With Rehab Still Nowhere In Sight, Fed Floats a "First Step" Trial Balloon

Tyler Durden's picture

Equity market volatility over the past two days is largely due to worries that the U.S. Federal Reserve will lessen its purchases of longer-dated Treasuries, thereby reducing the flow of fresh cash into the risk markets. ConvergEx's Nick Colas notes the analogy of stocks - and other investments - being “addicted” to Fed money holds some resonance (as we noted here most recently), given the pains of withdrawal we’re seeing ripple through equities worldwide since the FOMC minutes hit the tape. Then again, the fact that the US financial system is terminally hooked to zero-cost liquidity is well-known to our readers, since our initial profiling of this core problem nearly four years ago in "Bailoutspotting (Or The Search For The Great Financial Methadone Clinic)." Needless to say, so far nobody is actually doing any actual searching as the alternative is too painful for anyone to even contemplate.

Either way, it got Colas wondering: what are the methods and success rates of modern drug rehab programs?  And what can they tell us about the potential pathways markets might travel on their road to recovery from that “Addiction” to monetary policy?  Good news first: rehab works – people can and do change behaviors and dependencies.  The bad news: any real rehab is likely years ago. And a word of caution: it takes time, needs to be flexible, and lapses happen.  If the first step to recovery is admitting there is a problem, maybe the Fed just made that first, critical, admission. Or maybe it simply floated a trial balloon to see test how fast the S&P500 would drop upon the admission that the Fed does, in fact, have a problem, only to be talked up by the Fed's doves the next day.

Sadly, in the codependency between dealer and user, in this case the Fed and the market, it is most likely that as with the vast majority of cases of narcotic addiction, this one too will end in tragedy, and with the death of one, or more likely both participants.

From ConvergEx's Nick Colas: Rehab? No, No, No...

Every year over 1.5 million Americans go through some form of drug and alcohol abuse treatment, according to the last large survey done by the Substance Abuse and Mental Health Services Administration, an agency of the Federal government.  Only about half – 47%, to be precise – complete their treatment.  One quarter drop out, and the remaining 25% either transfer facilities or end treatment for some other reason.  In general, the more intensive the treatment – inpatient hospital care, for example – the more successful the outcome.  The length of treatment varies, as one might imagine, based on what addiction is being treated.  Heroin and other opioids take over 150 days, but the median is anywhere from 90 – 121 days. Needless to say, these are long days for anyone who goes through them as well as the family and friends who support them.


Somewhere over the past few years, the serious term ‘Addiction’ has entered the lexicon of capital markets watchers as it relates to how central bank policies enable and distort the price of debt and equity securities.  Essentially, the analogy is that markets have become dependent on both artificially low interest rates and the cash provided by liquidity programs such as “Quantitative Easing” in much the same way that a person can become addicted to a dangerous drug or alcohol.  If you’ve ever seen addiction first hand, you know this is a spurious anthropomorphizing of financial markets.  If you haven’t, well, just trust me.


But I get why market observers make the comparison – just consider the twitch in U.S. equity markets over the last two days.  The release of the minutes from the Jan 29-30 Federal Open Market Committee meeting highlighted that ‘Many participants (members of the FOMC) also expressed some concerns about potential costs and risks arising from further asset purchases.’ There was also commentary to the effect that more QE could “Foster market behavior that could undermine financial stability.” The minutes go on to say that one participant argued for varying the amount of stimulus month-by-month, depending on incoming economic data.  Pretty innocuous stuff, you might say, but it created the first significant market volatility of the year and took the CBOE VIX Index to a close today of over 15, its high for 2013.


“Withdrawal pains” are a part of drug and alcohol rehabilitation, and if one is so inclined to view market behavior through this lens then the last 2 days clearly resemble a market “Tell” that Fed liquidity is ingrained in equity market psychology.  I would not put it past the Federal Reserve to have written the minutes in such a way as to tease out what response the capital markets would have to a proposed change in their asset purchasing plans.  That is a common communication strategy in Washington, after all.  It is called a “Trial balloon,” meant to gauge a reaction more than actually policy direction. I don’t think equity markets much like or even understand this approach.  Too much of how the Street communicates is heavily regulated for the concept of a “Trial balloon” to be a common feature of the landscape.


