Market Reaction To FOMC Minutes

Tyler Durden's picture

UPDATE: Minutes after the post - Stocks getting ugly now, catching down to VIX and USD's move

Bonds were sold instantly as the more hawkish comments from the FOMC hit - as was Gold. The USD rallied and stocks dipped modestly. Once that initial knee-jerk settled, stocks have gone largely sideways to modestly lower, Treasury yields have pushed back towards the day's highs as the USD strength and Gold weakness are tracking each other perfectly for now. Unfortunately, this is not helping the price of Oil - which is higher post-FOMC. Notably, while this is clearly being viewed as hawkish for bonds, commodities, and the USD, stocks appear unphased - but it seems VIX is soaking up the equity uncertainty for now (VIX +1.1 vols at 13.40%) indicating considerably more concern than the market itself (for now). The 'bond-like' Utilities sector is the most pressured (as rates rise) for now.

USD Up (inverted), Gold Down, Treasury yields Up, Oil Up, Stocks Flat...


But VIX not happy...


and Utes are hurting more as rates rise..

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maskone909's picture

yeah thats the prob. isnt the base always covered historicaly? i figure its just a matter of
timing it right.

WhiteNight123129's picture

We need panic of inflation for the base to be fully covered. I think we will have a tiny bit of that when inflation prints 5%, I would sell quite a bit of my Gold.

When inflation kicks at 5% you will see people jittering about inflation and a lot of people fearing that the Fed can not raise rate agressively because it would make the system collapse.

Both would be wrong. The stagflation will come, expansion of monetary base brings higher price levels, either with South America Gold or with Fiat. ALWAYS. BUT, that being said, the Fed will raise rates very agressively and it would not create a crunch. Why?

The Banks have a huge increase in excess reserves, and deposits to loans have rose massively as a result.

Second, while raising rates would choked the economy, unlike with an boom fulled on credit, moving from 4 to 6% can make teh difference between bankruptcy or not. However remember that we have a boom in stock prices and bonds driven by money. Base money does not go bankrupt. Raising rates from 4 to 6% is just a higher bribe to reward base money for note entering teh economy too fast. Once you lower teh wall of interest rates. This base money enters the economy again.

Go Stop Go 70s style as Soros describes at 11 minutes here.

Lord Of Finance's picture

 "Short Treasuries, And do not sell your gold yet. . ."  +  If you take out the 1998-2002 episode.


Good Job.

We will soon have a repeat of the 1978-1982 episode. With interest rates to the moon and gold adjusting for inflation, then a whole lot more. It took gold 2 years to peak, which was in 1980. It will happen that fast, and then look what happened after.


That time, all ended well. We had Reagan and there was "morning in America".  But that time, the economy had real growth. Low debt. Strong manufacturing, AND top creditor status for uncle sammy. This time, it will end different. This time, we have Obama, and there will be "mourning in America".

maskone909's picture

funny how no more QE is actually fucking bullish as a motherfucker for gold and silver. INT RATES will shoot up like crazy am i the only one who sees it this way?

tecno242's picture


rates shooting up and pull out of QE would cause a plummet in the veolicty of money and a major deflationary event.

all assets would decline.. cash would be king

maskone909's picture

howcan the M2 go any lower than present? higher int = no more gov borrowing = game over.

tecno242's picture


if all assets are in decline.. bond prices falling (yields rising), stocks falling, commodities falling, real estate prices falling.. etc..

cash hoarding would begin.  Why would a bank loan money to anyone when they believe the value of the asset they are loaning money for is going to decline going forward?

credit would collapse, not because of lack of capital available, but because of willingness to loan money for anything.

printing money at that point would be like spraying a hose into the ocean

higher rates would also, as you said, collapse the governments ability to pull forward future demand via deficit spending

maskone909's picture

when the goverment cant borrow = the end. all of the other u mentioned ia irrelevent. bond collapse= worthless paper

tecno242's picture

not entirely true..

they can still spend = to revenue.. they must have balanced budget..

but admittedly, the economy will be hit extremely hard by higher rates and reducing the deficit to zero, so revenue will decline further limiting available spending

maskone909's picture

revenues and a balanced budget are oxymorons in terms of ponzi schemes(usa) **edit i know thats not the most cerebral accademic argument but this essentially what we are dealing with.

