The Fed Signals the Music Will Stop Before 2014

Phoenix Capital Research's picture


After the market’s close on Friday, Jon Hilsenrath at the Wall Street Journal released an article implying that the Fed might remove or reduce its QE programs before the year end.


The reason this matters is because Hilsenrath is thought to be an unofficial mouthpiece for the Fed. Time and again he’s released articles hinting at the Fed’s future policies in advance. And many believe senior Fed officials such as Bernanke will personally leak ideas to him to test the public’s response to said ideas in advance.


So many believe that Hilsenrath’s Friday article was indeed the Fed preparing the markets for a tapering or removal of QE before the year end. Given that the entire US market is moving lockstep with Fed activity (the Fed’s balance sheet has literally reflated the NYSE tick for tick post 2009) this is a huge deal.


This supports our view that the Fed is aware stocks are in a bubble and is attempting to prep the market in advance for less liquidity.


Since QE 2, the negative effects of QE (higher costs of living) have outweighed the positive effects (higher stock prices) by a wide margin. Only 52% of US households own stocks… but everyone is paying for higher food and higher energy prices.


On a deeper level, QE is a drug for the market. There is no evidence in history that QE creates jobs or growth Both Japan and the UK have launched QE equal to over 20% of their GDP, neither have experienced a significant pickup in jobs or GDP growth as a result.


So QE was always about one thing only: pushing the market higher. But now the market is completely detached from economic realities. There is a word for this… it’s “bubble.”


The Fed knows this and is now trying to prepare the market for withdrawal. But the market is on total life support from the Fed. Take away the Fed punchbowl and the party stops.


Between this, rampant insider selling (makes you wonder if the people running the companies know something about the economy the Fed is ignoring), the downturn in economic data in the US, and the ongoing disaster that is the US jobs market, the market is priced for a total collapse.


For more market commentary and investment insights


Best Regards,

Graham Summers

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boeing747's picture

What? Unemployment Rate still well above 6.5% and Ben wants to quit. Can Congress give 'full employment mandate' to Labor Dept since Ben doesn't want it. Now even some gold websites are talking shits about gold. Gold has no 'fundamental', how about 'fundamental' for 'thin air'? Ben's job is to create Hyper-inflation, he will not quit untill 'job' is done.

TrulyStupid's picture

QE can only stop if interest rates go negative and your savings are therefore gradually impounded. 

No savings? Borrow some more money at lower rates and buy a new iphone/car/house/AK45.. sorry we're out of physical gold.

theliberalliberal's picture

This is all bull$hit.


In australia,  "experts" were "surprised" by the RBA cutting rates.

"leave it on hold" they say.  maybe even increase.


what cr@p.   the price of gold may have dropped,  but until i see interest rates rise,  there is no reason to sell.

there will be no 15% interest rates to make gold lose its luster.  

there will be no "recession we had to have" - Paul Keating


Here is a joke i just thought of.


Q.  Where does Ben Bernanke come up with his monetory policy ideas?

A. de basement






honestann's picture

Everyone who believes the federal reserve will stop loaning money to the federal government please raise your hand.

Anyone?  Anyone?  Anyone?

Going once, going twice, going three times....  gone.

Conclusion:  The federal reserve will lend over $1-trillion dollars every year indefinitely.  Come back in 2020 and find that $1-trillion per year is now at $2-trillion per year... or 4, or 8, or 16, or 32, or 64, or 128, or 256...

The only way the federal reserve stops lending to the federal government is if the federal reserve is eliminated, the federal government is eliminated, mankind is eliminated, or earth is eliminated.

MeelionDollerBogus's picture

Don't be so glum! Clearly we will discover liquid unobtainium which can be easily used for spontaneous containable fusion and we'll all live in the venus project abundance paradise.

WHOAH DAMN. That punch bowl is pretty spiked! Thanks BernanQE.

Carry on.

August's picture

That's a "yes" on 1 and 2, and a "no" on 3 and 4.

theliberalliberal's picture

The Fed Reserve notes are now just a bunch of 1s and 0s

The fact that its expanding at Moore's Law should not be surprising.


jeffgroove102's picture

Yeah, the pitchfork inequality index is indicating no more stimulus. Zero Hedge is steadily becoming the new

Clint Liquor's picture

Bernanke will quit printing money about the same time my mother quits giving my drug addict sister money for 'food'.

theliberalliberal's picture

Give a woman drugs, get her high for a day.

Teach the woman to make drugs.........

neutrinoman's picture

It's unlikely that the Fed will stop QE this year. In fact, the Fed might increase it, at least for a while.

QE is not about the economy. It's about depressing US Treasury rates, to allow the government to continue financing itself cheaply. The new money being created goes, as an extra special bonus for Wall Street and the mortgage-housing complex, into inflating other assets besides government bonds.

