This page has been archived and commenting is disabled.

A 1994 Redux?

Tyler Durden's picture




 

A prevailing theme that the pundits are trying to furiously push onto hapless lemmings in hope of forcing them out of bonds and into stocks, is that the current capital market is somehow comparable to that of 1994 and that the Fed rate hike of 1994 is imminent in our day and age too. Aside from the fact that the economy, or the market, is nothing like 1994, the subliminal suggestion is that the Fed may just pull a Greenspan, and proceed to hike rates one clear day, in the process sending the long-end soaring, so please dear lemmings: rotate greatly. So if one were to ignore the fact that for the Fed to hike it would imply that the $14 trillion in global central bank support would immediately start being withdrawn, and thus sending the S&P lower by over 1000 points, how does this particular fable work? Here is how Bank of America spins it.

A small step for the Fed; a giant leap for the bond market: The economic recovery in the early 1990s was similar to today’s recovery. Growth rebounded slowly from the 1991 recession, so the Fed continued to cut rates and then went on hold with a 3% funds rate from October 1992 to January 1994. This caused a steady rally in the bond market, with monthly average 10-year yields bottoming at just 5.3% in October 1993. This was an extraordinarily low yield; coming just 10 years after yields had peaked at 13.4%.

 

Sure enough: a tidy little package. There is one problem: hiking rates means that the Central Banks admit their balance sheets are too big. Which means one simple thing: the $14 trillion orange bar will be "discounted" as going to zero asap. What happens next Bank of America can certainly tell us, but something tells us they won't.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 03/05/2013 - 09:25 | 3300406 Sutton
Sutton's picture

BenYellenEvans will NEVER raise rates.  And the Conman will never appoint a Fed chieftain that will raise rates.

Case closed.

Tue, 03/05/2013 - 09:26 | 3300407 GetZeeGold
GetZeeGold's picture

 

 

If they have the nuts to commit suicide....I say go for it.

Tue, 03/05/2013 - 09:30 | 3300416 TrumpXVI
TrumpXVI's picture

I'm in favor.

This is one of the few movies I'd like to see.

Tue, 03/05/2013 - 10:26 | 3300544 francis_sawyer
francis_sawyer's picture

1994 Redux?... Hmm ~ I know, we could unlock the mythical Social Security lockbox, invent the internet, downsize the military, not have any wars to speak of, then, 5 years later, shit can Glass~Steagall, blow a housing bubble, pop a housing bubble, go to NIRP, bail out every bank in the world, and triple both the US debt & the Feds balance sheet... Oh wait!

Tue, 03/05/2013 - 12:33 | 3301026 LongBallsShortBrains
LongBallsShortBrains's picture

That would bring us full circle to here.

I picked the wrong decade to short bonds.

Tue, 03/05/2013 - 10:22 | 3300555 redpill
redpill's picture

Pretty tough to take any analysis seriously that begins with the premise that our current economic state is even remotely comparable to the early 1990s.

They should calculate the fiscal impact of the increase in the interest payments on the national debt today compared with 20 years ago, and then fire the analyst who decided to equate the two situations.

Tue, 03/05/2013 - 09:42 | 3300441 LawsofPhysics
LawsofPhysics's picture

Another optimist.  Rates can never be raised.  This is the death of all paper promises.  Full-frontal naked empire. Nothing will change now until the supply lines start breaking.  Then the world goes to war.  Some things never change.

Tue, 03/05/2013 - 10:01 | 3300512 mayhem_korner
mayhem_korner's picture

 

 

What will be interesting is where the dividing lines are drawn on the war front.  Rather than overt military action, I think the "declared" enemies will exacerbate civil unrest through supply chain and cyber attacks, hastening the implosion of enemy "nations".  Let them destroy themselves, outlast them, and then divide up the spoils.

Tue, 03/05/2013 - 10:31 | 3300569 LawsofPhysics
LawsofPhysics's picture

This conversation is already happening in washington.  Notice how many representative are pushing for a mechanism to completely spare the pentagon and numerous military/security contractors from the sequestration cuts (as small as they are).  I agree, many more manchurian candidates will be coming out of the woodwork sooner.  Your insight is wise, hedge accordingly.   Winning by arttrition is never pretty, but often necessary.