If, however, the Fed is seriously thinking about changing its tack, then the “Addiction” paradigm does hold some information about how markets may react during what would be a very different world from the one many investors saw just a few days ago.  A few points here:

  • Drug and alcohol “Rehab” is essentially a medical and psychological treatment to change behavior.  There are medications like methadone which treat heroin addicts and disulfiram for alcoholics, but any effective treatment also works on the mental processes which enabled the person to become addicted in the first place.  No two cases are exactly the same, and the National Institutes of Health note in their online guide that, “Addiction is a complex but treatable disease.”
  • Unhooking the capital markets from the Federal Reserve’s liquidity spigot is certainly easier than actual rehab, but the process is similar.  Let’s not lose sight of why the Federal Reserve felt the need to pursue so many unconventional policies in the first place: the U.S. economy remains mired in a very slow climb out of a very big hole.  Corporate profits have recovered to near-record levels, yes, but unemployment is still high and GDP growth remains near zero. Ordinarily that would have meant equity markets would apply a lackluster multiple to those high earnings, fearing a relapse to recession and declining corporate profitability.  But with incremental liquidity and low interest rates, stock market valuations resemble something approaching a “Normal” mid-cycle recovery.  Add to this the presumptive benefits of increased business confidence and consumer wealth effect, and you can see what the Fed had in mind. 
  • So here’s the “Rehab” – real investors have to take the place of the Federal Reserve and provide liquidity and buying power in equity markets.  The tricky bit is that private investors using ‘Real’ capital have distinctly higher required rates of return than leveraged institutions which take advantage of low interest rates to opportunistically speculate on stocks. But the transition is not impossible, and the pathway is clear.  And there is every possibility that those real investors will accept that challenge, once they know that the Fed really is clearing out.  But we won’t know until they do. 
  • Treatment takes time.  As mentioned above, the typical stay at an in-hospital program is measured in months.  There are no shortcuts.  The number one cause – by a wide margin – of a failed course of rehab is the patient quitting part way through. 

I think this point is what troubles equity markets at the moment.  No one knows how much time it will take to clear market psychology of the last few years’ presumption of a “Fed put” on stocks.

The other analog to recovery from addiction is the need for consistency.  The NIH guidelines I mentioned above highlight the need for continuous monitoring of the patient because lapses back to drug and alcohol abuse occur frequently.  Once the Fed decides to seriously cut back or eliminate its long-dated Treasury buying program, there’s really no going back.  If you buy the notion that “Real” investors are waiting for the Federal Reserve to leave the scene before they step in, then it makes sense that they will want to be sure the market is cured of its “Addiction” before they return. 

One final thought: as I read through this before pushing ‘Send,’ it strikes me just how difficult the transition to a less-aggressive Federal Reserve asset buying program will be for U.S. stocks.  So much of the baseline assumptions for equities are anchored on a highly accommodative U.S. central bank that it is hard to imagine how this transition would work.  But, as the saying goes, the first step to curing addiction is to admit you have a problem.  And maybe that’s what the Fed just did.

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DJ Happy Ending's picture

Are we sure this is a floater and not a blumpkin?

Could be an upper decker.

Kitler's picture

When the Junkee owns the Drug Dealer it's never going to end well.

The 'High' the TBTF Junkees seek are the Insane Financial Rewards for stupendously immense malinvestment (if you could call consumption investment) and resultant destruction of both currency and country.

If the Junkee doesn't want to get clean (and he doesn't) he won't until it ends with him (assisted by the Federal Reserve) owning everything left and everything left in either flames or ashes.

And the economy (not the Junkee) dead.

There just is no way this can end otherwise.

ZerOhead's picture

My Karmageddon portfolio... (where everything bad we did in the past comes back to haunt us)... consists of PMs, land, equipment, foodstuffs and of course Goldman Sachs, Citi and JP Morgan shares.

Cockroaches are known to be the heartiest of survivors...

francis_sawyer's picture

Toradol [Ketorolac] for all DJX call buyers... Doctor's Orders...

Pure Evil's picture

Just because the Fed leaves the marketplace doesn't mean the crooks currently running Wall Street have seen the error of their ways.

Manthong's picture

By the time the politicians or the market get serious about an intervention, the patient will be on a gurney heading  out of the ICU and down to the morgue.

