BlackRock Calls For Bernanke To "Rein In" QE: Says It "Distorts Markets, Risks Stoking Inflation"

Tyler Durden's picture




 

It has been well known for years that PIMCO's Dr. Jekyll and Mr. Gross, the original bond king in charge of Allianz' $1+ trillion bond portfolio, has been a vocal critic of QE even in the face of his daily tweet barrage, which often recommends positions in complete contradiction to what said king opined on in his expansive monthly essays. What will come a great surprise, however, is that the "other" fund, which is just as big, is run by Wall Street's shadow king Larry Fink, and which has been advocating to go all in stocks for over a year (preferably using ETFs) interim drawdowns be damned (after all everyone by now should have an infinite balance sheet) - BlackRock - just went all out against QE.

As the FT reports, BlackRock's fixed income guru, formerly at Lehman Brothers, Rick Reider, "has called on the Federal Reserve to rein in its programme of quantitative easing, saying its bond-buying tactics are a “large and dull hammerthat have distorted markets and risk stoking inflation." Why, it is almost as if we wrote that... Oh wait, we did. Back in 2009.

However, unlike opportunistic others, we did not wait until the moment was juuuuuuust right to present the truth to the world. Either way, it is refreshing to see that one by one, virtually all the biggest money managers in the world are slowly but surely turning to our way of thinking.

From Rieder via the FT:

Rick Rieder, who oversees $763bn in fixed income investments for BlackRock, spoke out as the Fed debates how long to persist with the unorthodox measures it has used to stimulate the US economy. His comments add BlackRock to the growing list of Fed critics who are warning of trouble ahead for the bond market.

 

Mr Rieder favours government debt that matures within five years, corporate and emerging market debt, and bank loans that offer floating interest rates.

 

“Fed policy has had a distorting effect on capital allocation decisions of all kinds at virtually every level of the economy,” he told the Financial Times. “It is a very large and dull hammer for markets.”

Rieder's warning will be largely ignored by the FOMC, which knows very well that even the tiniest hint of a slowdown in the Flow (because the Stock is and has always been irrelevant), will bring the market to a quick and violent death.

Mr Rieder said the Fed had a window to cut back its bond-buying now. “The economy is on a reasonably strong footing,” he said, even as unemployment remains at 7.6 per cent. “The US labour market faces an array of structural headwinds that are likey to only be overcome in time.”

 

Those structural problems include: the costs of healthcare and pensions, which encourage the hiring of part-time workers; skill shortages – “people are not fit for the jobs available”; and demographics – “as the population ages, more and more people are staying in the workforce”.

Finally, Rieder does some back of the envelope math:

BlackRock estimates that interest rates on 10-year Treasuries are about 100 basis points below where they would be normally. Mr Rieder said that as such interest rates normalise, “losses that occur to fixed-income portfolios will be more and more acute”.

Right, because markets are so rational and discriminating when it comes to assorted XLS and DSGE models, and never tend to overshoot on either direction, especially when the only buyer of last recourse, the same buyer who has bought some 80% of net issuance in the past several years decides to go away, and no other clear buyer steps up. So yeah: take that 100 basis point and multiply by 10 or more to get the true impact of what will happen when the Fed steps away, and why Paul Volcker better be on carbonite duty for the moment he has to be thawed when America looks back at the 15% inflation of 1980 as a hyper deflationary period.

As for BlackRock's warning: it will come and go, and nobody will pay attention, because unless Goldman and JPM which together chair the Treasury Borrowing Advisory Committee say "enough", nothing will change. And since bonuses at both banks rely more than ever on the Fed's outright monetization of anything that is not nailed down, don't expect QE to end. Ever... and certainly not as long as the US central bank is still in charge of the entire world.

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Mon, 04/08/2013 - 19:51 | 3424280 Glass Seagull
Glass Seagull's picture

 

 

Biting the hand that feeds, eh?

Mon, 04/08/2013 - 20:00 | 3424308 Say What Again
Say What Again's picture

Did he mention what time of day he wants this to stop?

 

Mon, 04/08/2013 - 20:07 | 3424343 SafelyGraze
SafelyGraze's picture

"BlackRock Says QE "Distorts Markets, Risks Stoking Inflation"?!!

oustanding!

give Mr BlackRock guy 85B!

if that is your real name

Mon, 04/08/2013 - 20:17 | 3424369 ZerOhead
ZerOhead's picture

So Rick... AKA 'Richard'... AKA Dick Rieder thinks Bernanke should just ease off of the QE juice.

Then what do you think is going to happen?

Mon, 04/08/2013 - 20:19 | 3424382 eatthebanksters
eatthebanksters's picture

Bernanke's going to blow another out of his ass...

Mon, 04/08/2013 - 20:28 | 3424405 NotApplicable
NotApplicable's picture

QE4EVAH!

 

Mon, 04/08/2013 - 20:44 | 3424487 knukles
knukles's picture

And herein lies the confusion.
Both Pimpco and Blackrub have been short their performance bogeys, ie heavily invested in short duration/maturity bond.  Which have underperformed the longer term maturities.
So..... is this them really believing what they say (Which is questionable if Gross's past behavior of talking book is any example) or is it talking book as in "Jesus Mary and Joseph, we're short and wrong so we needs a bond market sell off and the best thing to do it might be nomoarQE"
I dunno....
But methinks the comments are not elicited in the altruistic best interests of their peasantry.

