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My read on the speech
I went to play golf this morning rather than listen to the Bernankster. After all, I knew what he was going to say. I read about the speech in the Wall Street Journal a day before.
I (and many others) have made note of the fact that the WSJ’s crack reporter, Jon Hilsenrath, is the mouthpiece for Big Ben. This is what Jon said had to say last night. Do you think he talked to Bernanke before he wrote this? (15 hours before speech time)
Federal Reserve Chairman Ben Bernanke isn’t likely to break much new monetary-policy ground in his Jackson Hole speech Friday
To be sure, a number of others who have a public view on Fed policy also commented that the speech from the Chairman would bring nothing new. But the consistency of Hilsenrath’s words and Bernanke's actions is no coincidence.
If you believe that Hilsenrath gets the whisper from Ben, then you might want to consider what Jon had to say after the speech was delivered:
Fed policy makers will be discussing their options at a September policy meeting which has been expanded to two days instead of one to explore whether the Fed should do more.
Jon then quotes from the speech:
“The committee is prepared to employ its tools as appropriate to promote a stronger economic recovery.”
Then Jon tips Bernanke’s next move:
it is worth remembering, when the Fed has said it is prepared to act during this long-running economic crisis, it generally has acted.
Bernanke is tipping his hand (via Jon) in order to prepare the market for what is to come in a few weeks. This is a heads up to the insiders that more monetary gas is in the works. The stock market’s first reaction to today’s non-event was to sell off hard. But after the word got around that this was just a delay (and a short one at that) stocks caught a bid. Basically, the plan by Bernanke to leak his intentions worked.
I think there are two reasons that Bernanke chose not to announce policy changes at Jackson Hole:
I) He wants it to look to the world (and a few Republican politicians) as if the Fed’s actions are being done only after deep deliberation and discussion. That is why the next meeting has been changed to a two-day format.
There will be a two-day circus of Fed Governors looking very serious. But that is just for the TV audience. This is Ben’s show. He has the votes. He is steering the ship. The decisions have already been made. Ben’s going to do something on 9/21.
II) Ben had to put off announcing more monetary oomph today because there is something that has to happen first. There has to be something that comes out of the EU before Bernanke makes his next move.
I’m not sure what happens next in Europe. I’m of the opinion that something needs to be done, and it needs to be done quickly.
There are a number of things that the ECB could do. They could (1) significantly expand their effort at QE (the number starts at E 1 trillion). They could (2) drop official lending rates close to zero. They could (3) agree to issue E bonds.
Some combination of those actions would buy some more time. The problem is that all of those steps have been discussed and pretty much firmly rejected. There is a fourth option. The strong hands in the EU could give in to the markets and let some of the PIIGS (starting with Greece) float on their own. This option has also been previously rejected.
I think it is time for serious consideration for this. I can’t think of a single person who has a voice in these matters that actually believes that Greece can be saved with more debt. We shall see, possibly as soon as Sunday night.
Yet another option is to get the US Fed into the picture with dramatic draw-downs on existing USD swap lines (Starts with $500 Billion). This is another possibility for this weekend or next.
My last point is one that I have made many times before, but feel obligated to repeat.
I flat out hate that this Fed is conducting monetary policy through leaks, a wink and a nod and innuendo.
There is far too much at stake to make a circus out of the process. It feels like we should just put up a tent, because a three-ring circus is what we are getting non-stop. And Bernanke is the strong man in the middle ring.
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Hmmm, no QE3 now, but the article seems to suggest that all market participants are reading between the Hilsenrath lines that it's on for the September meeting in some shape or form.
If front running QE3 is the reason why the market is catching a bid are you suggesting that the market will sell-off once the latest easing / bailout scheme is announced at the September meeting? Does this not skew the whole stock-crash = QE 3 paradigm.
This way the QE 3 half-life will be outlived by the time it's announced.
Circus theme continued:
http://www.youtube.com/watch?v=Nj1LQ7oruME&feature=related
Devil's Baby by Mark Knopfler.
i know 100% what ben will do....BAIL OUT THE SUPER-RICH. period end of story.....
PM majors start buying their lil brothers on Monday.................. it's gotta happen sooner then later IMO.
