2012: The Year Of Hyperactive Central Banks

Tyler Durden's picture

Back in January 2010, when in complete disgust of the farce that the market has become, and where fundamentals were completely trumped by central bank intervention, we said, that "Zero Hedge long ago gave up discussing corporate fundamentals due to our long-held tenet that currently the only relevant pieces of financial information are contained in the Fed's H.4.1, H.3 statements." This capitulation in light of the advent of the Central Planner of Last Resort juggernaut was predicated by our belief that ever since 2008, the only thing that would keep the world from keeling over and succumbing to the $20+ trillion in excess debt (excess to a global debt/GDP ratio of 180%, not like even that is sustainable!) would be relentless central bank dilution of monetary intermediaries, read, legacy currencies, all to the benefit of hard currencies such as gold. Needless to say gold back then was just over $1000. Slowly but surely, following several additional central bank intervention attempts, the world is once again starting to realize that everything else is noise, and the only thing that matters is what the Fed, the ECB, the BOE, the SNB, the PBOC and the BOJ will do. Which brings us to today's George Glynos, head of research at Tradition, who basically comes to the same conclusion that we reached 2 years ago, and which the market is slowly understand is the only way out today (not the relentless bid under financial names). The note's title? "If 2011 was the year of the eurozone crisis, 2012 will be the year of the central banks." George is spot on. And it is this why we are virtually certain that by the end of the year, gold will once again be if not the best performing assets, then certainly well north of $2000 as the 2009-2011 playbook is refreshed. Cutting to the chase, here are Glynos' conclusions.

  • 2012 will be characterised by strong central bank activity and interventions
  • Major central banks will continue to support governments through quantitative easing type policies [so much for 'not political']
  • Boom/Bust economic cycles will be fostered which are shorter in duration and could hold greater amplitude
  • Central Bank activity will not necessarily improve core economic fundamentals [contrary to what CNBC will tell you every single day]
  • Financial markets will impress in H1 despite weak underlying economic fundamentals [contrary to what CNBC will tell you every single day]
  • Sovereign bond markets will in the main be supported and yields will be driven lower at least through H1 2012
  • Equity markets will enjoy the support of investors on account of valuations relative to money markets and bonds
  • Commodity prices will rise in US Dollar terms as currency debasement policies are followed
  • Asset price reflation will be a central theme for the year

Translation: inflationary concerns be damned - after all it is precisely inflation that central banks need. And to get it they will risk much more inflation. Yes, the dreaded hyper word as well. Because unfortunately, the only real backstop to the threat of global hyperinflation, Germany, recently threw in the towel as we described in the appropriately titled "Das Kapitulation" [sic]....And people wonder why China is buying gold hand over fist.

More from (the appropriately titled) Tradition:


Since the crash of 2008, central banks have been called on to do extraordinary things. The policy stances that they have adopted would never be adopted in any normally functioning economy. Yet given the length of time required to reform a fiscus and the inclination to utilise government as a vehicle to spend an economy back into shape (under pretence of investing) has meant that central banks have been left in the undesirable position of having to use monetary means with which to intervene in order to prevent a repeat of a massive and deep recession if not depression. Using those terms now may sound melodramatic but they unfortunately still apply.

Monetary policy has become increasingly important and so too has the need to understand it. Following the money that is printed up has become an arduous but important task and helps one understand the consequences of this central bank intervention. Increased money supply matters and the injection of such funding cannot be ignored. To ignore such factors would also translate into investors misinterpreting the financial environment in which they operate and how it is possible that weak economic fundamentals notwithstanding, financial markets can still post record highs and perform better than expected in 2012. It is this very dynamic which was largely ignored in 2009 and 2010 and which led many investors to believe that markets would not perform as well as they did.

Central bank behaviour in 2011

What was remarkable about 2011 was the lack of outright monetary intervention by the central banks. Some may argue that the effects of policies implemented in the past were still exerting influence. However if they were, they were not overtly obvious in the behaviour of sovereign debt markets. US banks may have had large quantities of excess reserves, but the Fed resisted the temptation to embark on Fresh QE, the BoE indicated that another round of quantitative easing would be initiated, but this only became official towards the end of the year and the effects of those actions would ultimately only become evident in 2012. The ECB was prevented from entering the sovereign bond market through EU Treaties and chose instead to persist with the line that ECB President Trichet adopted, namely that the crisis in the eurozone was driven by sovereigns and that only sovereigns had the power to resolve these issues. This changed in December when the ECB did an about-turn and began to intervene more significantly in the eurozone economy. Again the effects of this policy reversal would only become evident in the final weeks of 2011 and would set the stage for an impressive start to 2012 for many eurozone sovereign debt markets.