Mon, 04/08/2013 - 20:48 | 3424508 Al Huxley
Al Huxley's picture

Really?  You don't think Blackrock is just doing their part to try and help out the country?  I'm shocked, I always thought they had my back.

 

But seriously, I thought they were all part of the 'front run the FED' club, no?  For whom 'QE forever' means risk-free profits forever.

Mon, 04/08/2013 - 20:52 | 3424516 fonzannoon
fonzannoon's picture

They no one is listening, and even less give a shit. The Michigan/Louisville game is about to start. SHHHhhhhh!!!

Mon, 04/08/2013 - 22:23 | 3424762 Al Huxley
Al Huxley's picture

An oldie, but as funny and sadly relevant today as it was 10 years ago.

http://www.theonion.com/articles/terrifying-bill-passed-during-nba-playo...

 

Mon, 04/08/2013 - 22:58 | 3424876 Enslavethechild...
EnslavethechildrenforBen's picture

Why didn't the cock sucker instead tell the Treasury to start printing the damned paper so we could bypass the Fed's unjustifyable interest payments?

How about we make a deal with Bernanke. He can continue to press the "print" button for minimum wage...

Mon, 04/08/2013 - 21:26 | 3424594 Stoploss
Stoploss's picture

See, in LIBOR transactions they used email, umkay, that's bad.

Here, they comunicate through the headlines cause whocouldanode?

It's code for "we're short an we're hurtin'" 

Where's Hilsenrath with the story!!   NO MOAR!!

Tue, 04/09/2013 - 06:12 | 3425392 Urban Redneck
Urban Redneck's picture

The Pavlovian Media claim to be experts in identifying people speaking in "code"

Bankers have always spoken in code, even amongst themselves.

Too bad the media doesn't have a fucking clue how to translate their masters' code.

Mon, 04/08/2013 - 20:31 | 3424428 kliguy38
kliguy38's picture

Yup.....pure bullshit.....just jawboning to give the illusion that they could even fucking THINK about ending the counterfeiting

Mon, 04/08/2013 - 20:43 | 3424489 knukles
knukles's picture

As net recipients thereof....

Mon, 04/08/2013 - 19:59 | 3424315 zorba THE GREEK
zorba THE GREEK's picture

You want the truth........You can't handle the truth. Nor can the average American. 

That's where Zero Hedge comes in, delivering the truth, whether you can handle it or not.

Mon, 04/08/2013 - 20:07 | 3424346 SpiceMustFlow
SpiceMustFlow's picture

Agreed, so have the Tylers collectively removed a few ribs so as to auto-fallaciate?

Mon, 04/08/2013 - 20:09 | 3424355 Crash Overide
Crash Overide's picture

I got good intel that the red button Kim Jong-un had on his desk was not for nukes but to stop the printing preses at the FED. MOAR!

Mon, 04/08/2013 - 20:10 | 3424357 Croesus
Croesus's picture

Crook versus Crook.

May they both lose.

Mon, 04/08/2013 - 22:19 | 3424749 Croesus
Croesus's picture

@ Zer0head:

That was exactly what I was thinking......

Mon, 04/08/2013 - 21:48 | 3424639 Pandorable
Pandorable's picture

Zactly. Hard to believe all those experts didn't see it coming back in 2009 also.  Oh, wait---they did, but just decided to make their money on QE FIRST...and only now rail against it when it shows signs of being TAPPED OUT. Dickers.

Tue, 04/09/2013 - 00:10 | 3425103 A Cruel Accountant
A Cruel Accountant's picture

Inflation is already happening in the asian countries. Wages up 10 to 20% a year.

Mon, 04/08/2013 - 19:50 | 3424281 Al Huxley
Al Huxley's picture

Sure thing Blackrock.  As long as you guys will pick up the slack and buy 85 billion in Treasuries every month I'm sure the FED will be glad to cut back LOL.

Mon, 04/08/2013 - 19:56 | 3424301 fonzannoon
fonzannoon's picture

I wonder about that Al. Check out my post below. I really wonder with all the instability everywhere and money fleeing out of different countries, if the fed could sit back and get lucky. For a while anyway.

Mon, 04/08/2013 - 20:19 | 3424383 Al Huxley
Al Huxley's picture

Maybe, but 85 billion's a pretty large number.  Everybody's numbed now by all the trillions floating around, but basically, EVERYBODY in the the world would have to chip in about 12/month to cover it.  I don't see that happening, so then you'd have to be looking at sovereign buying - well, the west's all broke - no money to spare, Japan's busy full-time monetizing their own debt, and I think China and Russia have had enough, they're busy trying to dump US debt and cut bilateral deals to exclude the USD as settlement mechanism, I think they've telegraphed loud and clear that their days of supporting the US bond market are done.  So I kind of think its the FED or nobody at this point (bullshit musings about 'easing off by the summer as the economy improves' aside).

