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The Fed bombed the market - I ask, "Why?"
Last evening I got the WSJ breaking news story that busted the global capital markets today. Note the time, 8:06.
Look at the immediate consequence to the EURDLR fx rate. There are big gaps down for EUR shortly after the story hit the tape in Asia. That knee jerk reaction was the same market “read” that gutted a number of Euro banks today:
I looked at the WSJ story and concluded that it was a game changer. I wrote Tyler Durden at Zero Hedge about this. The “Re:” that I used was:
Stink on Shit
TD responded:
Obviously a plant.
ZH had a piece today on the WSJ story that caused all the trouble. The “plant” theme was repeated. from the ZH article:
Why would (the Fed) use its traditional mouthpiece the WSJ to spread fear?
Tyler answers his own question with:
Why QE3 of course.
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This is very important stuff. Three critical questions:
I) Was the WSJ story a plant?
II) If so, who planted it?
III) Why in heaven’s sake would anyone (especially the Fed) want to bomb the capital markets?
IMHO opinion this was a plant. The author was Carrick Mollenkamp. This guy is a seasoned pro. This story was vetted at the highest levels at the WSJ. The editors knew full well the implication of this article. Every ‘i’ was dotted and all quotes were checked. There are no mistakes in this article.
But who were those “sources” that the WSJ hung their hat(s) on? This was one of the biggest stories of the year. Who are the readers of the WSJ supposed to rely on regarding the serious issues raised in the article? Easy. No one is the answer. These are the attributed sources for the guts of the story:
Federal and state regulators, signaling their growing worry that Europe's debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe's biggest banks, according to people familiar with the matter.
The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S. and, in some cases, pushing the banks to overhaul their U.S. structures, the people familiar with the matter say.
Fed officials recently have held meetings…………. according to the people familiar with the matter.
The New York Fed has also been coordinating with New York's superintendent of financial services, Benjamin M. Lawsky, to monitor the foreign banks' funding positions, said people familiar with the matter.
You can come to your own conclusions on this. It is my opinion that there is no way the WSJ could have run this story without direct confirmation from the Fed. Those people who are so “familiar” with this matter are senior Fed officials.
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That, for me, answers #s I & II above. But it begs the question, “Why”?
Is it remotely possible that the Fed deliberately engineered a collapse in markets in order to get the necessary political “cover” to initiate some new massive monetary policy as TD suggeted?
There is one possible clue in the article that points to this conclusion:
Until recently, that (Euro funding problems) hasn't been a problem. Thanks partly to the Federal Reserve's so-called quantitative-easing program, huge amounts of dollars have been sloshing around the financial system, and much of it has landed at international banks
This observation from Mollenkamp is from the Feds lips. The obvious conclusion from this paragraph is that to reverse the crisis now boiling over in Europe more “QE” is required.
What is QE? It can be anything that stimulates the price, velocity and availability of money. It does not have to be LSAP (traditional QE) or an extension of ZIRP. It can take other forms.
The most convenient of which is to open the Fed’s $ swap lines to the Euro banks. We may get this development by Monday morning.
My take on this is that the Fed manipulated the news. It did so very deliberately. The Fed had an agenda; they did whatever they thought necessary to gain acceptance for what they have up their sleeve.
The story was deliberately timed to undermine (further) the European banks. It worked. Now Bernanke and his cohorts have the excuse they need to act.
That's my take on this story. We may never know the truth. I wonder if Governor Perry understands this stuff. If he did, and he got the facts on this “out there” he would have a very big cannon to shoot. If the Fed did manipulate both the press and the markets to justify its actions it would be a very big deal indeed.
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Thank you Bruce. I've been writing here and elsewhere that I was sure The Fed wants markets to tank and tank hard on or before August 26th. I am not at all surprised by this.
I'm just meditating on wether to cover my shorts and jump out sooner rather than later OR stay my course because I believe The Fed is essentially a spayed whore bitch with ineffectual market manipulator tools left in her dwindling arsenal.
I agree (and don't cover the shorts yet) but I'm left puzzling the same question as BK, why? I don't think QE3 is enough of a reason to put this much carnage into the economy. There is serious damage being done by these market routs and as much as I appreciate having my portfolio triple in three weeks I would rather have had another path for us to go down. Selling bonds is one reason but that also isn't not sufficient. Power is another possibility but how does it help "them" whoever they are grab power to have the market tank? I'd love to hear any new theories.
