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Bernanke Takes a "Leak"

Bruce Krasting's picture




 

 

How about Bernanke's communication policy? The most important development for monetary policy in the last four years comes from a planted story in the Wall Street Journal on a Friday night. While I'm not surprised, I'm still disgusted. Press leaks to favorite journalists are no way to run this show.

 

wsj5.10

 

The WSJ/Hilsenrath article confirms that the Fed is in the process of changing course on it's QE policy. America has reached "Peak QE", from now on it will be downhill for this policy. May will probably be the last month where $85B of securities are sucked out of the market.

The Fed's new plan is to taper off QE over the balance of the year. Unlike the endings of QE1 & 2 the sunset for QE3 will be a bit of a surprise for markets. The stated intention (according to Hilsenrath) is to change the amounts of POMO purchases on a month to month basis. Reading through the lines, I get the impression that Bernanke is going to lower the QE buys one month, but should the markets react negatively, he would increase the purchases the following month in an effort to "rebuild confidence".

I don't see this new policy working at all. It's the predictability of POMO that gives QE it's market clout. When the predictability is replaced with uncertainty, the markets will not like it. What I find particularly galling is that the Fed believes that it can micro manage US (and global) capital markets. The Fed thinks it can reduce QE one month, but if markets swoon as a result it will just turn around and ratchet up the buying the following month. By doing so, the Fed can manage the markets. I say, "Not a chance".

 

The market's reaction to the Fed's change in policy will be interesting to observe. I expect that there will be some weakness in equities next week. There should be some back-up in rates across the curve, and I think the dollar will move higher (especially the Yen). But I don't see a blowup in the markets. The "Bernanke Put" is still alive for the time being.

The timing of the change in policy is interesting. Bernanke is no dope, he knows what the bond market is facing over the next five months, he knows that the bond calendar is very favorable for a wind-down of QE.

In two weeks the debt limit will be reached. After that date there will be a big reduction of new Treasury debt issued. Under normal conditions, the Treasury would have about $200b of wiggle room on the debt limit before there is a crisis. But in the summer and fall of 2013 the Treasury will reap an additional $60b of revenue from (incredibly) Fannie and Freddie. Based on this, I think the debt limit will not be a problem until sometime in October. So the reality is that over the next six months or so, there will be a shortage of new issue Treasury paper. This fact gives Bernanke the opportunity to reduce QE without a a big sell off in the bond market.

Then there is ZIRP. This policy will continue for a long time yet. The fact that the near-end is pegged at zero means that the long-end can't get out of control. And finally, there is the inflation outlook - this looks to be tame for the next few months.

The ten-year may back-up to above 2% (currently 1.90%), but I don't see 2.5% coming at at anytime in the immediate future. Towards the end of the year, when the debt limit is increased (it will be) there will be a flood of new issue paper and QE will be a non factor. That's when the bond guys will be looking at supply and demand, and running for cover.

 

There is one element of this that gets a chuckle from me. Last week, two hedge fund guys, Stan Druckenmiller and Paul Singer made comments about the risks of QE and the distortions the policy creates. Paul Krugman jumped all over the hedge fund types who appose more QE in a series of blog posts. (Link and Link)

PK did his best to discredit Druckenmiller and Singer. PK said that those who appose Bernanke are just a bunch of stinkers who are short bonds and want to make money. PK's rant is pretty amusing, he even takes a shot at gold investors. The final line of one of the posts was interesting. PK was attempting to highlight the "greed factor" that he thought was the real reason behind money managers opposition to continuing QE. In his usual snarky way, PK attempted to convince his readers that Bernanke Bashers had to have evil intent, that or they were gay, or suffered child abuse. I thought this line was obnoxious:

 

So anyway, the phenomenon of Bernanke rage is interesting. It probably has something to do with sexual orientation or childhood trauma, right?

 

My message to Krugman:

The WSJ article today was planted by Bernanke, and approved by Yellen. Clearly, these two also see that QE is a policy that has high risk and marginal returns. The article confirms what Druckenmiller and Singer were saying. They were right - you were wrong. Do you have the integrity to admit that? Or are you going to suggest that Bernanke also has sexual orientation issues, or suffers from childhood abuse? If an elected official had used these words (even as a nasty joke) they would be called on the carpet. The words "Shit Heel" come to mind.

 

Smear

 

 

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Sun, 05/12/2013 - 08:22 | 3553264 shovelhead
shovelhead's picture

You're right about something's got to give.

I'm pretty sure Granny gets Alpo and death panels before the EBT shut down.

Grannies don't burn down cities.

