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"Regime Change": The Critical Message In Today's FOMC Announcement

Tyler Durden's picture


It will take the market some time to figure it out, but there were two main parts to the Fed's announcement: the actual breakdown of the $85 billion/month QE4EVA which were priced in as far back as the day QE3 was announced and were not a surprise at all; and the employment and inflation hard-targeting part, the so-called Evans Rule, which is, or at least should be, a shock to the market, only it hasn't quite realized it yet. Why shock? Because starting today, every incremental economic data point that is materially better, brings us closer to an explicit end of Fed intervention. Because at least before the Fed's calendar target was as soft as it gets; now the Fed will have no choice but to terminate its monetization once the unemployment rate plunges (be it entirely due to part-time jobs or 68 year old workers, as has been the case lately). It also means that as the economy continues along an "improving" glideslope, whether real, manufactured or doctored, the market will start pricing in its own "flow"-based demise. Because once the Fed's $85 billion/month in new Flows ends, it's game over.

Indicatively, using a simple forecast, based on LTM trends across all key employment metrics reveals something very troubling, for the Fed and stocks that is: the 6.5% unemployment rate will be breached in July 2013! Now granted that is simply idiotic, and there is no way that the US economy could possibly recover that fast, but that is precisely what is implied based on the ongoing collapse in the Labor Force Participation, and the concurrent plunge in the Labor Force Participation rate, which has been the biggest marginal driver for the unemployment rate, far more than the number of people who have jobs, or are unemployed (readers can recreate our calculation on their own in 10 minutes with excel).

The yellow arrow in the chart below shows at what point in the future the US Unemployment Rate is projected to dip below 6.5% assuming the current ongoing rate of contraction in the labor force participation rate.

Which then brings up the question: will the participation rate mysteriously start soaring beginning with the December data, as mysteriously all those people who had left the work force - supposedly all of the retirees if one listens to the "expert pundits" - start rushing back into the work force?

And if so, how will these same pundits reconcile their demographic based explanation that had justified the unemployment rate sliding so far, with the oposite trend which however has no demographic explanation?

After all, hitting the 6.5% unemployment threshold rapidly now is the wordst possible thing that can happen to stocks!

Perhaps, the best news of the day is that, finally, the narrative will be one where bad news are no longer both bad news and good news in the eyes of the market trading algos, but where good news, going forward, will be decidedly bad news for the stock market.

And after 4 years of benefits accruing only to stockholders even as the economy constantly suffered, this sounds like a very equitable trade off.

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Wed, 12/12/2012 - 14:44 | 3056679 FLUSA.com
FLUSA.com's picture

Next time I play Monopoly with my kids I'm gonna initiate some QE for myself and see how that goes over...

Wed, 12/12/2012 - 14:57 | 3056732 MillionDollarBonus_
MillionDollarBonus_'s picture

Interviews with average Americans

 What do average Americans want from their government?

 Sarah Ford, age 20, NY 

 “I'm a young and involved activist about to start my double major in environmental studies and politics, and I'm very, very angry about what is going on in this country. I blame this country's problems on the exploitations of corporations and a blind worship of the "free market" and "self-regulating capitalism" (Tell me, how does that work again? Oh yeah, it doesn’t morons). Following the deregulation of the banking sector and the repeal of Glass-Steagall (the financial regulation act that would have prevented the financial crisis), this country has gone down the drain. Meanwhile, scumbag corporations are continuing to hire non-American foreigners in other countries instead of Americans at home. Hire Americans, idiots – you’re American companies aren’t you? Fuck free trade. End capitalism. End this crap ... I’m sick of it!”

Wed, 12/12/2012 - 15:01 | 3056743 LawsofPhysics
LawsofPhysics's picture

Hhhmmmm, I wonder what sort of wage she is expecting.  Seems to me, her anger is a bit misguided, where did those corporations get the "free money" again?

Wed, 12/12/2012 - 15:22 | 3056851 CPL
CPL's picture

Dear Abby;

 My student loan is huge because my first degree in Women's studies with a masters in library technology didn't bare any fruit so I tried the trade schools.

I filled in the back of this match pack for cold drink preparation and a tooth cleaning secretary technologies yet I have not made my millions of dollars. 


OMG, totally.


Wed, 12/12/2012 - 16:28 | 3057106 Manthong
Manthong's picture

Dear Sarah.

News Flash..  There is no capitalism anymore. Capitalism presupposes capital accumulation as an objective.