Chupacabra-322's picture

The first dangerous mistake the average person makes is the assumption that “evil” is a kind of subjective concept. We would love to believe that all destructive and malicious behavior is merely a product of bad environment, bad upbringing or mental psychosis. Deviance in the name of “profit” or “status” is often more acceptable to the public, as long as there is a reason we can easily understand and grasp.

What frightens the average American today is not the abhorrent action of criminality; rather, it is criminality without rationality. What frightens the common citizen is the possibility that some people hurt others not because their mommy and daddy “mistreated” them or because they have a psychological deficiency, but because they fully and consciously enjoy doing what they do.

Our society is desperate to make excuses for the monsters of our era, perhaps because we would rather not entertain the possibility that there is a dark side to humanity that, if allowed, could take control in a deliberate and calculated way.

This is why the greatest crimes of our time often go ignored by the public. The idea, for instance, that international financiers and political elites would purposely create economic disparity, social chaos and global war out of a desire for centralized power and a disturbed sense of superiority is simply too much for many to handle. Surely, these terrible events throughout our modern history are merely the result of random coincidence and human error, right?

Unfortunately, this is not the case. In fact, most catastrophic cultural policies and tragedies can be traced back directly to a subset of people who use their positions of influence for ill purpose and who knowingly engineer calamity not just for personal gain, but also for the gain of their social class.

In the liberty movement, we often refer to members of this group as “globalists” or “elitists.” They permeate the upper echelons of our Nation, and they do indeed have a culture that is entirely separate and disparate from our own. If one studies their literature, initiatives and motives, he would discover another world, driven by outlandish goals and an even more outlandish brand of religious fervor. Here are some of the character traits and beliefs that make these people easy to identify.


Global elitists tend to see themselves as a separate breed of human being, a superior class with superior faculties, born to rule over the rest of us. In their writings they often espouse the teachings of The Republic by Plato and the concept of the philosopher kings. They believe that some men and women are endowed with a genetic predisposition to leadership and that the average person does not have the intelligence to determine his own destiny. They see the rest of humanity as a blank canvas and themselves as the artists. We are to be molded, and our social dichotomies are to be manipulated.

In reality, they are no smarter than the rest of us. Rather, they inherit positions of wealth and influence, and they automatically assume this makes them superior. Their ability to mold society is derived entirely from their extensive capital and their complete lack of morality. If they were not in the top .1 percent of the world’s rich, they would be treated like common criminals for their behavior. But sadly, in our day and age, money often buys undue respect. Imagine a group of John Wayne Gacys or Charles Mansons, except with 80 percent of the world’s wealth at their disposal and the means to purchase good publicity and legal immunity. That is essentially what we are dealing with.

Zero Conscience

Elitists believe that conscience is a hindrance to success, instead of a worthwhile virtue. They knowingly and deliberately abandon their moral compass because they see it as an unnatural restriction, an obstacle that makes getting what they want more difficult. Conscience, however, never quite disappears in anyone. In order to reconcile their wretched mindset with that distant nagging sensation of guilt, they claim that their actions are “for the greater good of the greater number.” They desperately want to believe that they are serving the future of mankind and that we should appreciate their guiding hand, even though the things they do seem far more hateful than helpful. They would call this “tough love.”

They further attempt to avoid the fact of their own dysfunction by trying to elicit criminality in others. If they can convince the masses that morality is relative and that right and wrong are subject to interpretation, if they can convince us to ignore our own inner voices which are inborn, then their monstrosity could be considered normal — even preferable. In a world of moral relativists, the man with a conscience becomes the criminal, the outcast; and the elites become the heroes they always wanted to believe themselves to be.

Promote Collectivism

Top globalists are not necessarily collectivists themselves. In fact, they often swing far to the other end of the spectrum into an aberrant form of individualism. As discussed above, they even see conscience as a restriction on their personal freedom and rebel against it as if rebelling against enslavement. What they do not grasp is that the inherent nature of conscience is a gift, one which has, so far, kept humanity away from the brink of total self-destruction, at least to this point. It is not a prison. Rather, it is protection from ourselves.