Tue, 03/05/2013 - 12:11 | 3300950 Lordflin
Lordflin's picture

Nah... This is going to be the real thing... The world has been polishing it's guns for far too long now... Time to take them out and see the damn things shoot...

Tue, 03/05/2013 - 13:27 | 3301215 BooMushroom
BooMushroom's picture

We've already fertilized the ground in Europe and Russia with the blood and bones of millions. Maybe now we'll carpet bomb the ever-loving fuck out of Africa. Then the Islamists can finally destroy the sphinx and the pyramids, too.

Tue, 03/05/2013 - 09:59 | 3300505 W74
W74's picture

Why let them commit suicide, we should just hang them.

Tue, 03/05/2013 - 09:26 | 3300408 q99x2
q99x2's picture

I'd believe a black labradoodle before I'd believe Bernankamerica.

Tue, 03/05/2013 - 09:43 | 3300444 mayhem_korner
mayhem_korner's picture

 

 

Is that a reference to the First Lady?

Tue, 03/05/2013 - 12:35 | 3301037 LongBallsShortBrains
LongBallsShortBrains's picture

What did any labradoodle ever do to you to make that comparison???

Tue, 03/05/2013 - 09:28 | 3300409 scatterbrains
scatterbrains's picture

Actually it's more like 1984 in terms of volume in some of the key stocks the nyfed uses to fraudulently mark stock prices.. and soon enough  mid 1960ies size volumes I'm thinking...

http://fiatflaws.blogspot.com/

Tue, 03/05/2013 - 10:18 | 3300542 CheapBastard
CheapBastard's picture

Mid-1980's RE collapse was brutal. The bright side is that market stabilized after the serious correction in a few years....about 3-5 years if I remember.  Add to that collapse was the chane in tax laws for RE and the plunge in realestate was dramatic. But as I say, "they" let it fall and it soon corrected.

Also, the bank "crisis" resulted in over 700 financail.banker crimunals go to jail. The 2008 plunder resulted in less then 5 being indicted/jailed.

This time is different.

Tue, 03/05/2013 - 09:31 | 3300417 fonzannoon
fonzannoon's picture

I thought we gave up on the 1994 garbage by now. It seemed we were moving on to Ben being a true american hero who did everything he could to keep things held together until the dow finally topped out at 25k in 2022 when we were finally forced to deal with austerity. Anyay I digresse....go buy some stawks baby!

Tue, 03/05/2013 - 09:35 | 3300429 mayhem_korner
mayhem_korner's picture

 

 

Why not?  Jerry Jones is still reminiscing about 1994.

Tue, 03/05/2013 - 09:37 | 3300431 Momauguin Joe
Momauguin Joe's picture

Still seeing quite a few 1994 era bondo rust buckets on the roads, held together by Gorilla tape and coat hangers. Austerity has been here for some time for the proles. 

Tue, 03/05/2013 - 09:41 | 3300440 infinity8
infinity8's picture

Honk the next time you see me :)

Tue, 03/05/2013 - 09:31 | 3300418 i_fly_me
i_fly_me's picture

Central banks haven't even admitted that their balance sheets *can* be too big.

Tue, 03/05/2013 - 09:34 | 3300423 fonzannoon
fonzannoon's picture

Holy shit this fucktard Warsh on CNBC right now takes the cake. What a truly sick and disturbing individual. He can't be a human being. He must be some kind of cyborg.

Tue, 03/05/2013 - 09:56 | 3300494 W74
W74's picture

Yes, Kevin Warsh, former governor of the FRB who attended Stanford, Harvard and MIT no doubt picking up Keynesianism along the way.  Seems to have married into Jewry and inherited a fortune through his wife.