Sat, 05/11/2013 - 21:23 | 3552535 USGrant
USGrant's picture

There is and has been only one problem and that is the FED. From 1959 until four years ago the increase in money supply as measured by TMS2 was 6.4% per year on average compounded. For the data (M2) from 1913 about the same. For the last four years the money printing has been double digits. This money printing was to put money into the bankers pockets and if that facilitated spendthift ways in congress, so be it.  My guess was the 4 to 4.5% was to make interest paid to savers null, 1% was for expenses and 1% was for their pockets. There always seems in the corporate world a dollar or two out of ten that ends up in some slush fund and one would presume the banks are no different.

Sat, 05/11/2013 - 13:04 | 3551550 LawsofPhysics
LawsofPhysics's picture

I think this is spot on.  The mis-allocation and mal-investment of capital and resources cannot be sustained, the problem is that the vested interests (upon whom the capital and resources are being spent) are simply using it to try and maintain power and control.  This only makes things worse.  Yes, shut off the EBT cards.  I'd like to be optimistic and think local communities would become self-sufficient, but that would be a terrible outcome for TPTB as they would loss all control (and that is really what this is all about, power and control over resources, including the human kind).  My guess is TPTB would much rather have a "L.A. riot" type scenario, and it wouldn't be hard to make it happen.  The best part would be how profitable such an outcome would be for the MIC/bankers.

Sat, 05/11/2013 - 10:38 | 3551266 illyia
illyia's picture

I would have given you up for reality but would have to down you for attitude. Ratings wash.

But you are correct, and the Bernanke is aware. Perhaps the SHTF before Jackson Hole? Regardless of the games.

Sat, 05/11/2013 - 11:08 | 3551309 LawsofPhysics
LawsofPhysics's picture

Optimism appreciated. Attitude is irrelevant, especially when the supply lines break or the EBT cards stop working. The politically correct conditioning most people have been indoctrinated with makes real truths appear offensive, again the laws of Nature and physics really don't give a shit. Same as it ever was, the "unforeseen" suffering continues around the world.

Sat, 05/11/2013 - 09:41 | 3551206 booboo
booboo's picture

Ben is like the crazy lady with 300 cats living in her squalid overgrown fenced in yard and filthy house, when she come out with the food it is as she is floating on a cloud of cats as they swarm around her feet and purr. When she drops dead they eat her carcass right down to the bottom of the soles of her shoes. The cat food is running low and the cats are getting testy, PK is the biggest pussy in the yard. Cat fight!

Sat, 05/11/2013 - 13:34 | 3551621 Boston
Boston's picture

PK is a cat lover. No joke.

 

Coincidence?

Sat, 05/11/2013 - 15:56 | 3551949 Precious
Precious's picture

That's the only kind of pussy Krugman knows.

Sat, 05/11/2013 - 09:56 | 3551222 andrewp111
andrewp111's picture

Your imagery alone compels me to give you a +1.

Sat, 05/11/2013 - 09:38 | 3551200 sansnobel
sansnobel's picture

Paul will most likely get a pass on this one:

"So anyway, the phenomenon of Bernanke rage is interesting. It probably has something to do with sexual orientation or childhood trauma, right?"

Reason being, he is a Princeton elitist cocksucker himself like Bernanke.  And the Homosexual crowd in this country seems to give Liberals/Marxists a pass when it comes to their comments because they are all on the same side with a complicit agenda to make this country a secular Sodom and Gomorrah.  The Potentates of this God forsaken country are pure fucking evil, make no mistake!!!!

Sun, 05/12/2013 - 04:20 | 3553159 lewy14
lewy14's picture

Actually the target of Krugman's "sexual-orientation issues" crack was probably Naill Ferguson.

Think about it.

Ferguson's (ill considered) swipe at Keynes at the Ira Sohn conference resulted in his abject apology.

So Krugman gay bashes to prove he can get away with it. 

Basically Krugman is humping Ferguson's leg.

Sat, 05/11/2013 - 13:14 | 3551578 SokPOTUS
SokPOTUS's picture

Not that there's anything wrong with that...

Sat, 05/11/2013 - 19:14 | 3552261 Pure Evil
Pure Evil's picture

Unless you're the one getting fucked by Pure Evil, and then it might sting a bit.

Sat, 05/11/2013 - 21:34 | 3552560 Wakanda
Wakanda's picture

Do you speak from experience?

Sat, 05/11/2013 - 10:18 | 3551246 Uncle Remus
Uncle Remus's picture

Just ordered a Biblical-grade Smite detector. Last time shit went all Sodom and Gomorrah it didn't turn out so well.

Sat, 05/11/2013 - 09:29 | 3551191 malikai
malikai's picture

The purpose of this whole excercise, boys and girls, is to knock down 'inflation expectations' to clear the way for the next round.

