QE Ad Infinitum

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,

“Money does not buy you happiness. However it will allow you to be unhappy in nice places.”

                         -The Wizard

In the past, for all other QE announcements, we saw the stock market rally, we saw Treasuries up and the results of a Fed ease were dramatic. Yesterday; not so much. It was a Ho-Hum with equities down slightly, Treasuries off almost a point and a quiet blah response. There are some that mark this up to the “telegraph effect” where everyone expected it and we got exactly what was expected but I am not so sure this is the correct assessment. The “telegraph effect” may be part of the answer but I don’t think it was all of it. In the first place the Fed reneged. I would say that is the correct word because they changed the fundamental postulate from zero short rates until 2015 to zero short rates that are now dependent upon other factors. These are a line in the sand for Inflation and an unemployment figure of more than 6.50%. There is no way around it; the Fed had promised one set of circumstances and in the middle of the game they changed the rules and so any reliance upon what the Fed puts out must be viewed with a skeptical eye. It may be true for a time or until it is less convenient but we just learned that what the Fed states cannot be counted on with any certainty and so much for the credibility of Mr. Bernanke. No one really wants to talk about this, of course, and no one wants to mention that the Fed Chairman has changed the rules of the game in the middle of the game but there you are; a backsliding Federal Reserve Bank whose statements are only crafted for the moment and future moments may be brief; we just don’t know. Apparently we have transitioned to a “whatever is convenient” policy at the Fed and we all should bear that in mind when assessing probable actions.

When money talks, nobody pays any attention to the grammar.

Forever and Ever?

I have never been married, the smart fellow that I am, but I do know that marriage has some “forever and ever” words as part of the ceremony. These, of course, actually do have limits as fifty percent of all marriages end in divorce and fifty percent end in death so that the concept has actual limits regardless of the premise. The world’s economies have been fostered and sustained since 2008 by the central banks of the planet working in tandem to make sure that the entire globe did not slide into the hellhole of Depression. To that extent the concept has worked but we are still on the lifeline to date and no one seems to want to get off of it. It is similar to a person being hooked on heroin with the inability to withdraw and so the habit continues. There are consequences of this behavior of course including irrational behavior, overblown promises and the increase of the risk that when withdrawal comes that the patient slips into convulsions. Those, however, are long term and systemic problems that will continue to haunt us but in the meantime more mundane issues abound.

Here is what the Fed has done to date in the Treasury market:

  • In the 6-8yr. sector they have bought about 50% of the gross issuance
  • In the 9-20yr. sector they have bought about 70% of the 10yr. gross issuance
  • In the 24-30yr. sector they have bought 100% of the gross issuance
  • In the MBS sector they are buying $45 billion a month all across the curve

The Treasury issues, the Fed prints money and buys, the cost of financing for the country is incredibly low and the yields for investors are paltry. The needs of The State overwhelm the needs of the citizens. The game works because this is what every central bank in the world is doing, one way or another, and so with no way to invest off-world, investors are stuck in the confined space that has been provided by the central banks. All of the new money buoys the equity markets, causes massive compression in the other Fixed Income markets besides Treasuries, decreases the yields of Treasuries the trend is set firmly in place. In the risk markets there will now be a demand as instigated by the Fed, that overwhelms the supply of new issuance. Between the coupons paid and the maturities for 2013 the figure is about $1 trillion in excess demand more than estimated forthcoming supply. Given the 36% loss in wealth that took place in America during the 2008/2009 period the odds of an asset allocation shift out of bonds and into equities is de minimis in my opinion and so the “Great Compression” will continue.

“There is no art which one government sooner learns of another than that of draining money from the pockets of the people.”

                     -Adam Smith

Buy as far out and with any credit you can stomach and you will win this game for the time that it exists. Buy anything with a discount and anything that throws off a decent yield and you will be rewarded for your savvy good sense. There will be a moment when the battleships, the star cruisers, the aircraft carriers who are the huge money managers will have to turn on a dime or hedge up their positions in some fashion but we are not there yet; not anywhere close to there yet. Now the money flows, the coupons pay, bonds mature, the supply of new issuance is limited and bought up by the Fed in Treasuries and Mortgages and the balance sheet at the Fed grows to equal the ECB at $4 trillion and the present day artifice prevails.

“Giving money and power to governments is like giving whiskey and car keys to teenage boys.”