Tue, 03/05/2013 - 09:33 | 3300424 mayhem_korner
mayhem_korner's picture

 

 

I DARE Ben to hike the Fed funds rate

I DOUBLE DOG DARE Ben to pull the punchbowl away for 90 days

Tue, 03/05/2013 - 09:40 | 3300437 caimen garou
caimen garou's picture

how can he take away the punchbowl, to many jackasses drinking from it! it will cause an epidemic of dry ass.

Tue, 03/05/2013 - 10:02 | 3300517 MiltonFriedmans...
MiltonFriedmansNightmare's picture

The Fed will hike rates, it's not a matter of if but when. Once they determine who the next sacrificial lamb/s will be (primary dealer/s), and they likely already have (they being JPM), the rate hike will occur, oil prices will break and the lamb/s will be lead to the sacrificial alter as the morgue stands by ready to pick up the pieces.

I believe we've seen that movie too.

Tue, 03/05/2013 - 10:29 | 3300571 BidnessMan
BidnessMan's picture

The Fed has decided to throw JPM under the bus?  You are delusional.

Tue, 03/05/2013 - 10:39 | 3300604 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Bidness,

Reread the post. JPM will make the determination as to who the next sacrificial lamb will be, just as they did in 2008 when they chose Lehman. JPM cannot be sacrificed....JPM is the Fed, for all intents and purposes.

I forsee a 2008 redux, only on a grander scale.

Tue, 03/05/2013 - 11:43 | 3300867 walküre
walküre's picture

Rate hike is the equivalent to a declaration of war at this stage. Try telling the armed and dangerous population they have to peddle harder and faster because the elite wants to earn more income on their looted stash. The stash being a crap load of FRNs created from thin air. Bring it.

Tue, 03/05/2013 - 09:35 | 3300430 Michelle
Michelle's picture

The bond vigilantes are hibernating, the banks are the direct beneficiaries of low rates and are necessary for their continued survival. Bernanke won't raise rates but maybe his successor will, that's most likely the banks' biggest fear, who will replace Bennie, and interestingly no one is talking about it.

The Fed doesn't care about the size of its balance sheet, they are the quasi bad bank and will absorb any and all paper the banks don't want and this moral hazard will continue until something forces it to stop.

To even suggest that the Fed, i.e. Bernanke, would raise rates intentionally to avert a bubble or undesirably high inflation is silly at best. What is Bank of America's real motive in even presenting this possibility? I wouldn't trust a TBTF bank if my life depended on it.

 

Tue, 03/05/2013 - 10:13 | 3300442 fonzannoon
fonzannoon's picture

"Please get these freakin overpriced, about to crash stocks off our hands so we can buy your bonds!!! Please!!!"

BAC

edit - Michelle the last thing the banks worry about is who will follow Bernak. It will be the banks that appoint that person.

Tue, 03/05/2013 - 09:43 | 3300443 Shizzmoney
Shizzmoney's picture

What is Bank of America's real motive in even presenting this possibility?

Scaring those to a) not raise rates and b) trying to find the shorts off this "news" to capitalize off of, since the market gets skiddish whenever anyone mentions "the raising of rates".

Maybe we will be Japan, and limp alongm for 15-20 years.  But American's impatience may have something to say about that.

Tue, 03/05/2013 - 09:50 | 3300470 W74
W74's picture

Janet Yellen.  With her we're going to wish for Bennie Shalom back.

Tue, 03/05/2013 - 14:07 | 3301359 Shizzmoney
Shizzmoney's picture

The Fed will probably put a woman in their next just so when we critize her, TPTB can pull out the ole "that's sexist!", line.

Tue, 03/05/2013 - 12:20 | 3300978 Lordflin
Lordflin's picture

Fed won't raise rates unless the intent is to drive the country into revolt... Doubt that will happen before guns are confiscated... I suspect that gun confiscation would trigger a revolt on it's own... I still say world war is next up.. Chinese need to figure out something to do with a population that has produced 16 million more young males than females...