Nothing new crooktown.

Sat, 05/11/2013 - 10:06 | 3551236 LawsofPhysics
LawsofPhysics's picture

Correct, math (exponential equations in particular) is indeed a bitch. In the absence of clearing the bad debt MORE fiat must be created. Mark to fantasy is alive and well.

Sat, 05/11/2013 - 10:34 | 3551257 illyia
illyia's picture

Ain't it so...

Sat, 05/11/2013 - 09:22 | 3551187 eddiebe
eddiebe's picture

It's all about 3000 people more or less controlling the rest of us. Ben's blabberings are meaningless and if you all remember his prognostications have a 100% failure rate. He needs to be ignored.

Sat, 05/11/2013 - 08:49 | 3551155 BaggerDon
BaggerDon's picture

I coudl not agree more.....just a few weeks ago, " I could do more, I could do less", "emails to friends and family", press conferneces where he is "questioned" by other stooges and now this LEAK.....I hope to god the MARKET stuffs all this shit up he ass and a few years from now we are dismmembering the FEDERAL RESERVE once and for all...

Sat, 05/11/2013 - 22:49 | 3552798 Rathmullan
Rathmullan's picture

Let the liberal community know that its champion of wealth redistributing psuedo economics is a gay basher. Pretty ironic given that Keynes himself was a homosexual.

Sat, 05/11/2013 - 11:56 | 3551408 Precious
Precious's picture

Forward !

Sat, 05/11/2013 - 14:37 | 3551775 dracos_ghost
dracos_ghost's picture

Press leaks to favorite journalists are no way to run this show.

Reaaally?! This is SOP for this Administration and it's cronies since day one. Why do you think headline scanning algos are so in vogue and fundamentals are irrelevant? The new ruling elite demand this be the show since they bring nothing else to the table.

My take is the Fed is out of viagra -- Fischer pretty much told Santelli that last week. The only bullet left, pun intended, is Keyne's last pillar of forced credit expansion due to new military actions -- and not just from the US. Same old playbook from history over and over again -- just different fashion styles. I think we overestimate Bernanke. He's just an intellectual bagman for the "progressive elites" -- aka Neo-Fabians. The Fed has propped up their wealth with funny money and now they want MOAR where there is none to be had. Time for creative destruction.

Sad thing is if you talked to 100 people on any given day, 99 wouldn't know any of this going on and could care less while the last guy is so beaten down screaming at the dark that he doesn't give a shit anymore.

All good things must come to an end. But then again, look a squirrel!!

Sat, 05/11/2013 - 10:08 | 3551237 DaddyO
DaddyO's picture

Don't hold your breath...

The can still has a long way to go before reaching the end of the road...

DaddyO

Sat, 05/11/2013 - 10:05 | 3551233 ihedgemyhedges
ihedgemyhedges's picture

Paul Krugman has the audacity to bring up sexual orientation?!?!?!?! I think maybe he actually wanted his trophy to read "Paula" Krugman and hasn't known how to handle that for decades..........

Sat, 05/11/2013 - 12:27 | 3551425 Precious
Precious's picture

"Shitheel" ?  Fancy. Typical east coast, genteel, lady-talk that goes on all the time at ZH. Since Krugman brought it up, lets talk about sex.

Krugman is a cock-sucking, red communist, mentally disordered sociopath. That's more accurate than "shitheel". Not sure "shitheel" means anything except to NYC skirts and all the typical urban skirt lapdogs in America that represent the majority of feminized America. You know. All those lady managers at work pretending to do something. All those men walking their dogs during the day because they don't have any jobs, friends, purpose or even sex anymore. Those are the ones. Demoralized to the point of residential puppy love. The ladies got ya right where they want ya boys, picking up dog shit. Imagine the satisfaction they get, seeing you do that. What a power trip. "Girls rule !" as the cackling hens say at Starbucks.

That's Krugman's world. You could maybe call it Cunt World. Welcome to Cunt World, courtesy of testicle free men like Bernanke, like Krugman, like Obama ---- why maybe even like you! Take a picture with your lady smart phone. Make sure it's a nice, coy pose.

You thought the econony is bad now?  Wait until Fed Reserve Cunt Yellen takes over from Bernanke and Hillary Cunt gets elected in 2016. You'll all be pining for the good old days of Bernanke and Obama. By then, you won't just be picking up shit. There will be a picture of you eating it.

Sun, 05/12/2013 - 21:15 | 3554757 MrSteve
MrSteve's picture

And where is the love? This style of rant speaks more about your personal failings than any appreciation of the reality of the situation. Start growing up right now!

