Guest Post: The Visible Hand Of The Fed

Tyler Durden's picture

Via Lance Roberts of Street Talk Live,

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SafelyGraze's picture

what financialization looks like at the molecular level

spoiler: it's the economy as it freezes up

Thomas's picture

Reason for optimism: "The end of the bond bubble is near." Blew a snot bubble when I got to that one. When that bond bubble goes I will be heading for a bunker.

francis_sawyer's picture

 "There has been an burst of exuberance as of late as the market, after four arduous years, got back to its pre-crisis levels"


Nobody realizes just how hard it is to keep your finger on the Ctrl+P button for 4 straight years... Give those people BONUSES... Now!

God Bless The Virtuous's picture

To Thomas...

You know, for all the me me of a "Bond Bubble" being nigh, we should look to this articles premise.

If the scumbag fed heads, starting with Alan Greenspook and Benny the Butcher had left the markets to find their own TRUE price levels in 2000 and we still had ZERO interest rates come today, then this "BULLSHIT BOND BUBBLE" theorem might have some validity!

This is and has not been a "Free Market System" since Hank Paulson whipped out his dick, oops, bazooka, (which was as effective as his limp dick) in the first place!

The fed "STOLEN" recovery (I use that term, recovery, with much disdain) is only real in the sense that we as a generation have guaranteed our children and their children will NEVER be able to attain the level of wealth and comfort we have. Every parent,(at least they used to) worked their ass off to ensure their children at the very least would attain the level of "The Standard of living" they had fought to reach!

This is the most egregious and without merit society we have produced all thanks to the progressive / socialist policies first started under the biggest scumbag president of all time Woodrow Wilson followed by Roosevelt and then Johnson and now,

all praise him,

KING Hussein Obama!

There is no bond bubble, there is no stock market / rally or any other progressive wet dream the complicit media are touting!

This great country has entered the Second "Great Depression" and the irony is when all is said and done, Ben Bernanke will be remembered as the royal buffoon who with all his imaginary greatness and knowledge of the original "Great Depression" was IMPOTENT to avoid the sequel, I would argue, he dove into the cesspool head first right along with the Alan Blinder / Paul Krugman / Geithner / Rubin / Jason Furman progressive academia!

God save the Republic

Trivia, does anyone know where / what this means?

Rebellion to Tyranny is Obedience to God



earleflorida's picture

great rant... i certainly feel better-- keep it going, keeping on :-))

God Bless The Virtuous's picture

Thankx Earle, but what's your guess on the trivia???

fonzannoon's picture

"Each previous program cycle has ended with a fairly nasty decline, in both the markets and the economy"

The fed has figured that one out. That is why they don't stop them anymore.

Sancho Ponzi's picture

 'Market Driven by Fed Liquidity' - Bennie and his successor can keep buying until they own every treasury and MBS in existence, or until the economy completely implodes.

Everybodys All American's picture

How do you? They have three trillion in assets. Currently, the Fed is buying 80% of the new issued debt at essentially one trillion per year.

Imagine trying to sell the idea to the stock market that you are going to begin selling some of those assets you have accumulated back to the market in order to downsize the balance sheet of the Fed. At the same time the trillion dollar deficits are still on going and someone has to buy that new debt. Quite a challenge for the next Fed head. Obama better wake up quickly to this reality or there will be chaos.

pasmurf's picture

to Everybodys All- "Obama better wake up quickly to (trillion dollar deficits)to this reality or there will be chaos." Heh, wasn't that what Obamas line that hooked enough voters into thinking it was Bush's fault for the lack of growth?  He's doing it on purpose, could give a rip as to how many corporate bondholders get screwed, ie. the GM bondholders vs the gm pensions, how many people lose access to Doctors when most think that their new taxes are leading to free health care.  

Check out the communist party USA web site over time and then you'll tell us how Obama is very much awake with these trillion USD deficits.

FHA needs a bailout, the banks are so screwed by the Community Reinvestment Act on Obama's Justice department goading.  And Bernanke thinks he can affect unemployment with bond buying without consideration of a higher minimum wage, higher gas prices, and now Obamacare and its multitudes of part time workers scrambling for two jobs now. 

spastic_colon's picture

todays rally sponsored by P&G and a rising VIX so next weeks earnings reports are sure to impress.