Further afield, 2011 was also characterised by the Chinese monetary authorities trying to deflate a property bubble whilst India also underwent some monetary tightening. Even emerging markets such as Brazil and Turkey that were used to some fairly strong growth in credit extension and money supply chose to adopt a tighter approach to monetary policy. All in all, 2011 can be characterised by less active central banks that chose to allow the economies to unravel some of the excesses of the past. Had they persisted with such a stance, the start of 2012 could have looked very different. The reality however is that they have not. Quite the contrary.

Central banks have learned that taking to the side lines holds consequences. Given the massive and rapidly growing indebtedness of most of the world’s largest economies (read governments), it was became clear that the markets most vulnerable to this fiscal dynamic, namely the sovereign debt markets, reflected the effects of a wholesale rotation back to safety and the shunning of debt markets which held the highest risk. The absence of central bank demand for sovereign debt was palpable. Those economies without central bank assistance, namely the eurozone economies became the most vulnerable were pushed to the margin and began to fail. Bond yields of many major eurozone economies started to reflect risk aversion. The highly indebted periphery began to suffer the indignity of speculation against their governments and their bond yields soared. With each passing day of inaction on the part of the central banks, sovereign debt yields progressively marched higher to even more uncomfortable levels with speculation in the market mounting that economies such as Spain, Italy and even the likes of Austria and France were on the path of bankruptcy.

As it became increasingly clear that central bank demand for sovereign debt was absolutely vital in buying governments the time they need to restructure themselves, so the central banks began to change their approach back to something more accommodative and supportive of the global economy. The BoE was the first to indicate that they would be embarking on a fresh round of quantitative easing, the ECB then eventually found a way to circumvent EU treaty restrictions by engineering an environment whereby the commercial banks would do all the sovereign debt buying, the Fed has hinted increasingly that it would step back in to the economy on the grounds that the current economic upswing might not be sustainable, whilst a host of emerging market central banks including China, India, Brazil and Turkey are now adopting a far more accommodative stance to ensure soft landings in those economies.

Central Banks in 2012

Whether we believe that the reasons behind the central bank interventions are a fresh effort to boost growth directly or whether one believes that the central banks have adopted an ultra-accommodative stance in order to boost demand for sovereign debt and reduce the risk of a major sovereign collapse, the result is the same. Namely, that the central banks have chosen to prioritise growth and investor confidence above inflation. Increasingly one gets the sense that inflation is being seen as a welcome distraction given the current economic backdrop where the underlying imperative is for asset prices to deflate.

Whereas in 2011 we noted that the lack of Fed, BoE and ECB bond purchases resulted in a crowding out of the debt markets of economies with worrying debt fundamentals, 2012 will be the year when that view is given added credence. In just two short months when the BoE and ECB openly announced their monetary efforts, sovereign debt markets of highly indebted markets or those of emerging markets have begun to rally and rally extremely strongly. With those major central banks confirming that they will be more active in 2012 and given the coincidence or not, that they are acting together, the reality is that the dearth of monetary intervention in 2011 will be replaced by a flood of capital and funding.


In assessing the consequences of such actions we would need to look back to 2009 and 2010 to understand the impact of strong monetary interventions on the financial markets. We understand now that quantitative easing whether it be through the Fed’s methods or those of the ECB can have very strong asset price inflationary effects. We have already enjoyed a taste of this in recent weeks. Markets that have rallied include:

1. Equity markets
2. Sovereign debt markets
3. Commodity prices
4. Emerging market assets
5. And as a consequence EM currencies

In the event that the Fed does indeed introduce another round of QE in the order of a further USD500bn, and the BoE continues to build its balance sheet to levels approaching GBP400bn from the current GBP275bn at a time when the ECB partakes in more of the same kind of monetary policy aimed at engineering an attractive internal carry trade to help banks and sovereign debt, asset prices in general hold the potential to rally significantly further on account of the monetary stimulation and the boost to sentiment which will follow.