QE will end one day, but the Fed will continue it for far too long, and the capital markets (foreigners in particular) will force its hand. The Fed won't end QE voluntarily. It's too fine a party, having such a huge punchbowl.*

* That's decorous language from the 1950s. In more up-to-date words, the financial markets are stoned, the government is a junkie, and the Fed's a dope pusher.

EscapingProgress's picture

The Fed won't reduce QE because that would destroy its balance sheet. Essentially, ending QE would be like committing suicide, and I don't think Bernanke is suicidal. B-Boy just wants to get to the end of his Fed prez term and pass on all of these problems to the next schmo. I think the purpose of Hilsentrath's article was to spook the muppets so that those who are on the FOMC's VIP email list have more time to properly position themselves ahead of the moarQE announcement that is coming up.

On a related note, I've recently come down with a severe case of gold fever.

The Heart's picture

"In more up-to-date words, the financial markets are stoned, the government is a junkie, and the Fed's a dope pusher."

Freebird's picture

super article Master Summers- an extra tick AND a gold star for you.

edifice's picture

I've come to the conclusion that QE can and will continue for a very, very long time; longer than many can remain solvent.  Yeah, I know they said 2015 but, like the debt ceiling, it will be extended, indefinitely.  Wait and see.

endicott glacier's picture

More likely what is happens is opposite of what Graham says, he is a pretty good contrary indicator and reliable one at than than Hilsenrath, I guess we keep doing QE until Graham capitulates 

vmromk's picture

Graham.....FUCK YOU and your horseshit analysis.

Anyone who pays for your advice is a bigger moron than yourself.

Fuh Querada's picture

seconded. My dog craps better stuff than this.

Element's picture

1.3/12 votes ... seems high

RebelDevil's picture

Hey, at least he's better than MSM.
Graham is perfect for the skeptical newbie, like I was about a year ago. The articles are simple and revealing, although not 100% accurate.
He was right on one thing: Europe would have collapsed had his "No QE3" prediction came true. It didn't, Bernanke proved him wrong. He had a good argument though, I remember that.

Element's picture

Yeah OK, I guess I am harsh and a bit jaded by it, but you're right, noobs may learn from it, cheers.

sodbuster's picture

We passed the point of the "BernankePut" some time ago. It is now officially the "Bernanke Bubble". He owns this bitch.

JuicedGamma's picture

This bitch owns Bernanke.  There fixed it for ya.

GubbermintWorker's picture

Why do I keep opening articles written by Graham?


Oh yeah, to down vote it!

rustymason's picture

It should've all collapsed by now, if the system wasn't completely, totally, absolutely, indubitably, undeniably, and utterly rigged. No, this scam could still go on for a very long time, until the state/banksters own and possess literally everything. The USSR was only a warmup for these people -- real "progress" is on the fast track, headed our way.

bunnyswanson's picture

Don't Give Up Yet. 

I do not know if you can see this FB page, but it is the Official U.S. Concealed Association.  There are nearly 1 million members.  They say they are ready. (Linkin Park - In the End)

CheapBastard's picture

The Fed has been signalling a stop for three ain't gonna happen. If you think the economy, joblessness, food stamp use, Section 8, Obamaphone, etc is pretty bad now, this recession will develop into a full blown Depression....


Printing will only increase for the next 5-10 years at least....moar printing (monetary and credit expansion) = the Oxygen of this economy (and every other one too).

SheepDog-One's picture

OK Mr. Lifesupport patient, you're still in a coma after 5 years, but we're shutting off the machines so I hope you just hop off the table and sprint out of the hospital.

bunnyswanson's picture

New currency.

Consolidate wherever you can.  Merge.  Acquire.  Ownnnn Theeee Competitionnnnn

You gotta add it all up.  It's being kept under hats.  This is war.  But the kind that we only saw in the movies.

Gringo Viejo's picture

Constant bullshit misdirection. The Fed CAN'T stop.
They stop.....the banks's just that fucking simple. And btw, Keynes was right. In the long run we are all dead.

RebelDevil's picture

We all know the market will collapse if the Fed stops. That's obvious.
However, I think too many people on ZH are overconfident that they can't stop buying & printing.
What if the Fed wants the collapse!? We now have a bubble where nasty little bugs like Dimon and Blankfiend can short the shit out of it right before a (timed and triggered?) crash.

cdude's picture

"...Hilsenrath is thought to be an unofficial mouthpiece for the Fed."

Yes, and why would one want/encourage an unofficial spokesperson?

To separate themselves from the validity of the info/news. I am suspicious that this is mainly about generating shorts to be used as cannon fodder in the march upwards. The short squeeze has been an important component of the stock ratcheting mechanism.  

ThisIsBob's picture

Scaring the shit out of the market today, isn't it?

rsnoble's picture

LOL, currently -54 and people are so used to green they think that's bad.