Lewshine's picture

The only people in this market are those who are either blinded and debauched by addiction, driven by uncompromised GREED - OR - Those not bothered by the level of corruption, BUT RELY on the corruption to enrich themselves, KNOWING they are feeding the beast that will consume their children. Both should be taken out and flogged...In slow regard. 

Deny the beast - Invest into physical gold, silver, lead, real estate and anything that will bring down Hollywood, The Media and the current immoral thieves running washington and wall st. Stock investors today are absolutely NO different than the bought and paid for public who voted Obama to insure their government handout...You're just another hack waiting for your free money - Not giving a shit to the expense of what!!...The future of your Nation.


NoDebt's picture

I'll take "Those not bothered by the level of corruption, BUT RELY on the corruption to enrich themselves" for a trillion dollars, please, Alex.


Cognitive Dissonance's picture

"I can't hold her together much longer Captain Ben. She's breaking up, she's brea............." - End of message

tooriskytoinvest's picture

GOLD BANK RUN ACCELERATING: First Venezuela, Then Germany, The Netherlands, And Now Switzerland Want Their Gold Back!! Bundesbank: 'The Gold Repatriation Is – Without Doubt- “Preemptive” In Case A “Currency Crisis” Hits The European Monetary Union.' Every Other Bank, Corporation, And Individual Will Scramble To Recover Their Own Gold Located In Some Vault In London, New York, or Paris...

spastic_colon's picture

gold appears to have been anticipating and responding to the LTRO but will likely realize that rising EURO will make it harder for the periphery to pay back their debts 

Uncle Zuzu's picture

I am bullish on cash.  I hear there is plenty of stock on the sidelines, waiting to move to cash at the first whiff of panic.

Oh regional Indian's picture

When one ring finally controls them all, then we'll see the iron fist come out of the velvet glove.

Til then the players can keep playing and hope that their timing is spot on. Because in real terms, either the market should be dead, or PM's should be "to the moon" or currencies should be de-coupled and either tanking or sky-rocketing (depending).

Unreal times.


otto skorzeny's picture

CNBC is great at  touting "beating estimates" while neglecting to mention the massive previously lowered guidance

spastic_colon's picture

and the share buybacks.....and....and....and all of the accounting jiggery, but they are paid be complicit in the fraud

Water Is Wet's picture

Based on that chart, QE2 raised the S&P by 300 points.  QE3/4 has only increased it by 50 points.  So we've got another couple hundred points to go, by these charts.

Flounder's picture

As pointed out already by TD, the groupthink is:

-the financial crisis is over

-if a problem occurs the central banks will be there to backstop

-interest rates will stay low

what could go wrong?

Water Is Wet's picture

-The "crisis" is the epidemic of fraud, but bankers don't think that is a crisis.  Whether it is "over" is dependent on one's being rewarded by the current system.

-The central banks will be there to backstop those they want to backstop, and they can keep yields on government securities artificially low for as long as they want, if they want.

-Unless there is a mutiny, nothing can go wrong for the bankers.

polo007's picture

The minutes from the Federal Open Market Committee’s Dec. 11-12 meeting show participants were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date. A number of policy makers are concerned the size of the Fed’s holdings “could complicate the Committee’s efforts to eventually withdraw monetary policy accommodation,” according to the minutes.

The central bank’s balance sheet has provided record windfalls to the U.S. Treasury. The Fed uses interest income from its bond holdings to cover its own expenses and sends the rest to the Treasury. In 2012, that dividend to taxpayers was $88.9 billion.

One risk from a large balance sheet is the possibility that the Fed’s interest income could evaporate in coming years as rates rise, according to a paper released last week written by researchers in the Fed’s monetary affairs division. The paper studied different scenarios and concluded that the central bank’s payments to Treasury “will likely decline for a time, and in some cases fall to zero.”

Everybodys All American's picture

 The paper studied different scenarios and concluded that the central bank’s payments to Treasury “will likely decline for a time, and in some cases fall to zero.”

I call bs on this outcome.

Dr. Engali's picture


Seems to me like we have been talking about the same thing for the past  four years..... Greece..Spain..Italy..Qe..China...Greece....Spain...Italy...Qe..China..blah blah blah 


"Good, bad or indifferent, we will be talking about something completely different three to five years from now than we have been for the past number of years."