Since 1913 the policy has been to promote credit accumulation (what do you think your credits cards, student loan and your share of the $16 Trillion national debt is).

Capitalism, a free market and free money system fixes everything.

Some smart guys knew that back in 1787, but we have collectively rejected their prescriptions.

Oh, BTW.. interest that compounds and grows for the use of the credit money you save is capitalism’s reward for the worker who accumulates credit money capital. How’s all that capitalism and savings interest working out for you nowadays?

Wed, 12/12/2012 - 16:34 | 3057147 trav777
trav777's picture

News flash for TD:  they'll just use a different number if/when UE hits 6.5% or they will change their policy statement.  There is no possibility in the Age of Contraction that a debt system predicated upon growth can ever have a Fed exit.

The dollar dies when our military is defeated or there is fundamental revolutionary regime change here a la the USSR. 

Wed, 12/12/2012 - 18:51 | 3057582 Harbanger
Harbanger's picture

 All it takes to kll the dollar is when it loses it's reserve staus or when inflation forces the Fed to raise rates.

Fri, 12/14/2012 - 11:00 | 3062561 MeelionDollerBogus
MeelionDollerBogus's picture

Or people get so sick of rising prices they start stealing canned food & tide and use that as money instead of dollars - aside from the rest of us who had the wisdom to stack silver coins & gold

Thu, 12/13/2012 - 10:25 | 3059043 Biggvs
Biggvs's picture

Exactly... they will play their current game in reverse, pumping up the participation rate as the number employed is increased, which will slow the rising percentage. And in the Q&A session Bernanke also left plenty of wiggle room for the Fed to ignore the 6.5% number if (their definition of) inflation is contained.

Wed, 12/12/2012 - 15:02 | 3056745 TruthInSunshine
TruthInSunshine's picture

Young Sarah Ford will get what she so richly deserves. The Bernanketh, Evans and fractional reserve fiat alchemists are unleashing hell upon her sorry, ignorant ass, and she is thanking them, while asking for more.

Thank you, Massas', may I have MOAR?


She reminds me of those Columbia University students whom The Bernank paid a visit during the Fed's propaganda/sheeple shearing tour, and who didn't have the fortitude or intelligence to bother to ask a single, probing, intelligent question of The Bernank.

Wed, 12/12/2012 - 15:05 | 3056761 Oldballplayer
Oldballplayer's picture

She is 20 and she is just starting her "double major." Like I give a shit that she cannot make up her mind.

But 20 is a little late starting school.

And she calls us morons.

Arrogant douche is what I call her.

Wed, 12/12/2012 - 15:17 | 3056822 _ConanTheLibert...
_ConanTheLibertarian_'s picture

She will get double penetration...

Wed, 12/12/2012 - 15:25 | 3056855 LawsofPhysics
LawsofPhysics's picture

...and then have the financial security she wanted so badly, maybe.  Judging by her comment, probably not.

Wed, 12/12/2012 - 15:39 | 3056910 e_goldstein
e_goldstein's picture

Youth. It tends to be wasted on the young.


Wed, 12/12/2012 - 15:15 | 3056805 Dan The Man
Dan The Man's picture

How does a double major come up with this stuff?  Good grief, I weep for the future, if our future is children.

Wed, 12/12/2012 - 15:30 | 3056828 TruthInSunshine
TruthInSunshine's picture

In Environmental studies & politics.

I'd expect as much.


p.s. - At least she's not studying Bernankefailurenomics.

Wed, 12/12/2012 - 16:36 | 3057153 trav777
trav777's picture

she's studying to agitate about things.  That's all anyone does anymore...I think deep down, they have read The Secret and believe that if we just agitate and wish strenuously enough, we can suspend the laws of physics.  Afterall, ANYTHING IS POSSIBLE, ain't it?

Wed, 12/12/2012 - 17:32 | 3057196 TruthInSunshine
TruthInSunshine's picture

She will get her Ph.D. in Midget Women Transgender Studies once she pays off her currently accruing student loans (whilst working as a Dunkin' Donuts Barista).

The only way her student loans get paid off in her lifetime is if she agrees to become the Chamber Maid for Charles Evans and let him have his sick, twisted perverted ways with her, daily and thusly.

Wed, 12/12/2012 - 15:34 | 3056893 lasvegaspersona
lasvegaspersona's picture


Did Ben just tell Obama that he (Bernacke) was not going to take the rap? That if he (Obama) wants nice unemployment numbers that Ben would stop funding the government? 

NICE PLAY!!!!! Bernacke excapes the noose.