WhiteNight123129's picture

The Government is not borrowing, it is receiving freshly newly printed money.

Treasury issues Treasuries.

Pimco buys from existing bank deposit.

Pimco sells to Fed. Fed prints newly minted money for that.

you can eliminate the the Pimco buys and Pimco sells, they cancel each other.

You are left with Fed prints new money and gives it to the Government.

Teh Governements injects the newly printed money in the economy (Keynes) the prices rise. (Ask yourself if Potosi silver mine base money had no impact on prices).

Since the Gov gets taxes as a percentage of GDP, the nominal taxes are inflated. The debt is fixed. Debt to GDP decreases. Et voila.



NihilistZero's picture

"Teh Governements injects the newly printed money in the economy (Keynes) the prices rise."

If anything what scraps are filtering into the real economy from .gov is just keeping things from tanking.  If those SSI rolls don't increase who's going to rent all these new SFH's at inflated prices?  The speculators are causing the inflation in commodities but the FED's goal is still to prevent deflation (or in reality the return to the mean after the Nutty inflation of th3 2000's) or delay it enough for the member banks to clean their books as much as possible.

They'll succeed in saving the banks (as always) but the sheeple specuvestors who thought the FED was on their side are going to get fucked very hard, no vaseline :-)

WhiteNight123129's picture

M2 is a mixture of money and credit.

Money today is bills and excess reserves of banks at the Fed. Historically since teh Spanish Cargo Gold from South America. You pump up the base money you have price revolution.

The Fed is doing deleveraging by not touching the credit side of the ratio but the base money denominator.

If you are in the XIX century you had no money induced inflation but swings bewteen credit overheating inflation (moderate) to deflation. Swings back and forth but long term flat price because the flat quantity of money.

So let us assume we are in 1873, we have a massive credit crunch, and instead of seeing price drop 20-30% a very large meteorite of Gold falls in an inhabitated place.

First the deflation stops (Like today) but then since the amount of base money (Gold) has been multipled by 5, at the next upturn, you have a revolution in prices.

Unfortunately this is almost fully priced in teh Gold and Silver, so the momentum is to check what has been the expansion of money. The next exit point is when the inflation kicks in, then the sheeple who were completely out of hte Gold buy. You seel to them.



WhiteNight123129's picture

Incorrect, you are mixing the cause and the consequence. The bonds will plummet because of inflation, this in turns makes teh curve steeper and pushes more base money to work. At that point the Fed has to invert the curve 70s style, or the newly printed base money enters the real economy too quickly.

The reason the stock market and bond market is booming is because the economy sucks? Why? Because the Fed has to fight the deflation with newly printed money. Once the newly printed money reaches the real economy, you have a price revolution. The length of time prices are multipled by 5 since 1998 (monetary base multiplied by 5) depends on how aggressive the Fed is with short term interest rates to prevent the dropping of Long Bond yield to make the curve too steep and get a self-reinforcing inflation expectation rising -- steeper curve, more of hte newly printed dollar jumping in the circulation.


Check Georges Soros interview at 11 minutes.



tecno242's picture

we are talking about what happens if the FED tries to pull QE... not if they ramp it up even more and manage to spark inflation.

in both cases, rates would go higher

WhiteNight123129's picture

The Fed has maintained a flat curve just long enough to patch up the banks. Once the banks are not systemic they do not care anymore.

If the base money starts to create inflation (historically it ALWAYS Resutled in inflation).

Ask yourself why since 1933 we do not have the green stuff on the chart (the deflation).