Sat, 05/11/2013 - 23:53 | 3552938 August
August's picture

Hillary is dead meat.  Not that there's anything wrong with that.

Sat, 05/11/2013 - 17:18 | 3552105 Clycntct
Clycntct's picture

Ug that hurt! ++++

Sat, 05/11/2013 - 14:33 | 3551758 Tinky
Tinky's picture

Ah yes, women and "feminized" men are responsible for American society's ills.

Looking forward to your next thought-provoking hypothesis.

Sat, 05/11/2013 - 15:03 | 3551834 Precious
Precious's picture

For example, Tinky faggot faulkner said this and the girls all giggled:

Reminds me of an old, often amusing, irrepressible friend who, when once asked in a public lavatory why he washed his hands before using the urinal, responded with a burst of laughter, followed by "I know my dick is clean!".

Sat, 05/11/2013 - 18:52 | 3552232 Chuck Walla
Chuck Walla's picture

Wash your hands after a pee? I learned not to piss on my hands long ago.

FORWARD SOVIET!

Sat, 05/11/2013 - 15:05 | 3551853 Tinky
Tinky's picture

Very impressive rebuttal.

I can't help but feel a tinge of jealousy when I think of your warrior-like testosterone levels.

Sat, 05/11/2013 - 15:25 | 3551860 Precious
Precious's picture

Read this you stupid fag.  Your neurosis is sure to be fondled in there somewhere.

Sat, 05/11/2013 - 21:58 | 3552652 jomama
jomama's picture

no need to be such a dick, Precious.

Sat, 05/11/2013 - 23:22 | 3552881 Precious
Precious's picture

This is what happens to hecklers.

Sat, 05/11/2013 - 15:26 | 3551905 Tinky
Tinky's picture

Blames women and "feminized" men for society's ills? Check.

Resorts to calling people with whom he is unable to verbally spar "faggot"? Check.

Certainly paints a picture of a powerful, self-confident, and utterly masculine man.

Sat, 05/11/2013 - 15:42 | 3551908 Precious
Precious's picture

Boring.  Check.

Sat, 05/11/2013 - 18:03 | 3552166 Spigot
Spigot's picture

Speaking of boring, one has to wonder "why" the official leak. "Why" talk of trailing off bond purchases? Within the context of the past 6 months:

Japan installs new CB head who switchs to Bernanke style 2% inflation targeting

Cyprus and then a month later Ireland fuck depositors, and the world finds out that its "game on" with most G20 nations to make depositors the next target of confiscation.

Bernanke making noises about leaving, decides he does not want to be the headliner for (or attendee at) Jackson Hole

Some stupid jacks ass is installed as Treasury Secretary after Rat Geithner jumps ship

The Euro system visibly starts to shudder, leaning to starboard in an ominous way

One seller via JP Morgue dumps $20 BILLION in gold options on the market in 15 minutes

Sell off in nominal gold prices causes flash vapor fire in global gold and silver markets which sucks ALL AVAILABLE SUPPLY out of the system within a week

Now, an unoffical leak about withdrawing QE bond purchases ...

hmmmm

Sat, 05/11/2013 - 12:49 | 3551521 Uncle Remus
Uncle Remus's picture

If there was ever a catalyst for bad shit, it's Hitlery.

Sat, 05/11/2013 - 22:41 | 3552772 Rathmullan
Rathmullan's picture

So what hilsenrath is saying the fed is saying "were going to reduce the amount of pomo, but we're going to do it in such a way that if we lose any of the sacred wealth effect that we've created vis a vie a liquidity pumped stock market, we'll simply reinflate the bubble". In other words "don't you dare think about selling or its going to cost you". What a desperate, intellectually dishonest and underhanded way to conduct policy! 

Sat, 05/11/2013 - 17:18 | 3552104 negative rates
negative rates's picture

His moral hazard was shining from cheek to cheek.

Sat, 05/11/2013 - 19:07 | 3552254 Pure Evil
Pure Evil's picture

I think this time switching the SHIT and HEEL would be somewhat appropriate.

Namely, Krugman is a HEEL that just stepped into a pile of SHIT.

Sat, 05/11/2013 - 22:42 | 3552776 jeff montanye
jeff montanye's picture

or they both could be wary of what a truthful credit rating agency might say (not promising the new one will be, but it might try it to start with as a unique marketing ploy):

 

"China is set to offer its alternative to the big three US credit rating agencies, Moody's, Fitch, and Standard and Poor's. The Universal Credit Rating group is due to launch next month in Hong Kong, and is a joint Chinese, Russian, and American venture." (from rt)

http://rt.com/business/chinese-ratings-agency-alternative-us-004/

 

 

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