Actually I suspect that the numbers will remain squishy and the Fed will 'have' to keep funding. But a nice forehand line shot just over the net....

Wed, 12/12/2012 - 15:35 | 3056898 clagr
clagr's picture


Wed, 12/12/2012 - 16:29 | 3057133 mkhs
mkhs's picture

Average. What is average?  Here, in WoeISus, everyone is above average.  Yeah, wisdom comes from youth.

Julia Chrysler is a third year ....

Thu, 12/13/2012 - 05:58 | 3058670 Professor Fate
Professor Fate's picture

The reason they don't hire Americans is because Americans spend $50,000 on a useless education in environmental studies and politics.  Americans know how to text and play video games.  Foreigners know how to make tooling at 20 cents on the dollar and weld.  Simple really.  Now, forget your double major and learn how to make a 427 Cobra fender from scratch on your English wheel and you'll have accomplished something. 

"Push the button, Max"

Fate the Magnificent

Wed, 12/12/2012 - 15:03 | 3056739 Kitler
Kitler's picture

Don't forget to make some deep budgetary cuts to the $200 in cash for passing "GO" which can reappropriated to help offset those pesky Community Chest taxes on the job-makers.

And while you are at it be sure to stuff a couple of "Get out of jail free" cards up your sleeve. That should help teach them the basics...

Wed, 12/12/2012 - 15:15 | 3056812 eclectic syncretist
eclectic syncretist's picture

Things that make you go hmmmm. 

The Fed prints our debt then takes it from us and loans it to the big banksta's at 0.25% interest, who then (sometimes) loan us back our own money (contaminated 9-10-fold with some they counterfeited via fractional reserve accounting) at 10%+ interest, and people in this country put up with this immoral skimming operation that robs them every day of their life.

Wed, 12/12/2012 - 15:45 | 3056942 jayman21
jayman21's picture

Yes and these same people who re-elect congress with an approval rating of 10%.  They always say they are not good with money anyway.  Fool and money.


Do you think they will ever take the time to learn about economics and how they get screwed each day by the fractional reserve system?

Wed, 12/12/2012 - 18:26 | 3057548 Goner
Goner's picture

This sounds like an interesting idea. I wonder if it would help people understand the shit pile we are in if we could write it up as monopoly rules


* Gets permenant get out of jail card

* Takes 3% of all money handed at all times

* Gets 3% of property value each round

* Is free to levergage his money up to 40 to 1


Wed, 12/12/2012 - 15:03 | 3056753 Long-John-Silver
Long-John-Silver's picture

You can add a few "Bail Out" cards too. If you draw one you you can pick a competitor and take all his money thus kicking him out of the game. 

Wed, 12/12/2012 - 15:21 | 3056848 AmCockerSpaniel
AmCockerSpaniel's picture

Full employment, but at what average wage?

Wed, 12/12/2012 - 15:27 | 3056869 TruthInSunshine
TruthInSunshine's picture

At an hourly wage that a Subway 6" half-long will fetch.

Wed, 12/12/2012 - 16:03 | 3057027 Poundsand
Poundsand's picture

Bail Out Card Instructions:


You made friends with The Bernank and are now TBTF.  Insert ream of paper into your printer, put as many zeros behind a 1 that you can fit onto the sheet, hit ctrl P. and print until there is no more paper.  Better than the lottery!

Wed, 12/12/2012 - 15:05 | 3056765 insanelysane
insanelysane's picture

Buy Baltic and Mediteranean Ave, they come with government assistance.

Wed, 12/12/2012 - 15:24 | 3056856 JPM Hater001
JPM Hater001's picture

Why initiate QE.  Just own the bank.  Kids dont know any better.  Come to think of it most parents dont either.

Wed, 12/12/2012 - 18:57 | 3057654 hannah
hannah's picture

i always owned the bank and stole like a politician....

Wed, 12/12/2012 - 15:29 | 3056879 kalasend
kalasend's picture

First, shock and displease.

Second, QE from all players

Third, you run out of notes but you can always add 0's to the notes.

Wed, 12/12/2012 - 14:44 | 3056680 LawsofPhysics
LawsofPhysics's picture

What will the EBT/SNAP usage be then (assuming the commodity complex doesn't blow up first)?  FAIL.

Wed, 12/12/2012 - 14:50 | 3056686 TruthInSunshine
TruthInSunshine's picture

 "Why shock? Because starting today, every incremental economic data point that is materially better, brings us closer to an explicit end of Fed intervention."