"...when the Fed has said it is prepared to act during this long-running economic crisis..."
ok which is it bitches? the usa is in an economic crisis or that growth is abundant, the banks have passed the stress stests leaving nothing to agitate about, and the stock market should be 200-300 points higher on rosy robust earnings?
the msnbc pom pom girls say the latter so why in fuck's name is there any talk about the former??
Bruce,
Quick question. I don't disagree with your thinking, but won't bernanke need some justification for qe 3 on sept 21? To me, it doesn't seem as if the economy is bad enough, or the markets low enough, yet. Do you think we will need another big selloff, as in s and p 1000, as Tyler has said? Or can they find a way to justify qe3 without such a selloff?
Thanks, I always enjoy your posts.
I think the Fed needs a good "excuse" to step on the monetary gas. The problems in Europe are approaching the critical stage. The problems there will boomerang back to the US.
This would justify more Fed action. Remember that Perry suggested he would "do in" the Bernank if the Fed acts. A crisis in Europe would blunt that criticism.
don't discount something bad happening in some sort of false flag operation, or perhaps this hurricane hitting new york and causing major damage etc or a nuclear problem in virginia etc. there are a lot of things that can happen between now and 9 21.......
I would like to hear your response as well, and thanks for the article Bruce.
Rainman is correct, and BK did address it in the article:
If trouble in Europe is what they're betting on... well, that's a pretty safe bet, I reckon.
I'll wager he knows the Euro crisis is coming to the end of the coverup stage and what it will do to the currency and capital markets. Nothing beats checking the box that says "had no choice"
Rainman gets an up arrow. "coverup stage" Nice choice of descriptive words.
Good insight bk.
+1 @Rainman
The Euro is about to blow, and Ben can take it as "cover" for "had no choice".
as usual, very unusual insight.
If you knew a full on crash was coming would you be anything other than ambiguous and cryptic to buy your friends more time to unload? If the criminals know they are getting another Fed freebie on the 20th why not drop this piece of shit 200 S&P points beforehand? Whatever. If it goes up into the 21st it will collapse the following day. Fall equinox looks like a good time to dive anyway. Behaviour of gold and USD will be key in the next two weeks imho.
if you knew a full crash was coming would you put 5 billion into BofA is my question?
You mean would I borrow $5B from the Federal Reserve at 1/4%, take a super preferred share position that collects a 6% guaranteed divident (for whatever reason), and then be in position to get paid off if BAC breaks up?
Yea, I would do that. Heads he wins, tails BAC and common shareholders lose.
He'll be hitting the gas hard in early '12 in order to get that simpleton in the WH re-elected. Otherwise, Ben and Barack will be looking for work in academia in '13.
"Bernanke is the strong man in the middle ring."?!
Please... Bernanke is the messenger boy for the Global Bank Cartel.
And he will do as he's told...
The real reason the HFT brigade hasn't been investigated? HFT = PPT in drag
Shhhhh....
OT but I find it interesting Obama advertises on ZH -
I wouldnt call Bernanke Randall Flagg. He falls more in the vein of Dr. Frankenstein.
Look at the monster you've created you pompous twat.
cf. Obama advertising on ZH; "Hope springs eternal in the human breast". What a foolish waste of campaign funds.
If stuff is being leaked to select few then the ChairSatan should be tried for treason, and many other crimes against the US people
Should is the operative word.
Doesn't it seem wierd that nothing will happen untill after sept 11 anniversary? To me that seems like the minimum finish line for the global can-kicking 3 legged banker race. Cyber attack hints released weekly by the MSM so we can always say we shoulda known. If the attack does happen, Bernank is off the hook, he will have saved us from depression, my hero, until the attack that changes the world makes us all forget everything else.
Got cash, physical,Liquor,TP, bullets and canned food?
On the other hand, it's harder to see any of those four moves being made without increased coverage of the 'absolute need' for CBs to ply their trade. Once amounts near a trillion start being 'instantly' created, there's really no telling how high the disenchantment may rise.
Protester and rioters are one thing, zeitgeist is another. I'm not suggesting that Monetary Expansion won't happen, it's far too late to stop the train, but once trillions get channeled into failed loans and not into employment - that's a direct incentive for crime rates to increase. Europe has youth unemployment. One step forward, three steps back. So, it might look better were the trillion to come forth upon the back of an ugly duck.