QE2 was high grade heroin for the market. We are witnessing the withdrawals. These crashes have to come. QE2 only postponed them making them much more convulsive. The infinite wisdom of allowing bots to interfere in the market only makes it worse. QE2-QE114 prevents the market from having 2 sides because the Fed is one of those. The market without the Fed propping it up is going to allow the bots to search out and apply maximum pain. It's just beginning.
covered mine at the close. nice month-today.. at least for me. ECB/Fed/PBoC/Batman will be ready at the open of the European markets> who knows, could even be an up day! then, cards back on the table
All is fair in economic warfare...
Bruce, I am amazed that you are amazed. If the structure of the EU is so weak that it cannot resist a few rumors then the system is bound to fail.
All currencies are at war all the time... get over it.
people, people, sheople......qe3 is a foregone conclusion....it must occur as the fed distracts the masses that it is trying to do a mexican hat dance in a pile of quicksand and horse shit....the fed's catastrophe - all to enrich banksters and the rockefeller-rothschild axis of evil - is a pure disaster to humans....
as long as the fed owns a farm full of shit, it will do qe3.....
All this has a violent solution.
mexican hat dance...
go to 4:16
http://www.youtube.com/watch?v=mvy_s-GfDxA
agreed!
Crash the market for "political cover" for QE III !? Pffft. The Fed Cartel doesn't need political cover. They do whatever they want.
Your assessment that the down draft is intentional is correct, but for the wrong reasons. They would be very happy to have a few bank failures so the big boys can scoop up some juicy assets on the cheap and consolidate banking power in the hands of a few. That's what they do.
Great story Bruce. just got it emailed off to my sons. Super good work
Another sell- side signal is the EU intention to impose a finance transaction tax (Tobin tax) which would be tough on traders and the precursor of a Fiscal Union (which needs a tax structure of its own).
http://ftalphaville.ft.com/blog/2011/08/18/656741/the-tobin-tax-lives-on...
Lotsa liquidity right now w/ reserves being turned into liabilities w/ little finance delveraging so no real liquidity issues for Bernanke ... right now.
Tomorrow?
I have always claimed in my posts on ZH, that the Fed's first mandate is
to protect the banks. It has been obvious by their actions from the beginning
of the financial crisis in 2007 that the banks will be rescued at any cost.
The banks in the EU are very close to collapse and the banks in the U.S.
would be taken out by the collateral damage. The Fed needs to act now
and act in a very big way. Once you understand that fact, then their
actions are easy to understand.
the Fed's first mandate is
to protect the banks.
No matter the cost. Even the loss of the nation.
I agree Zorba.
This has been one big game of Prisoners' Dilemma. US vs Euroland. But I don't separate the banks that much from the governments.
We are at a phase where a Prisoner sees they can't all make it, and chooses to stop cooperating with the others.
Europe bailing out Greece, Portugal, Ireland, Italy, Spain... US bails out Europe ?!?!?!? AGAIN ?!?!?!?! the US banks can handle the shock, the threat that they'll fail is the cover. Pity we couldn't hold off QE 2 until now, but Ben is too close to the elite to see (or want to see) clearly. Point is, hod off on QE 3 until AND IF the US needs it. Reich has a proposal that makes sense for the US.. and its responsibilities to the world.
Correct.
Rand portrayed human nature. You won't change that by Alinsking the fact. Maybe you are butt hurt because Keynesian bullshit has been fully discredited as the real voodoo economics? Rand portrayed the macro theme of humanity, that WE ARE EACH SELFISH.
She was not a particularly gifted novelist, but her IDEAS are perfectly AUSTRIAN and wipe the floor with leftist drivel.
As far as the central planner moves go: Benny is desperate to prevent the reversal of the USD slide. These "marxist" have determined that the dollar must die and will prop the EUR in pursuit of that aim come hell or high water.
If it is really a crisis they need though then BEN/B.O. must let the EUR fall hard first.
Perry is one of their stooges, everything he's done in office was to accomodate the "fed" agenda from guardasil to ignoring Mexican invasion to promoting the trans Texas highway, the guy is about as "insider" as it gets, he even has a "bi-partisan" resume, he's a slightly more articulate GW Bush clone.
He'd make a fine Moe.
Hey! I resemble that remark! Watch it.
I agree, alien, I don't think it is as simple as them just going after the money, so it's power, but then the question becomes power to do what?
The power to get more money more easily.
The power to take someone's possessions and weath, and give it to themselves and/or their friends.
The power to punish their enemies (or their friends' "enemies").
The power to act however they want, while limiting others actions (including getting rid of them).
The unsupported market falls and volatility and cattleherding into bonds and dollars with the media allowed to go on a recession wigout means the Fed has lost control of deflation( as if they even know what it is) and that they need 2 trillion in QE to save the US banks. But, as usual, the banks lose control of the cash in the casino and reserves are busted again.
Its a self-fulfilling Keynesian cycle.