Panafrican Funktron Robot's picture

"Since QE 2, the negative effects of QE (higher costs of living) have outweighed the positive effects (higher stock prices) by a wide margin. Only 52% of US households own stocks… but everyone is paying for higher food and higher energy prices."

The presumption here is that the Fed has some manner of utilitarian method for determining it's policies, "greatest good for the greatest amount of people".  Which is a really, really fucking stupid presumption.  

CDNX fan's picture

Graham, please! You have been crying WOLF! since 2009 at S&P 666! Doing your impersonation of the hands of a broken clock is getting old. You missed over 7,000 dow points on the upside and lost even greater amounts being long gold and short the E/S. You and Prechter should get a room.

AT's picture

Then who will buy treasuries? Clueless in Charlottesville strikes again.

Winston Smith 2009's picture

First of all, I'll believe it when I see it. 

Second, where in the article does he state that it will be before 2014.  I can't read the article because I don't subscribe to WSJ, but the heading says "Timing of Wind-Down Is Uncertain".

Panafrican Funktron Robot's picture

"First of all, I'll believe it when I see it."

Indeed, we're barely down on a non-POMO day.  "The market" doesn't think longer than about 2-3 milliseconds ahead.  We'll see a drop if specifics actually come that say the Fed is reducing or eliminating QE, but "fat chance" is probably the accurate assumption here.  If anything, they could probably drop the MBS buys and bump up the UST buys to create a net total reduction in QE (maybe $65 billion in UST buying), but that's still an enormous prop.

dumpster's picture

if the chairmans month moves  phoenix starts to salivate ..

phoenix was dead wrong for so long on QE..  now he wants to double hump

gorillaonyourback's picture

Its japans turn to debauche their currency. Then europe and back to us.

Hidden QE is accomplished by printing yen to buy us treasuries why do you think all central bank dont show their balance sheets

Law97's picture

I agree with everyone that the markets are totally controlled by the Fed.  However, I also believe that the Fed will have to engineer a correction to silence the growing chorus of market watchers who are now overtly talking about Fed manipulation and how the stock market will never be let to go down, etc.  Just look at the comments on any of the mainstream financial news sites and its looking like ZH.  People are really waking up.  And THAT is why the Fed, if they are smart and want to keep the game going, will send the market down 150 points this summer:  to maintain some shred of illusion that the markets are not totally rigged.


Pathetic that we traders have been reduced to totally disregarding all fundamentals and have to trade based solely on what we think the Fed is gonna do

MeelionDollerBogus's picture

Anyone not born about 10 days ago can figure out which banks are allowed to get inside info for trading into a rigged bear market or bear correction. Question: is the Fed allowed to sell mbs in a huge market-slamming move AND short the same thing to restore its balance sheet? In math it would be "hedging" but in legal terms it would be insider trading. Then again, the Federal Reserve can legally print money & has some legal power to purchase/sell financial instruments to 'stabilize the economy' so is that legal? IF IT IS legal, should we expect it?

Given what we've all seen now is there any attempt to truly cover the manipulation, do they even care anymore?

dirtbagger's picture

Law97 - "mainstream financial news" - Are you one of the ten people that regularly tune into the Squawk Box?

Law97's picture

I guess so.  It's useful to keep up with what the Fed/GS/BAC's propaganda division is putting out.

LawsofPhysics's picture

Perhaps, and come to think of it... They would also benefit from stopping QE so that they can blame the "crash" on it.  The good sheep will beg for moar!


Pathetic indeed.

SamAdams's picture

Rinse and repeat until no more production of wealth, meaning no wealth left to steal.  Quite the scam, trading thin-air for your labor, your land and the things you have built.  This is the basis of evil, contagious and difficult to cure. 

dontgoforit's picture

Prep the field for the growth of OWG: one world government.  It's all preparatory work.  Gonna' be a mess WTSHTF; and that can't be too far off.  The system will begin collapsing on the debt and it will all go down pretty quickly, like within a week or so once it starts.  That's the hold-your-breath time.  But how will you know when it's safe to inhale again?  Messed up shit.

LawsofPhysics's picture

End QE?  Who will fund the sovereign debts and government budgets then?  With the Fed buying 70% of the issuance today, who will step in and fill that void?  So, it's going to be a hard default and social unrest for the western world then?  Fine, probably better than the complete collapse of all fiat.  Bring it!

WhiteNight123129's picture

Here is how it works.

First you monetize enough debt,

Next the new base money (not credit) goes into the economy and raises all prices.

Since taxes are collected as a % of nominal GDP, nominal tax receipts increase.

The tax receipts might plunge in real terms it is not a problem because debt is to be repaid in nominal terms.

Printing money is a way to get rid of debt, but it comes in two forms not just one.

First by monetizing debt, next by recouping more of the very dollars printed by the magical effect of higher prices for everything which makes the nominal dollar tax receipts increase.

Et voila!