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The Fed is Beginning to Remove the Punchbowl... Are You Ready For What's Coming?

Phoenix Capital Research's picture





 

 

A month ago, we noted that the Fed was becoming increasingly splintered about how to proceed with its monetary policy. At that time we noted that the latest FOMC minutes indicated that the Fed was in fact conflicted about QE 4 despite its public appearance of being unified:

 

Consider its recent FOMC minutes released on January 3 2013.

 

With regard to the possible costs and risks of purchases, a number of participants expressed the concern that additional purchases could complicate the Committee's efforts to eventually withdraw monetary policy accommodation, for example, by potentially causing inflation expectations to rise or by impairing the future implementation of monetary policy. Participants also discussed the implications of continued asset purchases for the size of the Federal Reserve's balance sheet. Depending on the path for the balance sheet and interest rates, the Federal Reserve's net income and its remittances to the Treasury could be significantly affected during the period of policy normalization. Participants noted that the Committee would need to continue to assess whether large purchases were having adverse effects on market functioning and financial stability. They expressed a range of views on the appropriate pace of purchases, both now and as the outlook evolved. It was agreed that both the efficacy and the costs would need to be carefully monitored and taken into account in determining the size, pace, and composition of asset purchases.

 

            Source: Fed FOMC minutes

 

Remember, the Fed only just announced QE 3 in September 2012 and QE 4 in December 2012. At the time of these announcements, the media heralded these moves as indicating that the Fed would act aggressively forever.

 

Instead, the Fed was actually quite conflicted about QE 4. And we just got yet ANOTHER major warning sign that the Fed is changing tactics.

 

Indeed, Fed uber-dove, Charles Evans, who called incessantly for more QE throughout 2011-2012, just stated that the Fed may in fact END QE BEFORE unemployment falls to 7%.

 

Charles Evans, president of the Federal Reserve Bank of Chicago, said today the central bank may stop its asset-purchase program before unemployment falls to 7 percent.

 

“I tend to think it might be possible to turn off the quantitative easing,” Evans said in a CNBC interview. “We might be able to stop before 7 percent” assuming momentum builds and keeps going.

 

Federal Reserve Bank of Chicago Chief Executive Officer Charles Evans said that quantitative easing would continue until it's clear the labor market outlook has improved.

 

http://www.bloomberg.com/news/2013-02-07/fed-s-evans-says-qe-could-stop-before-drop-to-7-jobless.html

 

The bulls and mainstream media are ignoring the implications of this. But this is a serious sign that the Fed will be changing course going forward.

 

Understand that the Fed has blown a yet another bubble in stocks and cannot simply remove the stimulus punch bowl all at once without risking a total collapse in the market. So the Fed is going to begin managing expectations downward gradually.

 

The fact that Evans, a man who has called for nothing but more stimulus for more than two years, is now stating point blank that the Fed may end QE before it reaches its target for unemployment is a major warning sign. Do not ignore it.

 

We offer several FREE Special Reports to help investors navigate this risks and others in the financial system. They include:

 

Preparing Your Portfolio For Obama’s Economic Nightmare

 

How to Protect Yourself From Inflation

 

And last but not least…

 

Bullion 101: Everything You Need to Know About Investing in Gold and Silver Bullion…

 

You can pick up free copies of all of the above at:

 

http://gainspainscapital.com/

 

Best

Phoenix Capital Research

 

 

 


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Sat, 02/09/2013 - 02:06 | Link to Comment Lucius Corneliu...
Lucius Cornelius Sulla's picture

Bottom line is that the FED will protect the ability of the USG to continue to borrow.  To do that, it must keep inflation low or lose control of the bond market.  The USG cannot afford higher rates so inflation must be contained.  

There is no way to avoid a deflationary outcome when the currency is backed by credit.  Either inflation destroys the value of the credit or deflation does through default.  So far, the only thing the FED has managed to do is barely keep the credit bubble expanding even with its unprecedented debt monetizing.  There is just too much debt in the system.  It is not sustainable.

Fri, 02/08/2013 - 18:05 | Link to Comment TooBearish
TooBearish's picture

gAWD tYLER -PLS TAKE THIS JACASS OFF NO-HEDGE NOW PLS

he just dont get it and tryin to sell subscriptions? comon man....

Fri, 02/08/2013 - 17:34 | Link to Comment AT
AT's picture

Graham Summers is such an idiot.

Fri, 02/08/2013 - 17:33 | Link to Comment Carl LaFong
Carl LaFong's picture

Absurd. The whole world will implode the day the market really believes they will stop QE. This article is just more of the same jawboning and the author should know better by now.

Fri, 02/08/2013 - 17:23 | Link to Comment Bearish News
Bearish News's picture

Head-fake.