Because today we either have credit expansion induced inflation, but when it turns sour and we should have deflation, we prevent that with MONEY inflation (the powerfull stuff). As a result no more red marks.

Check this chart.

So since 1933, tail we have moderate create inflation, head we have no deflation because we expand the monetary base but later we have to deal with inflationary effect once the deflation forces which were cancelling the money printing are gone.

Also, if the long bond goes down because inflation rises, the curve is steeper, which pushes further idle base money into circulation.

The conduits for base money are the stock market JPM morgan gambling with excess reserves and the US goverment hiding the fact they receive newly minted money and injecting that in the circulation.


NotApplicable's picture

"Once the banks are not systemic..."

"On a long enough timeline..."

tecno242's picture

There's no inflation outside of energy and commodities because wages are flat.  Nor will there be any inflation as long as wages are flat.

Wages are flat because the FED's ZIRP policy won't allow for capital formation for investment and allows zombie corporations that should have died long ago and been replaced with newer and better inovation to continue to muddle along w/ abnormally low interest loans.

This is all an historical annomaly.

The FED is trapped where they must keep printing just to maintain status quo.  Any sort of shock could screw them at this point.

I don't think you can use historical models for what will happen going forward as a result of this.

Ned Zeppelin's picture

Agree. We're not in Kansas anymore. Should I buy stocks? Well, is Ben printing? No other reason needed, apparently. They suggest they'll stop QE (ha-ha) and it has the same effect in the other direction.


WhiteNight123129's picture

Not if it starts with the long bond.

The long bond yield rising would make the curve steeper, which always pushes base money to work in teh economy.

That is accelerating the velocity.

The Fed would REACT to that if it gets too fast by raising the short end of the curve to make the curve flater (making the velocity lower).

First the long bond yield rising will stimulate teh eocnomy. Teh Fed could not allow that as long as banks were systemic and housing not stabilized.

When both are stabilized, they do not care is the curve gets a bit steeper.


ekm's picture

Listen to me people:



Dr. Engali's picture

If anybody thinks they will ever stop printing they are nuts. The Bernank needs some deflationary breathing room and the commodities are giving it to him.

ekm's picture

Only temporarily.

Flush out a couple of primary dealers (non US ones I'd say), crap the market and re-start printing.

WhiteNight123129's picture

Even under a Gold standard, the delfaiton is self-corrected. We prevent deflation by printing money, after 7 years the deflationary forces stop but the base money is still there. What happens? Stagflation.


ebworthen's picture

So the market seems to think that the FED might actually cut back on QE, and by the look of PM's - raise rates (?).

What the hell are the FED and the Treasury going to do if rates go up?  Default?  Confiscate ("convert") IRA's and 401K's?

Are we simply going to go to $30 Trillion in debt, $60 Trillion? $120 Trillion?  $240 Trillion?

I hate buying Gold at $1,625 then seeing it at $1,595, but this is WAR, after all.

WhiteNight123129's picture

The reason the Fed stops is beacuse prices are rising. Price rising because of base money expansion ALWAYS works eventually ALWAYS in history.

So then prices of everything rises, including wages. THat makes the debt softer. If your salary is up 30% and the new pair of pants is up 35%, sales taxes have increased 35%, the Gov receives 35% more dollar (that they injected first in the economy) the debt is fixed.

This is inflate away explained. Base money does that. First it prevents the massive deflation which should have occured, next when deflation forces recede (and they always recede even under a GOld standard), then you have to deal with the redundant currency units which create stagflation.


Piranhanoia's picture

Chickens.  Chickens pecking in the barnyard.  They have a dog and Foghorn Leghorn to watch out for them, so their little world is safe and secure.  Blind and ignorant, yes.  Nothing more important than pecking.  Their own little world of pecking at anything that moves or doesn't move, doesn't matter.  Their job is to peck.  They peck dirt, crumbs, feed and shit.  Doesn't matter,  they eat it.