Governor Perry. Who is that, but yet another big oil and big defense contractor plant like George Bush before him. When Bush got elected WTI was at $10. When he left it was $140. Good plant. BK. I'll make sure I vote for Bernie Sanders or Ralph Nader, that's, real human beings, free and unbeholden to their corporate masters..
Sanders and Nader are tools of the state, there's nothing revolutionary or independent about them.
Stocks go up when the big boys want to unload. Stocks go down when they want to buy. Rinse repeat
The other article on the fed lending SNB 200 mil ... could that be insurance for a SNB (hedge) to stop losses made on a bad trade. The Swiss Frank has been going nuts with peg speculation perhaps SNB got caught on the wrong side of the trade.
Basically, the fed backstops the losses with a 200 mil loan (IE insurance -put?) then moves to ensure their insurance policy pays.
Hmmm ...
Bruce Krasting, the 'Fed is doing QE in the EU' train has already left the station.
http://www.economic-undertow.com/2011/08/12/dear-switzerland/
Nice to see a 'real analyst jump on board the bandwagon, however. I feel a bit vindicated because the Chinese have admitted to multi-billion dollar underground F/X market which is a staple on Economic Undertow.
QE in EU will simply blow Brent prices into the stratosphere. That $25 Brent/WTI tells me its already underway.
QE will work For a little while. Maybe the EU can use the time and put together a fiscal union and offer Eurobonds. That would buy some more time still so the EU can come up with a way to cut their energy use in half.
'Cause it looks like their energy use is being cut in half. Which is the crisis in the first place!
Great series of articles Bruce
@Steve - it seems taxing transport is not politically possible so the CBs are doing the heavy lifting.
Its such a great shame - Ireland for example has experienced such a massive road building programme with consequent building of houses far from cities , our Edwardian era rail infrastructure now destroyed and cut to pieces by now empty highways is a great loss to our landscape , agriculture and wealth.
Trying to explain to domestic economists that the destruction of rail and creation of highways was a dollar/ oil 100 year bubble phenomena is nearly impossible.
The creation of dollar base money rather then credit will change everything and will be much more effective then tax policey.
Heavy industry will come back to Europe & US withen a decade me thinks.
Great site, Steve! I learned a lot, which is why I come to ZH. Definitely worth bookmarking. I also read a wonderful interview between Lindsay Curran and Dmitri Orlov cited on your blog. Orlov is kind of like CHS--extremely intelligent, insightful, and mature, with a great sense of irony thrown in for good measure. At the end of that interview, he recommends to all middle-aged males caught up in the "iron triangle of house-job-car" to just go to work tomorrow and quit your job, if you can figure out a way to get by for a year or two. He claims the perspective this will give you will change your thinking. Orlov himself currently has some kind of engineering job, but does live on a boat docked in Boston, so his expenses are pretty minimal. He thinks that American housing, constructed of vinyl siding and gypsum board will just decay in very short order, but with the coming collapse, there should be a lot of abandoned commericial buildings that are solidly constructed and could house whole villages of squatters. You could move in with a tent, build a water filtration system and have a composting toilet, and probably do ok. This is the kind of creative thinking he is famous for. He's one of very few who is not afraid to look at the future realistically.
yes, great site Steve. your "Dead Money" post is dead-on. it's all about the waste and the refusal to acknowledge the problem, hence O's Big Black Bullshit Bus.
h/t to the commenter there that linked the Orlov interview. love the commercial building squatting idea, actually did that myself to the point of transforming it completely into a home.
The Fed has already FED the Eu w/our QE dollars.........................time to slop the PIIGs again.
Ok, Bruce it sounds plausible. If the fed instigated todays sell off to get political cover for further easing then the question has to be what is in it for them? More money for themselves and their banking pals from the public? Is that all they are after? Any ideas?
At the level those guys are playing it's not about money any longer. It's about power. Control.
Did you think Mayer Amschel Rothschild was joking?
+1776 the hat trick year for big historical events the Founding of three great entities the USA and two others. I bet the learned folks on ZH can name the other two. :)
Just in case they can't make that connection (I couldn't!*), here's another one:
1776 was the year of:
1. Adam Weishaupt forming the Bavarian Illuminati (the blueprint for Communism and the 'French Revolution')
2. Adam Smith publishing 'The Wealth of Nations' (the ideological basis for Capitalism and the 'Industrial Revolution')
3. Founding Fathers issuing the Declaration of Indepence (the blueprint for Republicanism and the 'American Revolution')
Nice Hegelian setup for both "Capitalism vs. Communism" and "Communism vs. Republicanism"!!!
edit: OK ... Thanks to Wiki, I finally got the 3rd entity: The Phi Beta Kappa society is founded at the College of William and Mary (the alma mater of 16 signers of the Declaration of Independence ... and their list of commencement speakers in recent decades reads like a 'Who's Who' of globalists and Knights of Malta. Rome will be very pleased.)