                        -P.J. O'Rourke

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achmachat's picture

in other words:

commodities are on fire-sale!

get your gold and silver while supplies last!

nope-1004's picture

CNBS this morning was rather insightful.  That idiot Liesman asked "if Bonds are so bad, why aren't you selling them?" to one of Santelli's buddies on the floor.

The answer -- "Who's going to buy them?"

LOL.  Fucking hilarioius.  Liesman is such a blubbering fool.

Anyway, made me laugh pretty good.


fonzannoon's picture

@Nope - exactly. I talked about a few articles down. The one about Jobless claims I think. I had a different take on it. But it was funny none the less.

francis_sawyer's picture

Anyone who owns bonds these days knows they can't sell & is just hoping that the system stays propped up long enough to convert their coupons into phyzz before it all blows sky high...

EnslavethechildrenforBen's picture

Hyperinflation going to wack you in the face soon.

Got Gold Bitchz?

SafelyGraze's picture

New Army Manual Orders Soldiers Not To Criticize Wall Street

The draft leaked to the newspaper offers a list of “taboo conversation topics” that soldiers should avoid, including “making derogatory comments about Wall Street,” “advocating women’s rights,” “any criticism of pedophilia,” “directing any criticism towards bankers,”  or “anything critical of bonuses, beheadings, seizure of assets, rehypothecation, vaporization, high-frequency trading, jawboning, outright lying, fraud, theft, hookers, coke, money laundering, front running, zero-value collateral, and other things." 


paywall alert http://online.wsj.com/article/SB1000142412788732402400457817156123064785...

Tommy Gunner's picture

Santelli is an even BIGGER asshole though.   Recall his defining moment saying 'do you want to pay for your neighbours house that he couldn't afford'

Well Rick every goddam tax payer paid to bail out the cocksuckers who kicked off this crisis - namely the banks who were bailed out with trillions.

Who CONTINUE to be bailed out with free money out of YOUR pocket as they line up at the window to get cash at ZIRP.

If you weren't such a fucking toady jackass hypocrite on the CNBullshit network you might actually point out who the real villains are here....

Sure the assholes who bought into 'prices can never fall' and bought mcmansions are assholes.... but its YOUR banking buddies who are the criminals.

Ask the QUESTION Rick - use your BIG fucking mouth and SCREAM the question like you usually do:




Fuck you Santelli you RAT BASTARD!!!! (and btw - if you want proper finanical news go to bloomberg - CNBC is for toss pots)

stocktivity's picture

This is all you need to know...take a step back...clear your head of everything else for a second...and re-read it -

The Treasury issues, the Fed prints money and buys

Temporalist's picture

"It's transitory." -Ben Bernanke

mayhem_korner's picture



Until it isn't.  Those "barbarous relics" just may have "transitory" value in the near future, Benny...

mrktwtch2's picture

the germans are secretly dumping gold..they will abandon the euro in late 13...it collapses the dollar soars and gold goes back to 800..nice to to trade when you know what the score is..lol

Temporalist's picture

Like when the Germans bombed Pearl Harbor?

EnslavethechildrenforBen's picture

The only ones abandoning Gold are the sheeple. To the benefit of those that are accumulating it at the current reduced price.

fonzannoon's picture

If Germany leaves the Euro the dollar and the euro collapses against the DM.

Rip van Wrinkle's picture

The Germans haven't got any gold. The Fed, BoE and bank of France 'own' it.

kliguy38's picture

The only gold the Germans are dumping is are the gold out of their dental crowns.....their gold has been leased out for years now by their masters...just as ours has.....shove it up your ass disinfoboy......

Cognitive Dissonance's picture

"......and the balance sheet at the Fed grows to equal the ECB at $4 trillion and the present day artifice prevails."

That $4 trillion will look like chump change in a few years.

<Remember back a few years ago when the Fed's balance sheet was only $4 trillion? Those were the days my friend, we thought they'd never end.>

Turd Ferguson's picture

This is bullshit and NOT what Bernanke said, written by a guy who incorrectly predicted that the announcement yesterday would be for less than the full $85B.

The Bernank clearly stated that the change of wording was for "transparency". Yes, QE may be slowed or halted IF unemployment dips below 6.5% but The Fed's forecasts don't predict that level until 2015. Same shit, different wording.

THERE IS NO CHANGE and who amonh you actually thinks that unemployment is headed to 6.5% anyway? What a joke and a farce all of this is. 

Buy gold and take delivery. It is your only financial protection against the madness.

