Overnight Sentiment: All About QE4EVA

Tyler Durden's picture

Today is probably the first day in a while in which minute-by-minute rumors on the Fiscal Cliff will not be on the frontburner (with yet another late day rumor yesterday of an imminent deal turning out to be a dud, when it was reported that Obama's latest grand compromise was to lower his initial tax hike demand from $1.6 to $1.4 trillion, or still $600 billion more than last summer's negotiated number), with Ben Bernanke and QE4 taking center stage instead. By now it is a foregone conclusion that Ben will proceed with extending Twist as first predicted here, into an unsterilized bond buying operation, in effect confirming that there has been zero improvement in the economy, as another $1 trillion is about to be injected until the end of 2013, and more trillions after that. The good thing is that all pretense that the Fed cares about anything but the market is now gone. The bad thing is that the Fed will continue to take over the capital markets until it and the other central banks are the only traders remaining. The only question is whether the market, now well into massively overbought territory, will fizzle and snap back after Bernanke's news announcement, and will QE4EVA (as we believe QE3+1, aka QEternity-er, should be called) have been fully priced in by the time it was announced?

In terms of actual event and newsflow, instead of hope and optimism, we got the final shape of the Greek bond buyback, and learned that a total of EUR31.9 billion in GGB2 would be exchanged at a blended price of 33.8, meaning bondholders will now receive EUR 11.29 billion in EFSF bonds, as the world's most entertaining debt-for-debt cramdown continues (because sadly Greece does not have the case to give to the bondholders). Now all Greece has to do to "regain credibility" is ramp up its GDP by some EUR60 billion or roughly 30% in the next 10 years and all shall be well: in a fixed currency regime that allows no external devaluation this should be quite feasible... if Greece first cuts Greek salaries by some 50%.

In other fundamental news, and thus completely irrelevant to a market that only responds to central planners' best intentions, Industrial Production in the Eurozone dropped by 1.4%, missing expectations of an unchanged print. But this one too can be scrapped for the "hope" files. There was some good news ater the UK's Initial Claims declined by 3,000 on expectations of a 7,000 rise and down from 10,100. And that's about it for the good news. 

Meanwhile, while everyone else is relishing in hope, the Swiss continue to be buffeted by reality, and after a resurgence in rumors that the SNB may hike the EURCHF peg from 1.20 to 1.25, UBS followed in Credit Suisse's footsteps from a week ago and it too imposed a fee for CHF deposits: just as we expected that the CS initiative will be followed by all banks. In other words, the money flows out of EUR and into a safe currency eagerly continue behind the scenes. But ignore all that for now: it doesn't work well with the year end hopium plan laid out by the central bankers.

But all of the above is promptly forgotten as the rabid, 1 millisecond attention span market watches Bernanke dangle another piece of blood meat later today and encourages everyone to take a bite: after all the last credit bubble which popped just over 5 years ago will never repeat - Bernanke has it all under control.

As usual, the less cynical version of the day's events comes from DB's Jim Reid

Welcome to 12/12/12. Unless the number of months in a year mysteriously change in the years ahead we won't have a similar day until the 01/01/01 some 88 years from now. Hopefully by then there will have been progress in the fiscal cliff talks and listening to Frank Kelly's call yesterday, he seems confident that what he calls the 'slow dance' is moving in the right direction for a deal. Indeed there have been signs that both sides are softening after Obama and Boehner held their first one-on-one meeting in over a year at the weekend and the rhetoric has grown milder. On top of this Frank sees the Boehner-directed House Republican Steering Committee’s decision last week to remove four outspoken conservatives from high-profile committees in the next Congress as a sign Boehner is getting the House Republicans in line and leaving him room to compromise. Time is running out though and in spite of Frank's increasing optimism, and the Dow closing back above election day levels, the late US session was full of comments that suggested that the deal is not imminent.

Indeed Senate Majority Leader Harry Reid said that to reach a deal before Christmas will be “extremely difficult”. Reid earlier said that Democrats aren’t going to make an offer on spending cuts thus putting the onus on Republicans. Reid’s comments came after Boehner accused the President of dragging his feet in the process (CNBC). Boehner said "We're still waiting for the White House to identify what spending cuts the President is willing to make as part of the balanced approach that he promised the American people. Where are the president's spending cuts?” Despite the public posturing Boehner and Obama spoke on the phone Tuesday evening after House Republican leaders sent a new offer on a deal (CNN).

Nevertheless the S&P 500 (+0.65%) rallied higher for the fifth consecutive day while investment grade credit finished 2bps tighter. Market sentiment was boosted by the WSJ story that we reported in the EMR yesterday that negotiations between Boehner and Obama have taken "a positive turn" even though this doesn’t seem to be consistent with the most recent comments we highlighted above. On the data front the better-than-expected ZEW economic sentiment survey (+6.9 v -11.5) also helped lift the mood yesterday.