Tue, 03/05/2013 - 09:37 | 3300433 Confundido
Confundido's picture

This is just amazing....If under similar circumstances a central banker in any Latin American country would dare to say that under equivalent US fiscal deficit conditions they will withdraw liquidity, everyone and their dogs would laugh at him!  People would feel compelled to buy even more foreign exchange and dump soles, pesos, reales, etc. Yet in the developed world, people seem to be amazingly stupid! I can only stand in awe...what the fuck is it? Do they get brainwashed since kindergarten? How can people keep their monies in their local currencies, in their banks, and even in sovereign debt???? WTF????

Tue, 03/05/2013 - 09:48 | 3300457 W74
W74's picture

No American as far as I know (except those who may have fled other countries) alive today has experienced complete economic ruin at the hands of it's own government.  Sure there was the market crash of 1929 which my grandfather (only recently dead) remembers as a very young teenager but people morved around, got jobs, and worked their butts off back into prosperity. 

Something tells me it'll be different this day and age and people will simply shout: "Moar mo'nee i need free shit waaaaaaaa" and demand pittances at the expense of their working and/or asset saving bretheren.  Few Americans alive today even understand what it would mean to go Weimar or Argentina or the switch between Russia and the Soviet Union.  We all know that ONE OF those scenarios is coming, it's just a question of which one and what uniquely American twist will we put on it?

 

 

Tue, 03/05/2013 - 09:41 | 3300439 buzzsaw99
buzzsaw99's picture

Bonds crash ---> Stocks crash

Stocks crash ---> Bonds rise

 

one more

 

Bonds crash ---> Stocks crash

Stocks crash ---> Bank bonuses crash

 

greedscam encouraged people to take out ARMs then raised the fed rate thus screwing everyone. I wouldn't say the bernank would be above encouraging the gubbermint to take on $20T in debt and then sticking it to them but I'll be damned if I will believe he will in any way ever jeopardize Jamie and Lloyd's bonus.

Tue, 03/05/2013 - 11:50 | 3300900 walküre
walküre's picture

Yeah, the money changers can screw little aunt annie out of her savings and house but if they start screwing with uncle sam, they will get their ass handed to them.

Tue, 03/05/2013 - 09:55 | 3300448 OldE_Ant
OldE_Ant's picture

lol.  Yeah just like 1994. NOT!  

For one thing interest rates and bond prices are so far out of whack that we are in the Twilight zone realm.   US govt debt to GDP and deficits then were still within 'reasonable' norms NOT now.   Also in the early 90's we still had a govt that could get things done (albeit with great difficulty).  Now the US govt. is effectively rendered useless except to spend MOAR, and MOAR, and MOAR.  The FED has basically stepped in and said YES to US deficit spending to the tune of TRillions per year.

Let me break this down for you 0 challenged.   $1T/yr of deficit spending equates to about $3K per citizen per year or what ~$12-15K/family?.   which is about what 30% the current average taxible income.  Federal taxes for the same family probably are around 3-4K/yr.

<sarc>Clearly this is sustainable for the long term</sarc>

Whatever BoA is smoking I think we need a national dose.  Oh yeah I forgot we get it daily by drone now.  Go back to work!

 

Tue, 03/05/2013 - 09:49 | 3300453 WhiteNight123129
WhiteNight123129's picture

A steeper curve and higher inflation expectations (the two work together) mean higher nominal GDP (no real, just nominal). So if that is the case the cost of servicing rises but the tax revenues too in nominal terms. That is called inflate away. Ask Argentina how it got rid of its debts in the last 10 years.

You can not have steeper curve without higher nominal GDP, because the US is not Spain, it borrows in its own currency.

So the rates will be higher, but still negative, just that inflation is higher. Inflate away always works.

The tax revenues of Argentina increased massively in nominal terms in the last 10 years.

 

 

 

Tue, 03/05/2013 - 09:53 | 3300481 fonzannoon
fonzannoon's picture

Rates higher = bond crisis = currency crisis. If that "works" then we are all set.

Tue, 03/05/2013 - 13:03 | 3301145 Bam_Man
Bam_Man's picture

Argentina defaulted (HARD default) on the foreign portion of its debts.

Yes, the "inflate away" strategy has reduced the remainder to a manageable level.