The elitist’s insane ideal of pure individualism without self-discipline is a private matter they rarely discuss. In public, they constantly promote the collectivist lifestyle and admonish individualism in common people. If people can be convinced that they are devoid of inherent qualities and characteristics and that their environment is the totality of their existence, then they will hand over all power to anyone who promises them the best possible surroundings. That is to say, when we have no faith in our own individualism and self-responsibility, we will automatically seek protection, usually from a nanny government or dictatorship.

People often confuse “collectivism” with “community.” This is caused by a lack of understanding as well as a lack of experience. Community is a voluntary gathering of individuals for the purpose of mutual aid. Collectivism is the gathering of people by threat of force or loss, for the purpose of consolidating power into the hands of a few. It is the act of destroying individualism in the name of protecting the group. In America today, we have disappearing sense of community, while the “advantages” of collectivism are being sung to the rooftops by global elites.

The Noble Lie

Elitists are very adamant about the idea of the noble lie, the use of a lie to attain a positive goal. In their view, average citizens lack the capacity to understand the bigger political and social picture; so we must be lied to in order to make us do what is best for ourselves. Of course, their version of what is best for our culture always seems to include first and foremost what is best for them.

The noble lie is a logical fallacy of epic proportions, and I often wonder if global elitists secretly doubt its legitimacy. If you need to lie to people in order to get them to accept your ideas, then there must be something terribly wrong with your ideas. Ideas with vitality and honesty do not need to be “sold” to the public through chicanery; the truth takes on a life of its own. Only destructive philosophies need a foundation of lies in order to take root.

Population Reduction

One of the centerpieces of the globalist religion is the concept of population reduction. They not only see themselves as a separate species with superior genetic makeup and a propensity for rulership, they also see the rest of us as cockroaches and “useless eaters,” a herd that needs to be culled. The funny thing about population reductionists is that they always want other people to die in order to save the planet. They never offer their own life as a sacrifice for the greater good. This is because they assume they are too important (ostensibly because they think they are intelligent), while many of us are expendable.

Of course, overpopulation today is an oversold myth that has been disproven in many scientific circles. Population expansion is also not necessarily a bad thing. Greater population means more minds working on more problems. It drives technological advancement and forces us through the survival imperative to invent more efficient methods of production. There are advantages to growth.

In the end, though, global elites do not care about the Earth. They do not believe in population reduction because they want to reduce pollution or the so-called “carbon footprint,” save the poor animals, or even protect finite resources. They want population reduction because first, they are eugenicists who see some people as genetically inferior to others, and second, because a culled population is easier to dominate. Again, fewer minds working means fewer problems solved and fewer individuals to rock the boat when the state abuses its power.

The Source Of Our Pain

Globalists are not the only source of our social pain. We bear some responsibility. When we are not vigilant, when we deny our own ignorance and refuse to learn, when we lie to ourselves and when we cater to personal superficial desires rather than taking the future into account, we open the door for the devil. Evil, like conscience, resides in us all.

That said, global elites are not just randomly terrible people. They have constructed an entire culture of deviance. They are organized evil, and this is a problem we must deal with soon. Good men are defined not only by their adherence to the inner voice of truth, but also by their willingness to act when the truth is threatened. We must educate others and, when the time comes, put ourselves in harm’s way to remove the globalist ilk before they destroy everything in a raging elitist fervor.

–Brandon Smith

tenpanhandle's picture

shit! Jungs doctorate dissertation was shorter than that.

GetZeeGold's picture



Elitists believe that conscience is a hindrance to success, instead of a worthwhile virtue.


Thus the Cremation of Care ritual every year at the Bohemian Grove.....it's tradition.


You can run but you can't hide...just ask Johnny Cash.


Id fight Gandhi's picture

Scarface: never get high on your supply.

mr. mirbach's picture

Rehab is for quitters -Hank Moody

Buck Johnson's picture

Your totally correct, there is no way for this to end without everything going to flames.  The reason why the Fed is doing what it have been doing is because they are all in.  Meaning that they have passed the Rubicon and there is no way to take away the punch bowl without major loss.  So they are "riding it out" and hope when it can't work they will either be in a war and/or blame someone else for the destruction of the US economy.

TraderTimm's picture

So, just thinking about this - what if the method involves a version of 'cold turkey'?