Looking forward, the final FOMC meeting for the year will be the key focus today. DB’s Peter Hooper expects the Fed to announce a continuation of MBS purchases at a pace of $40bn per month and outright purchases of $45bn per month in longer-term Treasuries after Operation Twist expires at year-end. QE4 will most likely be open-ended, subject to at least a quarterly review, and expected to continue until the labour market has shown substantial improvement. No significant shift in their verbal guidance on rates is expected with the mid-2015 date still intact. The FOMC statement will be released at 5.30pm and Bernanke will start his press conference at 7.15pm (all London times).

As major central banks propel us deeper into a ZIRP environment its quite interesting to see that UBS will start charging institutional clients for cash balances held in Swiss francs. This comes on top of a “temporary excess balance fee” levy that has been imposed on cash clearing accounts since August 2011. In a notice to clients UBS said “we encourage our customers to keep their Swiss franc balances as low as possible”. There are currently 13 EMEA countries with 2-year government yields trading below 1% versus 9 of them a year ago. 6 of them (Switzerland, Denmark, Germany, Finland, Austria, and the Netherlands) actually trade at a negative nominal yield now while a year ago it was only Switzerland.

Moving to overnight markets Asian equities are higher across most countries with the Shanghai Composite (-0.1%) lagging for the second consecutive day. Elsewhere we are seeing bourses in Hong Kong, Japan and Korea up by +0.5%, +0.7% and +0.2%, respectively. The latter seemingly not affected by Bloomberg headlines that North Korea has launched a long-range rocket just a week before elections in South Korea. In other markets Credit is also trading better with IG spreads in the region around 2-3bps tighter overnight.

Looking ahead to today we will get inflation data from various parts of Europe as well as industrial production figures for the Eurozone. Labour market data will be the key release in the UK today. EU Finance Ministers will also meet again on establishing a single euro-area banking supervisor ahead of a year-end deadline. There is also a bills auction in Italy but all eyes will be on the Fed and Bernanke today.

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GetZeeGold's picture


Infinity is forever.

mckee's picture

I hope this Mayan thing hurries up and gets this all over with!

GetZeeGold's picture



Consult the clock of Giza.



I hope the next Mayan calender has Sports Illustrated chicks.

CrimsonAvenger's picture

Oh, you wouldn't like Mayan women - they're all heartless.

firstdivision's picture

QE4EVA, until reality catches up.  The fall in prices will be epic.  100 years of forced inflation, and 100 years of beating down deflation, is only compounding the pain that will ensue. 

JPM Hater001's picture

Boring peice but there was this nugget in the middle...

"and expected to continue until the labour market has shown substantial improvement."

We are down half a percent since summer ben...Things are blazing out there dont ch know.

eclectic syncretist's picture

Cue the choppers bitchez, we got a drop to make today.  No, don't distribute it evenly you dumbasses, drop all of it over lower Manhatten.

- Chopper Ben

papaswamp's picture

Market ramp in the US to drive up prices before a big end of year sell to avoid coming Cap Gains taxes. the question is, who will push the big sell button first? QE4 will kick in and markets will rise in the new year until the algos realize there is noone left but themselves.

swissaustrian's picture

Algo ping pong is going to levitate asset prices.

Samsonov's picture

Normally I look up stuff myself, but in the case of the "unsterilized bond buying operation", I need an assist.  What does "unsterilized" mean in this context?

Who is John Galt's picture

Sterilized mean when they fuck you that you won't get pregnant. Unsterilized means we are all truly FUCKED!

Cursive's picture


Operation Twist is a sterilized operation because shorter maturity bonds are sold and longer maturity bonds are bought; therefore, there is no net effect on the Fed's balance sheet, only the maturity of it's holdings gets extended and the risk composition goes up.  Unsterilized means that the Fed buys bonds and issues more IOU's (i.e. federal reserve notes a/k/a dollars), so there is definitely an effect on the Fed's balance sheet and our national currency is debased.

Cursive's picture


You're welcome and check out what swissaustrian wrote just below.  Very good take on the Fed's dilemna, which is really our financial armeggedon.

LawsofPhysics's picture

I saw that, see my post below.  Get assets out of the U.S. and all fiat paper.  This is financial armeggedon (on purpose), everyone should be in capital/asset preservation mode, period.

LawsofPhysics's picture

Yes.  The Fed wants inflation and they have gotten what they want for over 100 years.  This is outright theft of purchasing power, period.