Tue, 03/05/2013 - 09:48 | 3300459 mayhem_korner
mayhem_korner's picture

 

 

I think a nice little bank run on BofA would quiet them down a bit.  Who's in?

(uh oh...the quiet hum of a drone just broke the silence of my solitude)

Tue, 03/05/2013 - 12:43 | 3301071 LongBallsShortBrains
LongBallsShortBrains's picture

Read the rules for monopoly again. The bank never runs out of "money".

Tue, 03/05/2013 - 09:54 | 3300465 digitlman
digitlman's picture

On my short list of things that will never happen in the next 10 years, number 1 is a rate hike by the fed. 

 

 

Tue, 03/05/2013 - 10:02 | 3300513 buzzsaw99
buzzsaw99's picture

Exactly. After years of trying to drive money out of mm accounts the bernank is going to encourage money to come off the short end of the t curve back into, er, mm accounts? lmao

Tue, 03/05/2013 - 09:51 | 3300474 EyesWise Shut
EyesWise Shut's picture

I am very interested in all these discussions about if and when the "collapse" will happen. After heavy losses being short for some time I have finally pulled the trigger earlier this year and didn't regret it since, but still feeling uneasy about not being short (and miss out if the big one should happen). However, the increasing number of articles in ZH on the imminent collapse is probably a good contrarian indicator, a collapse doesn't happen if so many are expecting it. So we're probably safe on the long-neutral side for some time. I would love to sell the moment Tyler capitulates, the visible invisable hand probably waiting for this to happen.

Tue, 03/05/2013 - 09:54 | 3300488 LawsofPhysics
LawsofPhysics's picture

Unwinding hundreds of trillions of paper promises takes time.  Let's hope the supply lines hold.  One truth is certain; when goods and services stop crossing boarders, troops will.  some things about human nature never change.

Tue, 03/05/2013 - 10:46 | 3300642 Spastica Rex
Spastica Rex's picture

Just imagine what will happen when the new iPhone 6 doesn't get delivered. Or Walmart runs out of cheap flat screen TVs.

Tue, 03/05/2013 - 11:34 | 3300842 LawsofPhysics
LawsofPhysics's picture

Flatsceens?  plenty on the black market, now when the sodapop and beer run out, that's another story altogether.

Tue, 03/05/2013 - 10:37 | 3300592 petolo
petolo's picture

Tyler is a contrarian.To go contrary to a contrarian takes  you back to Mainstream .

Tue, 03/05/2013 - 10:48 | 3300652 Spastica Rex
Spastica Rex's picture

There's always the casting of bones. That might be good way to go. I think the Oracle at Delphi is long dead.

Tue, 03/05/2013 - 09:52 | 3300478 Everybodys All ...
Everybodys All American's picture

I know one thing always holds true. Once the banks can no longer make money on the stock market going up they will try to make money on the market going down.

Tue, 03/05/2013 - 09:53 | 3300482 buzzsaw99
buzzsaw99's picture

The 10y ~ 1% is inevitable.

Tue, 03/05/2013 - 09:55 | 3300484 ekm
ekm's picture

Bernanke in 2007 told everybody live on tv that the housing market was healthy.

 

Why? Because he wanted to lure as many suckers as possible, he knew pretty well housing was going to crash.

 

Luring of suckers is what Greenspan did up to 1994, what Bernanke did in 2007 and what Bernanke is doing with open ended QE.

 

However, the only suckers left to decimate are what the media calls "smart money".

Tue, 03/05/2013 - 09:58 | 3300504 OldE_Ant
OldE_Ant's picture

That's because the 'smart money' is all that there is left.

It will be gone soon enuf!  The FED is hungry!

Tue, 03/05/2013 - 12:19 | 3300977 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Precisely, and that is why there must be a sacrifice offered up, and soon.

Tue, 03/05/2013 - 09:54 | 3300487 Karl von Bahnhof
Karl von Bahnhof's picture

1994?

More like 1984!

Tue, 03/05/2013 - 09:58 | 3300500 rogeliokh
rogeliokh's picture

What???
They just knock $7 from the GOLD in 5 minutes. When those f*ckers will run
out of Physical Gold?