Something blow up already will ya?






EscapeKey's picture

You forget that for a while, people actually expected something bad to happen in the US. These days, it's all Europe Europe Europe.

Now? Nooo, sir. 100+% debt/GDP ratio has never historically (*) led to anything bad happening, so to hell with caution.


(*) By history, I mean the Keynesian view of history, that is to say history started in 1971.

Dr. Engali's picture

Oh I didn't forget...I've just grown numb to it all.

NoDebt's picture

Don't get so numb you forget what they tell you at the movie theatre: "Familiarize yourself with your nearest emergency exit and how to reach in in the event of an actual emergency."  It's the only door that really matters.  Until then, pick whatever seat you like in the theatre, sit back and enjoy the show!


Squid Vicious's picture

yawn...what time is the vix demolition derby scheduled for today? 

polo007's picture

The 2007 Federal Open Market Committee (FOMC) transcripts were released last week. Media reports have concentrated on the Fed's forbearance during the credit meltdown. Implied, but not stated (in what I have read) is the major reason for such nonchalance: The Fed only acknowledges flows, not stocks. This might sound boring. It is also very important to understand.

This approach to central banking has not changed. All of the major central banks use the same framework. The media and Wall Street spend most of their time interpreting the meaning of central-bank talk. Central banks will never mention a growing concern about loan defaults since the academics can always thwart potential catastrophes by modeling preventive flows (e.g., liquidity). The catastrophic financial failure that most of us endured in 2007 and 2008 was not a failure at all, according to central bankers. Their models still conclude there is always a central-banking solution that will prevent any catastrophe. In conclusion: when the current financial bubble topples, there will no forewarning from central bankers, the media, or Wall Street. Given their processes of thinking, they will be more surprised than the average hairdresser.

"Stocks," in this case, does not refer to common stocks, but the accounts and categories in which assets (and their liabilities) accumulate. The Fed, a creature of academia, knows everything. Knowing everything limits policy to sufficient "liquidity": flows. It - to be more precise - its DSGE model, does not care about accumulations: stocks.

The Fed was taken unaware when credit cracked up in the summer of 2007. Unlike many local realtors and carpenters, the FOMC did not understand the connection between flows (bad loans pouring into off-balance sheet Special Investment Vehicles) and stocks (of mushrooming mortgage credit going sour). The Fed presumably noticed pieces of the mortgage machine (subprime lenders, appraisers, Fannie Mae, commercial banks, investment banks, CDOs) even though it did not comprehend the artificiality of this contrived structure. Hence, the Fed missed the connection between the economic expansion of the mid-oughts and its artificial nature. (As we know now, the Fed does not blanch at running an economy by rigging its prices, so, we know now, central banks do not understand an artificial economy is unsustainable.)

All of which is to say the Fed and its FOMC did not know a loss of forward momentum would be followed by an abrupt shift to backward momentum. Again, this has not changed. Despite talk of deleveraging, the U.S. economy has continued to lever up since the non-catastrophe of 2007 and 2008. Total non-financial debt has risen from 240% of GDP in the fourth quarter of 2008 to 249% of GDP after the second quarter of 2012.

The Fed does not understand the artificial credit created by central banks that has flowed since 1971 has coagulated into unsustainable imbalances around the world. The FOMC will be in the caboose when government debt loses its imaginary, "riskless" character (e.g., banks do not need to reserve against most sovereign bonds). As in 2007 and 2008, the stated price of artificially produced assets is illusory, so the assets cannot stand on their own without ever increasing flows to support prices. The flows accumulate in stocks, the artificial composition of which will topple.

polo007's picture

Oaktree Capital's Howard Mark's most recent memo titled Ditto

adr's picture

If Ben wants to give me some cash, maybe I'll invest in the "market". That is how it works right?

All these momo chasing clowns on the CNBS boards are celebrating the $10k they made in one day on Netflix. WOW $10k!!!! NOW YOU CAN RETIRE IN LAVISH LUXURY!!!

That is why I don't care about investing in this scam. Sure I can double my savings in a day. Maybe it could give me another 10 months if I lose my job. Then what? No job and no cash.