Quinvarius's picture

Actually what Bernanke said was there was no threshold to stop at all. The 6.5% number would be ignored, he said, if the economy was still a mess or if it was due to discouraged workers leaving the count.

I agree with Grant.  Load the F up while there are still fools trying to outsmart the market.

nope-1004's picture

Buy with both hands.  They will manipulate price until the end.  You have to understand that going in, or don't go in.


yogibear's picture

Yes it is madness. By getting locking itself in buying US debt and unemployment it sealed it's future.

It's a run-away train without brakes. Watch what it does to the US dollar.

It will not watch CPI and instead watch it's limited core index.


Inthemix96's picture

And a very good contact I have right in the centre of the square mile has informed me of the mood of the place in the runup to the christmas well deserved break.  Right here in the middle of Londonistan.

He asked me pass this message on for the attention of one B.Bernank.

"Go fuck yourself you cock sucking cunt", is what he said like.

Oh, he also said "Dwarf twat".

yogibear's picture

Bubble Bernanke and the Fed. Destroyer of the US dollar.

He said he will let the Fed's balance sheet expand. One trillion dollars next year, another trillion the following year.

He also said he will measure inflation based on some Fed core measures and ignore CPI.

So he will keep buying US treasury debt while the CPI increases are ignored.

This guy is trying to trigger massive inflation. And when it happens he can't stop buying US debt because it will tank the economy. It's easy to figure out the results. 



NoDebt's picture

I think I liked The Fed when they were LESS transparent in their communications.

Better to keep quiet and leave people guessing whether you're smart or not than to start talking and remove all doubt.

This is going to hurt SOOOOO bad when it turns, it's going to be like a root canal while wide-awake and unsedated.

moneybots's picture

"This guy is trying to trigger massive inflation."


Then why hasn't he done so already?

Dr. Engali's picture

That's the advantadge of having the reserve currency status. Everybody else feels it before we do. It works it's way up the food chain just like this debt bomb is.

yogibear's picture

"Then why hasn't he done so already?"

He's been exporting it to other countries. Others have been buying US debt to prop up exports. It's about the end of that.

theorist's picture

I can't get over all of this. Indeed the Bernank, yesterday, said that the criterion has been changed in order to provide more trnsparency. Rather than have a date that is changed as circumstances change, one has a pair of criteria to work with. He will print until unemployment is below 6.5% as long as inflation does not exceed 2.5%. This leaves me rather confused:

1.) The definition of inflation has already been changed to PCE. In case inflation starts to come in higher per this measure will they stick to this or will the Fed decide on some new lower measure.

2.) There is an assumption in the statement that bond purchases reduce unemployment. What if they don't, and there is little or no correlation as people now suspect. This is like a witch doctor prescribing leaches to suck the blood out of a patient until theor anemia is cured!!!


azzhatter's picture

Fuck You Bernanke

forwardho's picture

In the 24-30yr. sector they have bought 100% of the gross issuance

This is the backstop to the long term "value" of the dollar.

It has just been publicly admited that the Fed is now the buyer of last resort.

They are being purchased with imaginary money.

If there is no "real" demand, [no one willing to buy] can we infer they have no real intrisic value?


WhiteNight123129's picture

There is no line in the sand for inflation. They will have almost no power to stop inflation, when you start it, it is extremely difficult to get out of the system. The future inflation levels are not born from the future actions of hte Fed but from teh actions up to now.

As far as the ability to jaw bone the bond market, cat and mouse with Bernanke, when he is not watching you wack the bond, take profit, he comes back, does not watch, you short again, take profits he come back.

Best trade is? SHORT TREASURIES. Watch Europe or Japan implosion, those are the distractions that can hurt the Short treasuries bugs.



Water Is Wet's picture

The best trade is never a short, because the most you can make on a short is 100%.  If you are talking derivatives, GTFO.  Go to where the money will flow to, not where it will flow from.

btb2010's picture

QE    QE2         OT            QE3                  Qetc   =  QE til collapse

A. Magnus's picture

Greetings Zero Hedgers! A. Magnus here, independent recording artist by night, wage slave by day, longtime stacker and general pain in the ass! I trust I should fit in well in these parts. I'd like to add to this conversation by proposing a theme song for this site, composed by your friend and humble narrator...I present to you "Gold, Bitch!"


Enjoy, bitchez!