It's like we're being ruled over by the Ruinous Powers
Maybe not -- maybe the next month is all about a desperate scramble to achieve consensus among committee members who have already started to stray in the interest of their own individual "legacies."
Bernanke just played us today by making markets believe QE3 is coming in September because of a two day meeting. With TIPS, CPI and PPI at or above the 2% target QE in traditional form cannot come yet. Even the price deflator was raised today as part of Q2 GDP. Today was "QE free" cost nothing and markets think for the next 30 days that QE3 is in fact coming. When QE2 was announced at Jackson Hole bond yields rose and stocks rose. Today stocks rose, bond yields fell. Future QE very unlikely will be a similar round of asset purchases if it comes at all. I think we've been played.
Hope you are right.
I think Bruce has been played. I think he reads too much into these journalistic tea leaves. Any detectable QE anouncement, or performance, on 9/21 or soon thereafter remains extremely un-likely; in my opinion. God knows, I can be as wrong as anyone. I believe it's Politically un-acceptable at this time.
More good stuff, Bruce.
How would a Greek 'departure' affect Euro strength, in your opinion?
A Greek departure might be Euro positive in an odd way. Once the precedent is set, Spain, Ireland, Portugal and Italy can follow Greece out the door After that the other members fall one by one, and once France finally drops out, the Euro=Deutschemark. Thus, going long spot Euro is essentially going long New DM futures.
Thanks for your feedback, chindit. I can see it going either way: the picture you painted, or a Euro crash as domino #1 kick-starts a chain reaction like a string of firecrackers going off. Either way, I guess we'll find out before long. The plot thickens! :o)
I was being facetious to some extent. On the other hand, the market seems to be behaving as if my tongue-in-cheek comment is right. With every bit of bad news coming out of Europe, the EUR/USD can only produce higher lows. Perhaps another argument is that the market expects Bernanke to be the swapper of last resort. My third argument (see how confused I am?) is that China has a constant bid under the Euro because the PRC's entire economic policy is based upon being pegged to the world's weakest major currency. I know for a fact that China has had a bid under the yen for years now, and not for the purpose of reserve diversification. Rather, it is geopolitical. The big FX desks in Tokyo see that Han(d) in the yen's strength.
I had no idea you were being sarcastic. That scenario you laid out seemed completely plausible when I read it. lol Believe me, it had crossed my mind! I'm completely baffled at this point.
The EU/$ action is just nuts. All you can do is scalp, which is fine. And yes, then there's China, the inscrutable elephant in the room. I think I see why Bruce hasn't responded. This is a puzzle inside a conundrum wrapped in an enigma.lol
As far as Bernanke goes, I think the law of diminishing returns has to be making him gunshy. Something is going to be sacrificed before long. Something big. Hard to say what, but the little people will no doubt be handed the bill.
"monetary gas" is the correct phrase. Poor King Dollar, about to get roasted if you are correct.
Yes....but I really don't want to pay 20 dollars for a dozen eggs.
Coffee is ridiculously high...controlled inflation?What a joke.
On September 21, 1792 the French monarchy was abolished.
PalestinianStatehood up for UN General Assembly vote 9/20/11.
This year Sept 21 is near the time the "comet" Elenin comes into a dangerous alignment with other celestial bodies.
Pons asinorum.
lol "dangerous alignment" huh? watch out for that negligible change in gravity!
Shit, man, what is it with these autumnal equinoxes?
<i>Shit, man, what is it with these autumnal equinoxes?</i>
they are satanic holidays.
Fed takes the day off, d'ya mean?
First earthquakes, now hurricanes. What's next? Locust? Do you think there is a message for Washington DC? I'm not one to talk Armafreakingeddon, but I can be convinced.
Don't forget the raining of frogs and the herds of stampeding racoons.
This is the same bad play as last year, Act 2.
It had a couple of croaks from the grave before it was a done deal....
I am glad it is after Op/Ex....
I am a simple man. Here is what I read above:
bernanke is bad, mmmkay? Crony capitalism at its finest, mmmkay?
QE3 on 21-Sep, mmkay?
And gold goes down then up later.
GOLD BITCHEZ!