe against religious dogma and "blue blooded" nobility. 

Having dynamited them, tired from all the acrimony, he wrote Candide  (or Optimism), from the point of view of feigned ignorance, and established as philosophy of life : cultivate your own garden, far from the madding crowd.

Candide - Wikipédia

So its only human to want happiness even if you have destroyed the basis of the old world order! 

The two faces of mortal man : fighting to clean out the Augean stables and wanting peace and rest afterwards. 

We are in the midst of the tempest...to bring ridicule to those who install this NWO based on phony fiat. 

Thu, 08/30/2012 - 21:46 | Link to Comment BeetleBailey
BeetleBailey's picture

FUCK...BEN.....BERNANKE!

DIE YOU BASTARD..............DIE!

FALL INTO JACKSON HOLE...THEN WE CAN CALL IT JACKSON ASSHOLE.

Thu, 08/30/2012 - 21:00 | Link to Comment dexter_morgan
dexter_morgan's picture

Duh...... and this is going to change with our next president???????

http://www.youtube.com/watch?v=sZLqsRqKFyI    watch it if you have the stomach for it.

Thu, 08/30/2012 - 21:00 | Link to Comment SwingForce
SwingForce's picture

Who the fuck does Ben think he is, GOD? Or do we think he's GOD? He's not.

With my best Anthony Hopkins voice from THOR, "But you're NOT.........God."

Thu, 08/30/2012 - 21:15 | Link to Comment dexter_morgan
dexter_morgan's picture

Well, Obama re-appointed him and Romney says he'd re-appoint him.....so I guess politicians and billionaires think he is GOD at least.

Thu, 08/30/2012 - 20:43 | Link to Comment Jam Akin
Jam Akin's picture

When duty calls, the shit hits the fan:  Corzine for President!

Thu, 08/30/2012 - 20:30 | Link to Comment DeadFred
DeadFred's picture

I'm beginning to think people have been looking in the wrong place, Europe/Greece might not be what's going to take this Ponzi down, it may be California. Check out Ben's speech tomorrow and see if there's any veiled references to that coming meltdown. Inserting a couple words may indicate he's thinking of buying state and muni bonds.

Thu, 08/30/2012 - 19:50 | Link to Comment Dr. Gonzo
Dr. Gonzo's picture

Fucking QE 3!  They'll be talking about QE 182  10 years from now and how "this time" it's really gonna be the one to get employment and the economy "back on track". I can hear Joe Kernen and Becky Quick now. Fuck Faces! What a sick joke American leadership has become. Just give us the fucking gold back and we'll figure shit out for ourselves you stupid motherfucking Central Planners! I'm sick of this tired ponzi scheme you keep running on everyone. 

Thu, 08/30/2012 - 19:17 | Link to Comment otto skorzeny
otto skorzeny's picture

there is fundametally something so dicked up about this whole system that it defies description. at least the commies openly admitted that they (tried to)control everything

Thu, 08/30/2012 - 19:11 | Link to Comment negative rates
negative rates's picture

Hey it could be worse, some of these cats are down to last chocolates, cheeses, wines, and B-12's. 

Thu, 08/30/2012 - 18:31 | Link to Comment SafelyGraze
SafelyGraze's picture

why the hell did the secretary of the treasury sign my federal reserve note? what's *he* got to do with it?

it's not as though the chairman of the fed signs the damn treasury notes. sheesh.

what? treasury notes are only sold online? as digital bits? how can anybody sign a bunch of bits?

where did all the negotiable instruments go?

Fri, 08/31/2012 - 04:59 | Link to Comment Disenchanted
Disenchanted's picture

 

"why the hell did the secretary of the treasury sign my federal reserve note?"

 

For appearances only...

 

wolf said:

"There isn’t a soul in the markets that can shrug off even a single syllable of what he’ll say."

 

Wow, it's comforting to know that in our free markets so much rides in the hands of one man...an anglo-american bankster with the middle name of Shalom. He probably only wants our oil.

 

What a country.

Thu, 08/30/2012 - 18:24 | Link to Comment Savyindallas
Savyindallas's picture

We will all sleep better when Bernake's balls are cut off and pulverized into dust  -like the thermate induced pulverization of steel and concrete from the World Trade centers on 9/11.  This man's genes and DNA need to be destroyed so that he will never be reproduced again-not from natural breeding, artificial insemination, not from cloning. His genes need to be detroyed  -just like Greenspan  -and a lot of others on a list far too voluminous to be recited  -larry Summers and Tim Geithner for example -.   

Thu, 08/30/2012 - 19:30 | Link to Comment lotsoffun
lotsoffun's picture

you think bernake has balls?  my last comment ever on this blog.  he does what the masters tell him to do.

Thu, 08/30/2012 - 22:22 | Link to Comment nathan1234
nathan1234's picture

I agree with you that he does what his masters tell him to do.

As for Balls , it appears that he does have them as he is supposed to have helped procreate 2 offspring.

 

Fri, 08/31/2012 - 09:31 | Link to Comment CrimsonAvenger
CrimsonAvenger's picture

He didn't procreate those offspring; someone else did that for him.

 

Thu, 08/30/2012 - 18:17 | Link to Comment Zero Govt
Zero Govt's picture

Sick to the back teeth hearng about Bernanke, King and Draghi ..they're trying to keep bubbles inflated they never should have (or would have in a free market economy) blown

the village idiots trying to keep the fat cats of DC and WS out of the gutter ...but that's where they belong, it happens to us all, then the green shoots can begin anew

you gotta be brain dead to listen to Bubble Ben, like going to a lecture from Jon Corzine on how to segregate client funds

 

Thu, 08/30/2012 - 19:19 | Link to Comment otto skorzeny
otto skorzeny's picture

it all comes down to keeping the markets up to keep pension systems and the like going. that's all they have left.

Fri, 08/31/2012 - 00:18 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

to keep pension systems and the like going

... and keep TBTF banks (appearing) solvent.

Much of what qualifies as "tier 1 capital" would be almost worthless without the Fed propping it up.

All the Fed printing since '08 has been to keep financial paper inflated.  Stocks, bonds, and Treasuries of course.

But the "underlying" has been steadily losing value.  Companies' earnings are down.  Bond issuers' credit ratings are dropping, US government especially.

The real world steadily deteriorates while the financial paper world is propped up by the Fed.

 

 

Fri, 08/31/2012 - 09:29 | Link to Comment boiltherich
boiltherich's picture

COG, I agree with you on all but one item... "Companies' earnings are down."

In fact I read just yesterday that corporate profits are at records, US companies are sitting on two trillion in uninvested cash outside the USA.  Of course some companies are flat and some are in real trouble, but the fact is that profits are great, too great.  See chart here...

http://static3.businessinsider.com/image/4fe2807feab8eaca7f00000c-960/corporate-profits-as-percent-of-gdp.png

Of course wages are also the lowest they have been on record, since at least the great depression, and labor force participation is the lowest in decades, and all that employee pay that is not getting paid is profit. 

Fri, 08/31/2012 - 12:08 | Link to Comment NotApplicable
NotApplicable's picture

How many of them are playing in the bond markets to generate these earnings, though?

When companies cannot productively invest profit back into their core business due to lack of true demand, but rather, use it to back the bonds they sell (because the money is too cheap to pass up), well, all they're doing is leveraging their capital in order to remain an ongoing concern until they are hollowed out completely.

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