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Cult_of_Reason's picture

Why an Easy Fed Isn’t Good for Stocks

"The knee-jerk reaction in the stock market, of course, has been to believe that low interest rates forever = high stock prices. The theory is that financial repression forces investors to move money to riskier investments, such as stocks. However, Barry Knapp at Barclays Capital has been arguing for several months now that history suggests financial repression isn’t necessarily a good thing for stocks, particularly from the vantage point of price to earnings multiples...."

"...If Knapp’s correct, this is bad news for stock investors. It seems that the forward momentum in earnings growth is stalling, and without an expansion in multiples, it’s going to be tough for stocks to find a catalyst for a sustained significant rise – with or without the Fed’s help."


knight99's picture

an easy fed isnt good for anyone. these fkers need to crawl back in the hole they came from. everytime i see BB on tv it just looks like he is about to cry for all the lives he has destroyed.

Ahmeexnal's picture


CHICAGO (MarketWatch) -- Fred Goodwin, the former head of the Royal Bank of Scotland, is about to lose his knighthood for his role in running the institution into the ground so far that it required a huge taxpayer bailout, the U.K.'s Cabinet Office said Tuesday. The honor, bestowed in 2004, has been "cancelled and annulled," for bringing the system "into disrepute."

OK, so when do they strip Ogolfer from his Nobel "Peas" Prize?

nope-1004's picture

Someone sure didn't want silver to pass $34 today.  LOL.

The waterfall effect shortly thereafter is sooooo central bank-ish.  The manipulation is even timely, not to mention obvious!!


Silver Bug's picture

Sadly it is true. The only that matter now is QE to infinity.



Mr Lennon Hendrix's picture

Stocks do look like they will pull back, but the Fed/Tres Working Groups not only do not want that, they can't have that.

With inflation way above Bernanke's targetted 2%, people need their IRAs to meet the cost of living.  The further down the road we get, the higher gas and food goes.  Then toss on the fact that the largest investment Americns have made is their houses, and Americans are losing wealth in every single on of their asset classes.

So stocks need to stay up.

Then you get to bonds.  Bonds need to stay up.  The ed needs to sell them at a premium to furnish their debt and this keeps rates low.  Rates need to be low to keep the interest on said debt low.

So here lies the rub:  how will the CBs keep this game going?

They won't.  When it stops is anyone's guess.  I have one more year chalked up for my guess, but how they make it last that long, who knows.

JW n FL's picture




Ron Paul - Watch this presentation to see why so many people are endorsing Ron Paul for President

Uploaded by on Dec 21, 2011

Please endorse Ron Paul (http://www.endorseliberty.com/ronpaul) and donate to Endorse Liberty (http://www.endorseliberty.com/donate.php) so we can buy advertising and make more videos like this. Endorse Liberty is not authorized by any candidate or candidate's committee.

LawsofPhysics's picture

Oh come on.  History shows us very clearly how this all turns out in the end. Capital controls (some already in place with more coming), hypothication and re-hypotication (already happening), price controls (now things get interesting as even gravity and plate tectonics will be outlawed), social unrest, mob rule and eventually nationalization and/or war (the local government official will simply ask you whether or not you are a team player).

when PMs are finally outlawed for use as money, then you will know that the bottom is in.

Hedge accordingly

blindfaith's picture

I have to agree.

While there is NO FIAT currency that has ever endured, there is no currency based on PM's that has either.  Think about that and ask why.

Everyone boasting about their hord should keep very quite, it is easy enough to track you without advertising.

resurger's picture

The stocks must come down Lennon, ill tell you why, because they can not justify another QE at those current levels...

I was short on stocks and i was ready to close out before the FOMC in case of Qeasy3 is going to come out, but it did not?! Fuck it i kept my shorts and they made money..

The high DOW, S&P gave a nice cushion to any stocks which will underperfom, so that vultures like me dont come and fuck them up. Especially the Oil companies which are protected through the Iran-War Propaganda..

Check Face book's IPO at 75bn..

sometime between April and June.


So facebook must be introduced when the market is heading lower or at mid-low levels DOW 11K or so...

We have not yet seen bad news regarding Greece from the suckers media yet, once that pop's expect blood.

And when they announce QEasy3, i will meet you back in in July to short all your gains till October End...











akak's picture

Somebody might want to try teaching that difference to RobotTarder --- but somebody would probably fail.

Confused's picture

He certainly doesn't look like he is going to cry over the lives destroyed, but rather how much money his "friends" will lose when the average person figures out the game and its rules.

blindfaith's picture



Narsists don't cry over anything, it is never their fault.

akak's picture

Narsist = one who narses?