A. Magnus's picture

To the fucktard who junked me on my virgin post here - show yourself, you little bitch and get your problem out in the open. If you're gonna junk me, have a set of balls and give me a reason...

LFMayor's picture

I hope spandau ballet sues your self absorbed ass just like Robbie Van Winkle got it by wild cherry.

A. Magnus's picture

You might want to extricate those penises from your ear so you can hear straight; there is as much in common with Spandau Ballet in my music as there is with fiscal responsibilty and gubbermint.

LFMayor's picture

much in common? 

Sucks == Sucks.  That there's a balanced equation if I ever saw one.

Welcome to Fight Club.  Quit whining about the bruises, they're complimentary.

A. Magnus's picture

Nigguh puh-leeze! You call that a bruise? Felt more like your tongue circling my sphincter.

ANY statement of artistic quality coming from a non-producing parasite gets filed in the same directory as ass-crack lint...

LFMayor's picture

Zamphir:  Master of the Pan Flute

Magnus:  Master of the man-flute.  Maestro of the bearded bagpipes.  Skin flutes. meat-whistles.  virtuosso!

A. Magnus's picture

There's a REASON I told you to take those penises out of your ear; apparently you had 'em jammed in WAY too deep and now that's all you've got on the brain. I'm sure your weekly appointment giving 'stress relief' to Barney Frank will fix your wagon for you...

Mercury's picture

 Apparently we have transitioned to a “whatever is convenient” policy at the Fed and we all should bear that in mind when assessing probable actions. When money talks, nobody pays any attention to the grammar.

Well, you can see the temptation to move in that direction. After all, the constitution has now been effectively if not officially modified in much the same way. 


 Maybe they will call it “living, breathing” Fed policy.


OldE_Ant's picture

lol.  We've transitioned to the 'talking FED' policy. 

If we say it the markets will move first and ask questions later. 

At some point more and more will wake up and simply take the luke warm air coming out of the talking head orifices as 'nothing at all' or at best mouth farts that only stink up the room.

ali-ali-al-qomfri's picture

I appeal to the ZH brain trust to explain to poor Ali just how the Federal Reserve is "charged" with managing the unemployment number. If I get laid off what does Ben have to do with me finding working an mamking a living for myself (family) to survive?

how can this be????? what am I missing???



many thanks to ZH and all

TruthInSunshine's picture

I don't think anyone said The Bernank is directly hiring or firing your ass.

I think many have stated that Bernankified (aka Bernankadonk, aka FUBAR'd, aka Bernak'd-Broken-Markets) monetary policy directly impact the (lack of) demand for employees.

Keep trollin' along now, fuck head troll.

ali-ali-al-qomfri's picture

Yes, thank you for your response,

I was hoping for a more intelligent response as to why the Federal Reserve is responsible for the unemployment number.


Ref. Hostess CEO raiding the pension fund and other CEO pay that is out of wack compared to regular employee wages, tax policy etc. But the Fed is responsible for unemployment?

then why don't they publish the unemployment report and offer various programs/ incentives for companies to hire....


Mad Mohel's picture

If the Bernank makes nice and gives the overlords enough scrilla, then you will get the scraps that fall off the table. That's the thinking anyway. The reality is that vultures don't let scraps fall off of anything.

Quinvarius's picture

Bernanke is playing the game that is on the table.  The only mistake is making in this game is trying to crap on gold instead of letting it rise naturally to provide the backstop he needs.  He should just call in all the chips on the remains of the gold lease/carry trade implosion and stop trying to protect the people who got buried in it.  Gold is a strong ally and a bitch of an enemy.  If Bernanke doesn't befriend gold, he will find it on the other side of the game board in the end.  And, gold is undefeated.   

pupton's picture

I'm not sure I understand the point of this article?  Was there a conclusion presented?  I give him 2 stars...(I reserve the dreaded "1 star" for Graham Summers and his ilk.)


OldE_Ant's picture

QE foreveah will soon become QE whateveah. 

In time it will become QE pleasenevah

While I was in 'hyper' inflation camp I'm beginning to be convinced that the increase money supply is being consumed by debt expansion.  Also ZIRP itself leads to lack of interest income (again deflationary).   Add in a tapped out jobless (or at best wage constrained) consumer and you've got the perfect recipe for zero or negative growth.

The stone has been squeezed dry.  There is nothing left but blood and soon we may end up letting that as well.   The piper can't be paid.  end of story.

Time for a new bag.