Fri, 02/08/2013 - 17:25 | Link to Comment neutrinoman
neutrinoman's picture

The Fed isn't removing the punch bowl before Bernanke steps down next January, at the earliest. Right now, many in the bond market expect the Fed to lead bond prices lower in an orderly fashion. This is unlikely. Bond prices will instead bounce around near or at their peaks, but the bond market will (next year?) eventually run out of patience and force the Fed's hand. This won't happen before 2014 at the earliest, after Chairman Ben is gone.

As we enter multiple risk-off episodes this year, the bond market will be back up. But it probably won't exceed its recent price peaks. Grossly inflated stocks will take the hit instead. The risk has to be taken out of stocks first, before it's the turn of bonds.

Fri, 02/08/2013 - 16:49 | Link to Comment MrBoompi
MrBoompi's picture

Normally I would read "Fed to remove punchbowl" and move out of stocks and into something else.  And every time the Fed has burned me.  So what is a person to do?  Maybe they should do the opposite of whatever the hell I do!

Fri, 02/08/2013 - 16:29 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Bullshit.  The Fed isn't taking anything away.  The dollar and all fiat will continue to become increasingly worth less until the supply lines break because the purchasing power of the fiat offered in exchange will simply not be worth the effort.

Long black markets, physical assets of real value, and a dependable tribe....

Fri, 02/08/2013 - 16:17 | Link to Comment the grateful un...
the grateful unemployed's picture

bernanke just announced the new employment benchmark, now you think one or two members can make him recant that? if you believe that you probably believe obama is 1) against sending weapons to the rebels in Syria, and 2) he has anything to say about it

Sat, 02/09/2013 - 01:57 | Link to Comment Lucius Corneliu...
Lucius Cornelius Sulla's picture

Obama this, Obama that, Obama is just a puppet.

Fri, 02/08/2013 - 16:09 | Link to Comment shovelhead
shovelhead's picture

The contents of the liquid in the punchbowl is immaterial as long as the debt turds are still in there.

Doesn't much matter if they float or rest on the bottom.

Fri, 02/08/2013 - 16:02 | Link to Comment Jack Sheet
Jack Sheet's picture

More news staler than a Jap's jockstrap von Crapitall "Research".
If you believe those fairy stories you are either gullible or stupid.
FOMC minutes are not policy (J Rickards)

Fri, 02/08/2013 - 15:47 | Link to Comment dracos_ghost
dracos_ghost's picture

They might be removing the punchbowl. And replacing it with a keg.

Fri, 02/08/2013 - 15:56 | Link to Comment strannick
strannick's picture

Exactly. PC said there would be no QE4

 

Fri, 02/08/2013 - 15:33 | Link to Comment WhiteNight123129
WhiteNight123129's picture

IDIOTIC PHOENIX CAPITAL

The fuel under the market is not credit, it is money!!!!

You have a credit crunch but base money does not go into crunch.

So it will move down slowly not abruptly, first it will move up because of ~ recovery~ .

Recovery from credit are long term deflationary, recovery from money are long term inflationary.

 

Fri, 02/08/2013 - 15:28 | Link to Comment unplugged
unplugged's picture

"the Fed may end QE before it reaches its target for unemployment"

Graham, would you like to make a bet?  Usual amount.

Fri, 02/08/2013 - 15:24 | Link to Comment stant
stant's picture

qe is for now and untill doomsday

Fri, 02/08/2013 - 15:25 | Link to Comment WhiteNight123129
WhiteNight123129's picture

The reason the Fed will remove the punchbowl is because instead of staying idle and hoarders of cahs like Kito forcing to Fed to print to offset the idleness of base money, the Fed is not mad. The Fed will not print once people spend the idle cash.

However this is not your long duration recovery, this a reverse recovery a short duration recovery. That is the base money is spent instead of the leverage rising. Short duration bitchez.

The only reason teh Fed will stop printing is because the idle money is getting spent. The printing creates devaluation as USD is converted into foreign currencies, foreign assets etc... while hte local inflation of wages is tamed.

Once the idle money is spent, once the idle base money is used in teh circulation is when inflation starts.

Initially the crazies thinking we are going to hyperinflation are disappointed and the guys thinking we are back to normal that is an increase in leverage put pressure downwards on Gold.

In the meantime teh long bond keep selling off and curve steepens and more idle money gets to move. Then after a while we start to see nasty stagflation, the crazy hyperinflationist shout victory, the dumb money who just moved into stock cries ~OMG inflation~ and then you sell your PMs.

Short duration for yeaaarrrss bitchez....