Get a false-flag, close the exchanges for 'terror' reasons, then do a massive revaluation. All the while, proclaiming that savings were indeed 'safe', and to trust the government to keep things running smoothly as we transition to the new order. < Patriotic Flag Images, Swelling Music >

Its so sick I can almost believe it will happen.

agent default's picture

Of course far more addicts eventually die of an overdose rather than get rehabilitated.  And assuming that there is some attempt at rehabilitation does anybody think the present political system will survive the withdrawal syndrome?  They will never try to fix it or allow anybody to fix it, because it will be the end of their power plain and simple.  So overdose it is.

kaiserhoff's picture

My Dad liked to point out that there are more old drunks than old doctors.

akak's picture

My dad liked to point out that there is also significant overlap between the two groups.

And under Obama(don't)care, one can only expect that degree of overlap to increase.

Debeachesand Jerseyshores's picture

"Obama(don't)care".That's a good one and the best I have seen lately.

agent default's picture

Probably makes sense. Alcohol and barbiturate withdrawal symptoms can cause  all death by themselves.  Things may have come to the point where we are faced with a terminal/terminal situation despite of what the Fed decides to do from now on.

cowdiddly's picture

My Dad was an old drunk who did not trust doctors.

DangerClams's picture

There are also more dead drunks than old doctors.

For every live drunk, there is almost universally a path of personal and moral destruction than no shot of, well, "medicine" will cure.

But hey, drunks are hilarious.  Just watch someone have a cirrhotic hemorrage and laugh yourself all the way to the, um, hospital!


tenpanhandle's picture

stop it, you're harshing my buzz.

nmewn's picture

He's young, he hasn't learned the difference between professional drunks and medical quacks yet ;-)

A Nanny Moose's picture

Professional? Doesn't that imply work; that proverbial curse of the drinking class?

nmewn's picture

lol...as far as I'm concerned, it only requires due diligence and knowing ones limits of expertise!

Michelle's picture

Not really hilarious...my friend's sis decided that taking pain killers for her bad back while keeping up the daily heavy drinking would be okay, until 2 weeks ago. Today the hospital staff removed all the machines and she has been transferred to hospice with only hours, maybe days left. Only 50 years old and alcoholism and painkiller addiction took her life. Don't think she truly understood the consequences of her actions. Sad.

About the Fed, the co-dependents of the world are allowing the money printing, one of these days someone will attend an Al-Anon meeting and realize that they too are part of the problem.

Lore's picture

Perceptive. That is the problem with globalism / communitarianism: everybody is supposed to accept the mantle of "Enabler" (defined). 

kaiserhoff's picture

To do that much damage, those "pain killers" must have been prescription.  I wonder if the corporate pill pushers didn't know that she had a drinking problem, or didn't care.

kaiserhoff's picture

How can economics be considered a profession?

Is there any evidence that "economists" know something the rest of us don't know..., something sane and useful to know?

agent default's picture

Well, it's like marketing with a bit of astrology mixed in,  but get this:  WITH OTHER PEOPLES MONEY.  Whoopieeeeeeee !!!!!!!

DosZap's picture

Once the body gets past the withdrawal dangers, its all in your head.

And it can take less than a week to shake most off.Staying clean is then up to the individual.

Until you HIT THE WALL w/ any addiction, your not ready to try and stop.

Changing friends(so called),haunts, and old habits is KEY to success).

Dead Canary's picture

This is scary stuff - for adults only. Is it possible that some fungus has invaded the brains of our politicians and directed them to lead us into financial ruin?

> http://www.scientificamerican.com/article.cfm?id=fungus-makes-zombie-ants

No, now that I think of it if a fungus was controlling politicians brains, they would make better decisions.

CH1's picture

if a fungus was controlling politicians brains, they would make better decisions.

You misunderstand: They are making wonderful decisions. It's just that their purpose is not what you think it is.

The purpose of a ruler is to RULE, and the current batch are doing a grand job of it. They skimm away half the produce of over a hundred million people, continually, and are simultaneously held in the highest esteem.

These are the glory years for politicians. The fact that they stink for the populace is BY DESIGN. Politicians live off of the skim, which is stunningly abundant these days.

Dead Canary's picture

Sir, I stand corrected.

CH1's picture

And you are gracious. Thank you.

tenpanhandle's picture

stop it, you're really, really harshing my buzz.