Tue, 03/05/2013 - 10:09 | 3300529 eddiebe
eddiebe's picture

They don't need physical as long as they got plenty of paper. As long as people believe in fiat the banksters can keep it going.

Tue, 03/05/2013 - 10:00 | 3300508 bnbdnb
bnbdnb's picture

Tyler. Turn long -term ES bullish. That is all.

Tue, 03/05/2013 - 10:00 | 3300510 sbenard
sbenard's picture

It's a Pollyanna Party!

Tue, 03/05/2013 - 10:05 | 3300521 taketheredpill
taketheredpill's picture

Bullshit.

 

In 1994 the economy was functional.  Rates had been low since 1991 (back then 3% was "low", as ZIRP hadn't been invented yet).and were stimulating business activity, borrowing by consumers, and lending by banks.

 

Fed Funds at Zero says it all about today's environment, where business activity consists of layoffs and dividend buybacks, no organic growth, consumers retrenching (or a few doubling down on worthless student loans).  Banks do not lend but will gladly take state handouts to play risk markets.

 

Tue, 03/05/2013 - 10:22 | 3300554 thismarketisrigged
thismarketisrigged's picture

isnt it amazing how a stock like goog only a few months ago reported a horrific quarter, and now is at 826 and never falls.

 

i fucking hope that stock falls to fucking 300 where it belongs, 827 for that stock is a joke

Tue, 03/05/2013 - 13:06 | 3301155 Bam_Man
Bam_Man's picture

GOOG is a "Benjamin Graham value stock" compared to AMZN.

No earnings, almost no cash, lots of debt and closing in on $300 a share!

Tue, 03/05/2013 - 10:31 | 3300575 RomeoFayette
RomeoFayette's picture

"the $14 trillion orange bar [CB balance sheets] will be "discounted" as going to zero asap"

While I agree that 1994 isn't a perfect analogue to 2012, the above excerpt is an alarmist bit of hyperbole, as is Tyler's X to that Y: '1000 points off SPX.' Most likely outcome is CB assets held until maturity.  The market will hate swallowing the bitter pill of QEnd--because ZH is right, it's the flow, not the stock--but Bernankenstein will keep going until unemployment reaches 6.5%... and at that point, 1000 pts of SPX will be something like a 15% move.

Tue, 03/05/2013 - 10:41 | 3300578 astoriajoe
astoriajoe's picture

Dow is at all time highs.

Can we go home now?<looks around>

shit, I'm the last guy in the room, besides those servers blinking in the corner.

Tue, 03/05/2013 - 10:35 | 3300579 Mi Naem
Mi Naem's picture

On the "CB6" chart, what is the purple supposed to represent? 

Tue, 03/05/2013 - 10:37 | 3300587 thismarketisrigged
thismarketisrigged's picture

holy shit i am going to buy a yacht now and my own island. i feel so fucking rich. dow all time highs, woo hoo.

 

fuck u fed and wall st and obama, go play i traffic

Tue, 03/05/2013 - 10:43 | 3300623 NorthPole
NorthPole's picture

It's more like 1984.

Tue, 03/05/2013 - 11:33 | 3300833 Cheeseus Sonofdog
Cheeseus Sonofdog's picture

The FED won't raise rates. The best we can expect is for them to release some official inflation numbers. For instance, the street thinks core CPI will be .01% and the fed says it is 2.4% That is all the fed needs to do and the street may cool off....

Tue, 03/05/2013 - 11:45 | 3300877 the grateful un...
the grateful unemployed's picture

check the divergence between the XAU and the DOW, 1994 and follow that indicator (all the way to 2003 if you like) hint: it was a long cold winter for gold stocks. this time the lag will not be nearly as long before the rest of the stock market follows, and much less time befoer there is a new and genuine bull market in gold. twenty years of monetary blowback, at least.

Tue, 03/05/2013 - 13:01 | 3301138 resurger
resurger's picture

Dream On!!!!!

Do NOT follow this link or you will be banned from the site!