YOU CAN PAY WITH MONEY OR CREDIT. THIS RECOVERY IS COMING FROM USING MONEY (YOU KNOW, THE TONS OF BASE MONEY THE FED HAS JUST PRINTED??). DO NOT BELIEVE A SECOND THE FED WHEN THEY SAY THEY WANT TO STIMULATE CREDIT CREATION. THEY CAN NOT TELL YOU THAT THE REASON IS THEY PRINT IS THAT AS LONG AS PEOPLE LOCK IN A BOX CIRCULATION MEDIUM THEY HAVE TO OFFSET THAT BY PRINTING THE EQUIVALENT AMOUNT. WHEN PEOPLE MOVE THE CURRENCY UNIT OUT OF THE BOX AND SPEND THEM, THE FED HAS TO STOP AND WILL STRUGGLE WILL STAGFLATION FOR YEARS.

Fri, 02/08/2013 - 17:15 | Link to Comment NidStyles
NidStyles's picture

I really wish the idle money fallacy would die. There is no idle money, demand for quantity is simply that much hirer due to inflationary effects. It makes it seem like there is a pile of cash hoarded away somewhere, but in reality it's just that no one can afford  to generate a lot of turn-over on anything because the costs are too high.

Fri, 02/08/2013 - 15:17 | Link to Comment digitlman
digitlman's picture

Bullshit. 

Fri, 02/08/2013 - 15:58 | Link to Comment Jack Sheet
Jack Sheet's picture

very succinctly expressed.

Fri, 02/08/2013 - 15:04 | Link to Comment President Palin
President Palin's picture

Graham - didn't you repeatedly state that there would be no QE3?

Keep your reports.

Fri, 02/08/2013 - 16:43 | Link to Comment RockyRacoon
RockyRacoon's picture

One must present conflicting points of view periodically so that one may point back at old (applicable and correct) articles to show how prescient he/she was in the past!  It's just good strategy.  Having a firm and steady view (usually wrong) is hazardous to the selling of one's financial products.

Fri, 02/08/2013 - 14:07 | Link to Comment TeddyBear
TeddyBear's picture

 

 

 

End of QE=

Dollar spike up!

Gold spike down :(

1200 or over shoot to 700

If you must but coins I would buy in the 700s

UGL trading is making a killing last few years.

I want more of the same, Could we get 20years like Japan, I hope so:)

I have a buy order TZA 10.60, please fill !!!!

Fri, 02/08/2013 - 15:35 | Link to Comment WhiteNight123129
WhiteNight123129's picture

The gold will move down but remember that the Fed will stop printing because base money start to be used. It is not a credit recovery, it is an unlevered money being being spent = stagflationary...

 

Fri, 02/08/2013 - 15:33 | Link to Comment unplugged
unplugged's picture

End of QE=

- end of stock market
- end of U.S. being able to make the interest payments on its debt
- end of welfare handouts to the welfare mob = social unrest

QE is about as likely to end as Graham ending wrong calls.  So then the dilema is which one of these will happen first?

Fri, 02/08/2013 - 13:49 | Link to Comment Postmortemism
Postmortemism's picture

Hmm...trying to think about the principled Federal Reserve members...which ones will want to have the entire wrath of the country poured out upon them for cutting off ZIRP/QE.

Yeah, no. We'd much rather keep printing and let other countries take the blame when they sell off our bonds and stop using our paper. 

Fri, 02/08/2013 - 13:21 | Link to Comment Cycle
Cycle's picture

Every time I read about what the Fed does or is about to do it reminds me that we are a few steps away from a centrally planned economy. We have a centrally planned 'cost of capital'  price fixing, the results of which are available to insiders first, and creative destruction is for "little people" only.

Fri, 02/08/2013 - 16:56 | Link to Comment Spirit Of Truth
Spirit Of Truth's picture

The real trick of the game has been the "financialization" of the economy.  Our economy is now "debt-based" in a most absurd way.  It use to be that "income" was the determinant of "purchasing power", but now what's important is the available credit line since such a large portion of money spent is "future income" (which means debt-financed).  This illusion can only be taken so far before the Ponzi scheme collapses.  The question is, what is the end point?  Dow 14K?

http://thespiritoftruth.blogspot.com/2013/02/dow-14000-world-war-three.html

Fri, 02/08/2013 - 16:50 | Link to Comment I need more cowbell
I need more cowbell's picture

What is QE? QE is money printing to fund the rest of the yearly budget not covered by tax inflows. What is so hard about that to uderstand? If expenditures do not decrease, they won't, or tax inflows increase ( they won't ), QE cannot be discontinued.

Unless of course we get outlanders again buying our debt. China? Bueller? Anyone?

Another piss poor PC article; I guess even a great blog like ZH needs filler.

Fri, 02/08/2013 - 15:18 | Link to Comment digitlman
digitlman's picture

I'm fairly certain we are already there.  At most one or two more streets away.

Fri, 02/08/2013 - 16:35 | Link to Comment JonNadler
JonNadler's picture

am still waiting for the FED to raise rates, that was the threat a few years back, now it;s no more QE, next year it will be  only 100 billion QE a month from here on and no more

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