Now think about this.  The CPI reports that there is "no inflation", and if you use the current method for calculating inflation this appears to be a fair statement.  However,if you use the equation from the 70's inflation is already running over 8%.  Look to food, fuel and health care for great examples of how costs have skyrocketed.  With this outright theft and direct monetization of everything there is only one option left for everyone and that is capital and asset preservation.  The insane fascists are now in complete control of the asylum and they really think that they know what is best for everyone.  Just imagine what the real inflation rate will be when the CPI is reporting 8-12%.  Blood in the streets indeed as people take to cannibalism in order to feed their families once all the stray dogs and cats are gone.

Go long black markets and any physical assets that the paper-pushers and bankers cannot devalue or steal.

ArkansasAngie's picture

Yup ... pretty soon "they" will own the fiat market.  If only banksters have fiat can they still buy a cup of coffee with it?

I might donate a cup of piss

falak pema's picture

Given that the decision by FED to kick the monetary can further and on to infinity now seems a given, it would be interesting for ZH to give us all an insight into how CB plays differ in their monetary creation techniques; between what the FED does with its "reserve" currency, making it out of thin air, and what the ECB does in "sterilised" mode, making money creation subservient to "dirty" collateral purchases on the books of the CB from the TBTF clique, making it thus the world's premier wacko HF.

Both CBs are playing with fire. But what are the inherent weaknesses of either strategy, albeit totally interlinked and incestuous on the CB side, as on TBTF side (whose mega steroid pumped asses protection is their true brief and current mission statement). 

This CB cabal left hand plays behind the scene needs to be more explained to educate the masses.

It seems that the dynamics of this convoluted interaction will be the name of "manipulated" and "panic stricken" market plays in 2013 and beyond.

NB : If the Greek bail out as it stands is the template for future Euro zone sustainance of financial system, that continent is truly phukked and its money ready to be restructured. Painful reality. 

swissaustrian's picture

Sterilization is a means of worsening the quality of a CB balance sheet without inflating it. Due to op/twist the FED has taken all the interest rate risk of the long end of the yield curve onto their books. They're trapped in that corner now: Either they keep on purchasing long term treasuries in order to keep rates down or they'll have massive losses on their books once rates rise. Additionally, the means of sterilization, i.e. sales of short term paper can't continue any longer as the FED is out of short term paper. They could come up with their own paper to sterilize liquidity however: Using a tool that ECB uses, emitting their own FED bonds to suck up liquidity.

AynRandFan's picture

Used to be, there were things the Fed wouldn't do, like assume massive future losses on 20-30 yr treasuries and toxic MBS. Now, there's nothing the Fed won't do. I don't know about anyone else, but gonig from sterilized to unsterilized purchases of Treasuries at the $45 billion per month rate is my "tipping point" of insanity.

LawsofPhysics's picture

In any case, this is essentially exponentially more paper promises.  FAIL.

LawsofPhysics's picture

"once rates rise"


LMFAO!!!  Right, go ahead, raise rates, I double dog dare you!!!  Bah ha ha ha ha!!

falak pema's picture

so according to your analysis, the FED conundrum is deeper than that on ECB side? 

BTW : do you see FED rates rising? That would mean the inflation risk was on bigtime and WS would then hit the tarmac with a bang! 

Or is it swings n roundabouts on the same road to hell?

q99x2's picture

Thunderbird is back on the trail of bigfoot.

cossack55's picture

QE4EVA. Love it. Quick, TM it.

augustusgloop's picture


Fed like a bad TV melodrama (Revenge), Bernanke keeps going into the infinity box that Papa Greenspan left him to unleash yet another round of QE on the Graysons. 


Quinvarius's picture

I think we need to see past the crap data and understand that markets move on easy money and easy credit. 

Eventually, this is going to matter.  And it will be too late to get in when it does:


fonzannoon's picture

If the unemployment rate is 5% because everyone dropped out of the workforce, is that sufficient to stop QE?

fiftybagger's picture

"The only question is whether the market, now well into massively overbought territory, will fizzle and snap back after Bernanke's news announcement"

It will snap back when Benny's minions start buying the futures


jubber's picture

Crisis over, DAX just hit a FOUR YEAR HIGH!

Boilermaker's picture
Zer0head's picture

BBG morning mantra today Consumer "Optimism" highest in 3 years Consumer Optimism highest in 3 years


Keene announces that he is aligned with Fink and Koktok that equities are the place to put your money


and WTF is with this 12/12/12 Sandy Benefit Concert  - What is this Bangladesh? I thought Sandy was all taken care of with $60B pumped in by the feds not to mention the Chirs & Barack love in

Silver Garbage Man's picture

Watch for a raid of the precious metals today. Be ready to buy.

holdbuysell's picture

Chairman Bernanke, after very careful consideration, sir, I've come to the conclusion that your monetary system sucks! 



nantucket's picture

I'd like to call it: Q-ED....if you experience a rally that lasts for more than 4 hours, consult your central banker immediately.