The Rise and Fall of the Roman Empire.
Your understanding of the age of Enlightenment is a little biased, to say the least. Those who in France analysed the decay of Bourbon power and the suffocating consequences of 'absolutist' culture, based on the twin pillars of 'king' and 'church', the 'twin swords vision' inherited in French and European culture since Saint Louis days, to resolve the Pope vs Kaiseridée standoff, were instilled with a vision and a vista that went way beyond any Illuminati fulgurance in Bavaria.
It's a two thousand years condensé of western culture, from Athens to the Renaissance, being distilled to its essential ingrediants, as percieved through the 18th century prism; that reconciles 'universal' bottom up values and traditional 'top down' values.
Admittedly, the Enlightenment of France/Germany, humanistic and political in its nation building, neglected the economic component high lighted by Adam Smith and the industrial revolution which put the Anglo-saxon vision as the primary power structure model driving the west after 1815.
Your understanding of the Enlightenment seems to ignore the consequences of its truncating the notion of "Reason", which from the time of the pre-socratics, was founded on the problem of adjusting our outlook to the demands coming from both the exigencies of practical survival ("nature") and the need to orient ouselves to "the divine" (the felt source of our being and the principle of eternity). The balance of consciousness is the seed bed of reason in this classical sense.
Post-enlightenment:
Reason became reduced to calculation and pragmatic strategizing (Hobbes' "restless seeking of power after poawer, that ceaseth only with death"); concern for the divine became trivialized or analyzed as a symptom of immaturity. Nice work if you can get away with it, and by God we have been trying to get away with it for too long...
I disagree with you, the essence of Socratic reasoning through to Arsitotle and beyond is :
1° Primacy of fact.
2° Primacy of logic over imposed, dogmatic 'value' systems, logic being both inductive and deductive, taking into account Plato's contribution of Universalis. But subject to theory being corroborated by factual experience. On this point Aristotle's works of Metaphysics and 'reasonable' decision making is vital as is his development of logic tools.
3° Free will of the individual and debate amongst fellow men to reach a dialectical consensus. Thesis, counter thesis, synthesis.
Political man being in essence rational and pragmatic DOER. God has NEVER been on this agenda. Except after Constantine created an imperial and dogmatic value system fabricated from a break away jewish sect. It then became through the ages the Catholic Church, totally involved in politics but answerable only to GOD since Dictatus Papae days (1075 onwards).
The Enlightenment, Volataire, Rousseau, Diderot, Kant et al. all derided dogma and placed rational thought based on fact, logic, historical precedent above 'divine' value systems. Where do you find divine laws and eternal values ever entering the debate in a system WHOSE BASIC TENET IS HUMAN DOUBT.
If you believe in Human certitudes you are in the OTHER camp of western reasoning, that of Saint Bernard of Clairvaux, not that of Abelard. That was the tipping point in French medieval history, 1141. Abelard was proven right and Saint Bernard proven wrong; at the Horns of Hattin and subsequently at Montsegur, where 'divine' reasoning showed the world its true dogmatic face. It died right there before the eyes of History, divine catholic reasoning.
Post Enlightenment reasoning has been diluted precisely by the 'selfish' value systems à la Ayn Rand and the bastardisation of Adam Smith's moral vision of capitalism. We need a return to spirituality but not to Dogma.
André Malraux said just before he died, circa 1975 : The 21st century will be spiritual or it will not be.
... er ... the bottom comes in at the time of the story. What was the information cloud that caused the waterfall? Spewing out of Boomberg? DJ? ???
So the story is HC smoke in the assault.
But, well, I'm New Meat in these situations.
- Ned
"If the Fed did manipulate both the press and the markets to justify its actions it would be a very big deal indeed."
"If"? Surely you jest.
Good work as usual, Bruce.
I don't understand, "they" supposedly artificially pumped the market up last week as evidence by the low volume surge and now "they" intentionally tanked the market in order to justify QE programs. In my view "they" need to quit fucking around and "they" need to get on the same page and either let the market go down to zero or up to 20,000 but either way just get on with it.
Awesome.
Two words ... "Liquidity Crisis".
yes...Like the Titanic had a "water problem".
Baseless paranoia.
The next thing you know there will be groundless suspicion of people suppressing silver prices or the CFTC not doing its job protecting free and fair markets.
Groundless! Groundless that there's gambling going on in this establishment!
Riiiiiick! Help me, Riiiiick!