It's these peckers that run the pretense of a market.  They don't even care if they are being fed shit.  They just have to peck.  Peck or pot, peck or pot.  Peckers,  its what isn't for dinner.

yabyum's picture

Today was one of those special days if you play the junior miners. I'am sitting in a pool of my own blood, from the ass rape that has occured, even stalwarts like Hecla took a beating. Now one more faliing knife perhaps????

buzzsaw99's picture

I doubled my money. That is I took it out, folded it in half, and put it back in my pocket. How'd you goldbugz make out today?

ebworthen's picture


It's not a loss until you sell at a loss.

How long can you wait?

Edward Fiatski's picture

The Bri'ish Pound is getting POUNDED at the moment. LOL English peasants better start stocking up on beans for the next winter, starting from this day.


SilverMaples's picture

Simple enough, another way of saying it is that we'll keep doing QE but now we won't account for it at all ... everything can be solved by the PPT and market breakers isn't?

Bunga Bunga's picture

So does it mean FED has no bazookas anymore and we are all fucked?

Edward Fiatski's picture

Didntya hear? It's all getting better, so we're going to scale down QE. /sarc

Nah, FED has to wait for ECB & BOE to impode their currencies further, before more printing can be resumed.

Hongcha's picture

Covered my SPY short.

helping_friendly_book's picture

Are you mad! The fun is just getting started. The first of many margin calls has been launched, margin buyers will sell gold to cover, gold will go down w/ S&P. Players will now go short. and make, another, fortune riding the S&P down.

akarc's picture

How much cash are the banks holding? And how much are they making today? Those 2% who create all the jobs are going Jeez those poor workers, what shall I do?

SillySalesmanQuestion's picture

Plunge Protection Team in 3, 2, 1,.."Turn those down arrows up, turn red into green before the close, must keep S & P above 1500 and Dow above 14,000, must remain calm and stay BULLISH" That is all.

Dr. Engali's picture

No they need a little fear in the market so the shorts jump on this move. Then the Bernank will squeeze them out.

SillySalesmanQuestion's picture

 +1 You are probally dead on with your observation Dr. E.

AlphaHunter001's picture


squeeze them out of what, gold? LOL


the Fed doesn't give a damn about gold, they care primarily about housing as that's the part of the economy most sensitive to monetary policy.


and as you have to agree, housing has had a very strong rebound over the past couple of years, creating hundreds of thousands of new jobs.


you hold onto your 'valuable' gold while I'm taking my profits in the stocks I've bought over the past couple of years

NotApplicable's picture

For what will it profit a man if he gains the whole world, and loses his purchasing power, all while paying taxes on the "gains?"

You're playing a dead-cat bounce in a fake market, yet brag about it. The idea that housing has rebounded in any real sense is ludicrous upon its face. Without Benron & the Boys, there would not be anyone stupid enough to extend credit for even more empty houses.

I dare you to extract the free-money from the equation in order to see just how much real demand is out there. My guess? Lowest in recorded history. I'm watching houses sit on the market for years now, and the only "sold" signs I ever see are due to foreclosure auctions. (which I laugh heartily at, given some broker is that desperate to shiny up the facade of a market)

But hey, if it gives you confidence in the "recovery..."

Dr. Engali's picture

Who the fuck said anything about gold? The bears jump on every market down tick thinking "this is it" and the Bernank squeezes them out. Your post is nonsensical.

fuu's picture

Look ma, no margin.

ghostzapper's picture

I'm setting the over/under at 1.5 for the number of Fed Doves that give a speech tomorrow reassuring the cheerleaders that all is well and they will print into perpetuity. 

knukles's picture

So we're gonna hear one and a half Fed governors?
Business as normal.
Whatcu think Mr Governor?
W l , I t i k a t h e b n m r e t n f r a b t a p s e.

Uh, thank you, sir.

N P o l m .


(on the bottom of the screen there'll be somebody doing sign language and another, Ebonics.  No problem, get it N P o l m?)