Dr. Engali's picture

Shit he isn't crying because of the lives he is destroying. He is crying because he is not very good at being a fucking liar.

Hobbleknee's picture

BB has no remorse.  Those are tears from all the ink fumes.

resurger's picture

Nice link Sir,

I have been telling the same to the Bulls, but they are under IUI (Investing Under the Influence) of Qeasy!

"Take off is optional, Landing is a Must"



scatterbrains's picture

Speaking of landing, looks like XOM wants to lead the charge..



Alex Kintner's picture

Remember the Tech Stock Bubble (late '90s). Abby Joseph Cohen preaching, "PEs don't matter anymore. The new paradigm is Price to Revenue." Where is Abby when we need a good laugh.

Cognitive Dissonance's picture

N O T H I N G else matters except keeping the powerful in money and power and kicking the financial can down the road so that we remain asleep at the wheel.

N O T H I N G else matters.

As long as we allow ourselves to be duped into believing that our best interest is tied to the 1%er's best interest, more of the same ole same old is all we can expect.

Cue the bullshit propaganda factory in 3.......2.......1.....

Confused's picture

As long as we allow ourselves to be duped into believing that our best interest is tied to the 1%er's best interest, more of the same ole same old is all we can expect.


This is all that really needs to be said on the matter.

Snakeeyes's picture

And what has it gotten us? Housing continues to tank despite the trillions in liquidity. Bernanke can't even generate inflation in housing, the most oversubsidized of all industries.


Howdan's picture

One of the most salient and prescient points I've heard in a long time! Exactly what I was thinking too......

Even with the disgusting market manipulation, Plunge Protection Team, Ponzi Printing Scams, Never-Ending CB "liquidity" programmes, TARPS, TALFS, LSAPs, LTRO's and god knows what other lunacy they STILL can't produce any real growth or positive economic effects.

These Central Bankers mostly seem to be academic, totally out of touch morons who only care about keeping the banking cartels up and running to scam everyone else.

Confused's picture

Not morons or out of touch. This is the real area of class warfare/wealth transfer. The wealth travels up the pyramid, and these CB's are the agents that allow it to happen.

Alex Kintner's picture

Exactly!! +1000.
They are Looters not Leaders.
The CBs have NOT fallen on bad luck due to 'failed' policies. All has unfolded exactly as they (and TPTB) have forseen.

evolutionx's picture

2012: The year of the world’s great geopolitical swing

2012 will in fact be the year of the world’s great geopolitical swing: a phenomenon which will without any doubt be the bearer of serious difficulties for most of the planet but which will also allow the emergence of geopolitical conditions favourable to an improvement of the situation in the years to come.

Hoped for by some, dreaded by others, QE3 is generally presented as the ultimate weapon to save the US economy and financial system which, contrary to the dominating chatter of these last weeks, continues to deteriorate . Whether the FED launches out with QE3 or not, QE3 will be without any doubt the major financial event of 2012 whose consequences will mark the world financial and monetary system definitively.

And QE3 will play a determining role in the world’s great geopolitical swing in 2012 because this year will, in particular, see the last attempts of the world’s dominant powers of before-the-crisis to maintain their global power, whether it be in strategic, economic or financial matters. When we use the term “last” we want to stress that after 2012 their power will be weakened too much to still be able to claim maintaining this privileged situation.




Amish Hacker's picture

Part of the great geopolitical swing, imo, will be what can be thought of as the Great Unmasking. So far, financial repression has worn a happy face, but 2012 will be the year when the mask comes off. As gov/TBTF sees the end game approaching, their increasing desperation will drive them to discard any pretense of being people-friendly. Less and less effort will be expended trying to convince the little guy that gov't policies are for his benefit. ("But we must all support the job creators!") No more apologies for robosigning, or for rehypothecation, or for the essential dishonesty of the whole shebang. Laws will be written or amended to "legalize" whatever actions seem necessary to perpetuate the current power structure, public opinion be damned. More and more, TBTF banks will dictate the terms of the public's relationship to them, and politicians won't beg for your vote, they will demand your obedience.

NotApplicable's picture

All your everything are belong to us.

CB balance sheets? To infinity, and beyond!

Resistance is not only futile, but transitory as directed history resigns the masses to their fate.

Oh, and I almost forgot...

ZIRP4EVA, bitchez!

Alex Kintner's picture

I thought it was the Chinese Year of the Piigs?