The higher this market goes the worse real business conditions get. Corporate boards are locked in on supporting stock price and nothing else. With absolutely no worries of any audits or punishment for accounting fraud, the CFOs greenlight every fudge they can. Analysts haven't helped the situation by lowering EPS estimates 100 times the month before each release. They lowered the bar to the ground, and now have got rid of the bar completely and painted a line. Soon worries about stepping on the line will result in no line or bar whatsoever.

There is no hiring, no infrastructure investment, virtually no buying, just letting everything float. An absolute mirage of business. I don't know what you would have if the EBT buyers disappeared. I think it would look a lot like Dark Ages Europe. A mass of people living in grass huts, surrounded by a wall, with a giant castle in the middle with Lloyd Blanfein sitting on a gold throne weighing 500 lbs, wenches in chains, and goyim dressed to amuse him.

caimen garou's picture

The great rotation is here - for the third year in a row we are once again hearing that the "mountains of cash" piled on the sidelines is about to flow into the markets. That has yet to happen and there is little indication as of yet that 2013 will be any different. I guess financial markets can have wet dreams too.

Rip van Wrinkle's picture

Are you really saying the Fed is blowing up the next financial bubble in equities? Never.

SheepDog-One's picture

So basically the bond bubble will burst and all the bond dorks are to pile into equities at THEIR all-time highs? Frankly, I don't believe it.

CrashisOptimistic's picture

Don't fight the Fed.  They are buying bonds.  They won't allow bond prices to fall (and yields to rise). 

Why people want to believe the Fed supports stocks, but then also believe that the item the Fed specifically has said they are buying to push rates lower is somehow not happening makes no sense.

The Fed is not going to allow rate increases.  They are the source of all money.  When they buy bonds, they can make their offer to buy at a very high price.  Why would the PD sellers want to sell at a lower price?  How could they refuse a higher price than they quoted?

EscapeKey's picture

Wasn't that essentially the premise behind the book "DOW 36,000"?

hannah's picture

the author keeps trying to convince me that the fed is propping up the market and that the only reason the market goes up is because of fed printing.......well duh. isnt it time we got past this shit and just accept that the whole market is a giant fed scam.


the economy will be 'strong' when i hear that all QE has stopped and the fed isnt propping up the market.......but that will never happen at this point.

hannah's picture

"The catalysts that brought the financial markets to its knees in 2000-2002 or 2008-2009 will likely not be the same ones in the future. "


this isnt correct...the catalysts are EXACTLY THE SAME....FED INTERVENTION. PERIOD.


Super Broccoli's picture

Adam Smith must love this :-)

1eyedman's picture

the sentiment on this sites appears to me to have moved, along with the aaii people decidedly, shall we say 'non-bearish right now'.     the relentless vix compression and weeks and weeks of uptrend with only  a couple blips wherein any bear stuck his head out and got chopped.   

exuberance is high, yet consumer confidence is low and the latter has a better history of a leading indicator.

all known problems are contained currently.  cans successfully kicked.   its the unknown, or as the BD peddlers call it, exogenous event that will turn the tide decidedly down.   as we approach highs, the smart-er money sells a little into it, slowing the upward momentum.   so many unopened closets in spain and italy of banks so far gone yet hoping to survive another ltro.    figure something out of the rat hole facisit china to spoil for the west.   all the CBs are acting in concert and now, either japan is one upping but maybe with permission, to race ahead to get its current account back in line, that joke might be the big trigger, as in panic--not trend turn, as the trend turn will be the fire into which japan gets thrown.   japan this what a desperate CB looks like?...china lying....westerners adding leverage.

lets not also forget there is a 150 foot ball of lead headed towards earth that will enter/pass through(?) the oribt of geo-synchronous satellites around 2/15.    anyone got the latest on this? 

dont give up yet, bears, as it is darkest before the dawn, dont fire until you see the whites of their eyes, then give no quarter.

mdtrader's picture

It would be a shock if the markets actually had a down day!

q99x2's picture

Things are kind of interesting. The total amounts of debts owed have been written off as being only important based on the income they produce and not on the total ever being repaid. So the banksters have reduced total debt in a sense to the interest payment amounts. Maybe reduced it to a tenth of what it was in 2008. Even at that the life expectancy is 1 to 2 years from now for the existing system. That's pretty long.