The flip side is that the Fed just broke all markets further today, thus putting truly better economic data even further out, ensuring even more Federal Reserve "We Will Not Monetize The Debt" market breaking action and interference. Aggregate demand, employment & real GDP just got BBQ'd. All Hail the new, it's different this time, central planning committee.

As a bonus, the formulae used to tabulate both U3 and CPI are hopelessly flawed, and subject to massive manipulation. Good luck.

Wed, 12/12/2012 - 14:57 | 3056734 macholatte
macholatte's picture



The can shall be kicked!

"So let it be written. So let it be done."


All systems are GO and A-O-K.  Light this candle!

Wed, 12/12/2012 - 14:59 | 3056744 Seer
Seer's picture

"As a bonus, the formulae used to tabulate both U3 and CPI are hopelessly flawed, and subject to massive manipulation."

Beat me to it!

NOW we'll start seeing U3 manipulated the other way...

We'll be faking left and right until... the train hits us.

Wed, 12/12/2012 - 16:11 | 3057062 James-Morrison
James-Morrison's picture

This one is easy.

BLS data manipulated pre-election,

Now BLS data will be manipulated post election.

Nothing has changed.

Wed, 12/12/2012 - 14:46 | 3056688 Sutton
Sutton's picture

But the Fed's policies will do nothing but drive up input prices,killing the economy,making unemployment go up,in a huge way.  A rising price Depression.

Wed, 12/12/2012 - 14:47 | 3056693 not fat not stupid
not fat not stupid's picture

Any incremental improvement in the -real- employment environment will raise participation rate and raise it quickly.

Wed, 12/12/2012 - 14:52 | 3056715 Tyler Durden
Tyler Durden's picture

Wrong. Or at least wrong if one listens to the traditional "explanation" spoonfed by the BLS apoligists, namely that the rate has plunged to the retirement of aging baby boomers. Sadly, those retirees can't go back into the work force.

Of course, that this explanation is total BS is what we have been saying for years, but it will be fun to watch how the "intelligentsia" scrambles to backtrack on that one.

Wed, 12/12/2012 - 14:58 | 3056737 LawsofPhysics
LawsofPhysics's picture

moreover, every "not counted" unemployed person still needs to eat and unless they are engaging in massive black market opportunities, they are an expense on someone's ledger.  The facade is crumbling, the Fed will be the bagholder and their owners will demand the underlying assets of the U.S. treasury.  All by design.

Wed, 12/12/2012 - 15:03 | 3056747 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Unemployed boomers are taking their SS benefits at 62 like hyenas enjoying a carcass.  The consequences of them coming back into the workforce are substancial, so they will likely stay at at pasture. 

We will get to 6.5% soon enough, but it will just be a greater drag on GDP a la a tax burden on the workforce.

Wed, 12/12/2012 - 15:05 | 3056760 LawsofPhysics
LawsofPhysics's picture

This is another problem that will be addressed when the parents move into the kid's basment after selling their remaining assets to an asian, my point was directed more at capital flows, which is a big deal.

Wed, 12/12/2012 - 15:08 | 3056770 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I hope that isn't the plan, because most kids are currently living in their parent's basement.

And as far as capital flows you should go on.  I thiought we were discussing the bottom line.

Wed, 12/12/2012 - 15:35 | 3056888 LawsofPhysics
LawsofPhysics's picture

The Fed has finally lost control of the capital flows in that there is a lot of business being transacted outside of the FRN.  Just like any other private business, when the velocity in your market slows (their market is the FRN) you aren't advancing your portfolio.  The circle jerk that they have going between themselves doesn't count as it doesn't add any real value to their holdings.  The Fed is a dead horse to the owners.  Time to shut it down, change the meme.  If I was a shareholder (and they do exist), I would have been voting for this in late 90's.  Anyone beholden to the Fed or their primary dealers will have any and all real assets confiscated to clear the outstanding debt.  Derivatives will be "negotiated away" by the CB that hold them, their debts will be gone, yours and the treasury, not so much. It's nothing personal, it's just business.

Wed, 12/12/2012 - 15:59 | 3057000 spinone
spinone's picture

That's why they made the Fed the bad bank in 2008

Wed, 12/12/2012 - 19:10 | 3057675 tip e. canoe
tip e. canoe's picture


question is how will the BIS fit into all of this.

Wed, 12/12/2012 - 20:29 | 3057870 spinone
spinone's picture

After the Fed goes down, they'll need a new central bank and new WRC to start the game over again

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