FubarNation's picture

I mean really WTF are responsible people supposed to do to plan for the future anymore?

The 'markets' are so fucking bassackwards.



JPM Hater001's picture

Responsible people are suppose to vote for Ron Paul. After that I would say pray.
No place is safe.

GeneMarchbanks's picture

Fed & BoE move in lock step. All the CBs will be active though no doubt. BoJ will probably need to step in soon as well.

AC_Doctor's picture

The Central Banks of Pigs is running out of gold to lease (and then to sell upon the market and never be returned)  and all hell is going to break loose.

yogibear's picture

The Fed rates are at zero all  they can do now is debase the currency (Print).  With global wage arbitration they distroy those on fixed income and J6P.

The protesting  forces will get stronger  more people will not be able to afford to live without assistance. This is what the Federal Reserve and Bernake fail to see.


The cries to end the Federal Reserve will grow louder and stronger.

Corn1945's picture

Agreed. 2% inflation combined with stagnant wages means a lower standard of living for the majority of Americans.

Also, I'm not sure how we are "chipping away" at the debt when it's rising at a rate of $1 trillion per year. Financial repression doesn't "work" when you are still increasing your debt exponentially.

They made a total joke of the market. Unemployment is several times what it was before the blow-up, tens of millions are on foodstamps, the deficit is spiralling out of control......and the market is only off by 10% or so?

It has no connection to reality anymore.

Chump's picture

I disagree.  The result you see coming assumes that 1.) people will somehow discover the goings-on at the Fed and how they relate to the economy and 2.) people will unite and work towards the common goal of ending the Fed and returning sanity to our country, both economically and politically.

I think the opposite will happen.  As people become ever more beaten down they will lash out at the "others."  You know, the people from the "other team."  Those damn Dems/Repubs.  Those damn rich/poor people up the road.  Those damn [fill in the blank].

Maybe I'm wrong.  I hope I am.

battle axe's picture

Your not, and that is the scary thing...

ATM's picture

You are not wrong. Austerity really pisses people off. so much so that they riot and steal and morals and the rule of law decay to a point of chaos.

But in my ay of thinking that is exctly the point of all this. Create the chaos, the anger and the "crisis" so that TPTB can take total control and they can get rid of this nasty, distasteful personal liberty idea once and for all.

They have to save the planet afterall from us and for us and onnly they have the knowledge, the training and the smartsto get us cattle to live like they need us to. It's much easier to do when the "people" are starving, are debt peons and need to look elsewhere for the essentials of life because they cannot begin to fathom where to begin to provide for themselves.

Under those conditions assuming total power is going to be a cakewalk only they got one little problem. Too many fuckers like me who are armed and dangerous and don't like to be told what to do.

resurger's picture


Imagine your boss comes and tells you, "Look, we are not giving you a raise, because of the current economic crises" WHaT the FUCK do you do?

Milestones's picture

And if you are making less than a fair wage what the fuck does the boss do? The knife has two edges and it cuts both ways. He could destroy his business--everyone loses.          Milestones

Confused's picture

You might NOT be wrong.

But I will challenge what seems like an assumption that people cannot work together towards a common goal. History is full of examples. And the idea that we have societies proves that people can/will work together. To believe other wise is to be without hope. If so, why bother?

Chump's picture

Sure, absolutely.  I just draw the line at such a meta goal of actually ending our economic and political insanity.  I don't see it happening, simply because there will be such rampant nihilism and destruction as we circle the drain.  I do see society emerging on the other side, because people will work together, locally.  You're right: if I didn't have that hope I wouldn't bother even reading ZH.  All would be meaningless.

Alpha Monkey's picture

I don't think the fed fails to see much.  If anything, that institution probably has more of the real information than any organization in america.  They just add their tweaks to the data before releasing it for general consumption.  They know full well what they are doing.

Recommended viewing: Inside Job

resurger's picture

I have the movie but i never watch it ...

DoChenRollingBearing's picture

"How Long (Can This Keep This Going On)?" is the new article at my blog.  I also write about gold, review Barron's, and other material I hope will entertain my readers.  Would you like a look?  Gmail me at my name and assure me you will behave.  I make people jump through this hoop to keep out spammers & bots.

Dr. Engali's picture

2012 will be the year when the world says no more to the U.S. dollar and the abuses that come with it. 2012 will also be the year when the U.S will have taken on one war too many.