CH1's picture

stop it, you're really, really harshing my buzz.

But dude, that was a polite exchange!

Polite! Here on ZH!!

That's pretty cool, no?

tenpanhandle's picture

It wasn't the tone but the content.  The truth usually "harshes" one's buzz. (just a comment, no down vote from me)

jimmytorpedo's picture

You are actually thinking of a zombie control parasite called Toxoplasma Gondii

It's why pregnant women are told to avoid kitty litter boxes

T Gandii short circuits the amygdala (fear centre) of rats and mice and makes them sexually attracted to cats

That is where T. Gondii reproduces, in a cats gut

People with T. Gondii also exhibit defective amygdala characteristics

Your son makes rickety jumps out of 2x4's and cardboard boxes for his dirtbike?

--check him for T. Gondii

Your daughter is a slut and sleeps with the old town drunk

--T. Gondii

Your local bankers are fucking psychopaths

Toxoplasma Gondii, your alien parasite overlord

It is trying to get you dead so you will be eaten by a cat (no really)

Ignatius's picture

Jimmytorpedo, are you willing to say that on camera wearing a white coat and stethoscope?

rhinoblitzing's picture

Drug Test ALL Politicians  -  Seriously... We have a right to know if these people are on Prozac or Legal Opiates - and in CA and CO - If they are inhaling - Why can't we demand disclosure ? Most jobs require a drug test.

nmewn's picture

There ya go...we have to submit to the dehumanizing practice giving away pieces of our bodies or its wastes (and pay for the "privilege" in most cases) to test for drugs...why shouldn't they?

DoChenRollingBearing's picture

Yes.  Hey!  I could then be a politician!  President Bearing would make a few changes....

nmewn's picture

It'd be fun wouldn't it?...lol.

I'm thinkin they'd give me three to six months running rampant before the Veep would have to take over...but what a time it would be...it would be slash & burn...no prisoners.

Thats why it will never happen ;-)

Professor Fate's picture

Slip em' an IQ test as well.  Odds are they all will fail one or another.  Maxine Waters and Pelosi, of course, will fail both gloriously.

Fate the Magnificent

"Push the Button Max"

nmewn's picture

Yep, they are produced by the education system in many countries, from the population at large...you'll love this...

"By discharging the jury which had failed to reach even a majority verdict, the judge, Mr Justice Sweeney, did not hide his astonishment and dismay at the way it had behaved.

On Tuesday, the jurors had presented him with a list of ten questions which revealed that they simply did not have a clue about what they had heard as evidence, what they had been told by himself or indeed what they were supposed to be doing there at all.
For example, they asked for a definition of reaching a verdict ‘beyond reasonable doubt’.

This was despite the fact that the judge had already given them guidance on this in writing.

Mr Justice Sweeney effectively threw up his hands in despair, saying that these were ‘ordinary English words’ that he could not define any further.
Bafflingly, they asked whether a wife’s religious conviction would make her feel that she had no option but to obey her husband. But since Vicky Pryce’s religious beliefs had not even been mentioned, this was clearly totally irrelevant to the case.

Equally perplexingly, they asked whether the defendant had an obligation to present a defence. In reply, the judge reminded them he had told them that the defendant did not have to prove anything at all.

Most extraordinary of all, they asked whether they could reach a verdict based on a reason that was not presented in court and had no facts or evidence to support it. Since a criminal trial is no more or less than a trial of the evidence, such a question revealed a fundamental lack of understanding of what a criminal trial actually is.

No wonder the judge said that some of these questions had shown a ‘fundamental deficit in understanding’ of the jury’s role, and that in 30 years of criminal trials he had not come across anything similar."


mrdenis's picture

Vowing to close what they're calling "the police loophole," at least 50 US companies, ranging from gun machinists to gun shops, are now saying publicly they'll refuse to sell weapons and gear to police in places where governments have banned the use of the same gear by civilians.

Quality Arms, located in Rigby, Idaho, writes on its website that it "will not supply any firearm or product manufactured by us or any other company, nor will we warranty, repair, alter or modify a firearm owned by any state, county or municipality that infringes on the right of its citizens to bear arms under the 2nd Amendment."


akak's picture


They hate us (the police) for our freedoms (over the rest of the population)!