Mon, 04/08/2013 - 20:24 | 3424389 fonzannoon
fonzannoon's picture

85 billion a month. Holy shit. It's impossible to marginalize that. That is just enormous.

Mon, 04/08/2013 - 20:27 | 3424406 ZerOhead
ZerOhead's picture

Schiff didn't call it the "Roach Motel" of fiscal and monetary policy for nothing...

Mon, 04/08/2013 - 19:52 | 3424284 buzzsaw99
buzzsaw99's picture

Blackrock should stick to ripping off calpers. It is their true talent.

Mon, 04/08/2013 - 19:55 | 3424294 fonzannoon
fonzannoon's picture

"Mr Rieder said the Fed had a window to cut back its bond-buying now. “The economy is on a reasonably strong footing"

Who would trust anyone's back of the envelope math when they are drawing those types of conclusions.

Refarding QE...I wonder if the fed actually could take the foot off the QE accelerator and just sit back and see if Japanese money and European money come roaring in and buy those bonds for them. It's just a theory. But it might work.

Mon, 04/08/2013 - 20:26 | 3424402 NoDebt
NoDebt's picture

If I can paraphrase: "Let's take it off the table now while we have money coming in BECAUSE WE WILL MOST ASSUREDLY NEED TO PUT IT BACK ON THE TABLE LATER."  They're buying back the leverage of being able to announce or threaten to announce it again later.  An idea not entirely without it's charm.

Right now the liquidity fire hose is helping both the banks and the federal government.  Endless free money to buy endless debt issuance.  Part of the reason it's so irresistable to do it.  I wonder if there won't be a point of "divergence" where it stops being a no-brainer benefit to the banks, but the government will still want it to fund their endless deficits.  Wonder which master the Fed will serve on that day.  You may think it would be the interests of the banks, but I have my doubts.

Mon, 04/08/2013 - 19:53 | 3424296 kito
kito's picture

Mr. Fink, regardless of your epiphany.....Torches and pitchforks won't be passing up your home. Better dig that moat a little deeper......

Mon, 04/08/2013 - 19:54 | 3424297 new guy
new guy's picture

I'm pretty sure that a hammer is supposed to be dull. If it was sharp it would be an axe.

Mon, 04/08/2013 - 20:15 | 3424367 EclecticParrot
EclecticParrot's picture

I just got a strange vision of Bernanke dragging an axe through the snow like Jack Nicholson in The Shining when it comes time to tighten, his beard laced with mini-icicles ...

Mon, 04/08/2013 - 19:55 | 3424298 Rainman
Rainman's picture

Yah...we know this game...now is great time to test your shorts <not>

Mon, 04/08/2013 - 19:54 | 3424299 khakuda
khakuda's picture

Rick should know about liquidity induced speculation. He worked at Lehman.

Mon, 04/08/2013 - 20:09 | 3424349 disabledvet
disabledvet's picture

He's just jealous. Anywho when deposits are getting stolen...er "taxed"...and Japan is trying an even more extreme variant exactly what's the problem again? "gold, silver, natural gas, coal, corn, wheat, hogs, livestock, steel," everything but King Cotton actually have gotten crushed in this "eventual inflation." now keep on front running so the Banks can rake in another trillion.

Mon, 04/08/2013 - 19:57 | 3424311 mademesmile
mademesmile's picture

Is there a really simple chart showing how that $85 B a month is spent?

On another note, I heard a 2 hour long conservative radio program talking about EBT use and fraud. The EBT program spends less in ONE YEAR then what he is printing in ONE MONTH. Shoot, at least some people that need it are getting food out of the deal.

Where is the outrage for THIS mammoth govt. spending project?

Mon, 04/08/2013 - 20:11 | 3424356 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Consertive radio talk show hosts are not allowed to speak the truth when it comes to the Fed, they would be pulled from the air immediately. That job is left for fringe blogs like ZH and conspiracy theorists like Alex Jones.

Mon, 04/08/2013 - 21:16 | 3424577 One of We
One of We's picture

None dare call it conspiracy....

Mon, 04/08/2013 - 20:01 | 3424325 Major Major Major
Major Major Major's picture

Those are some smart fuckers over there at BlackRock.  Beats me how they figured out the markets were being distorted by the Federal Reserve... and so early in the game too.  100 bps low on the 10-year, LOL.

 

p.s. Hey BlackRock, can I has a job.  Let me use your balance sheet and I will either blow up or blow up (win-win).

Mon, 04/08/2013 - 20:02 | 3424326 Yen Cross
Yen Cross's picture

 

 

      BlackRock estimates that interest rates on 10-year Treasuries are about 100 basis points below where they would be normally. Mr Rieder said that as such interest rates normalise, “losses that occur to fixed-income portfolios will be more and more acute

      Not for those of us that short the shit out of the bond market when it blows up... 

     

Mon, 04/08/2013 - 20:09 | 3424354 fonzannoon
fonzannoon's picture

Yen, stupid question for you....who are the bond vigilantees these days? PIMCO? Hedge funds? What major institution out there is not loaded up the ass with treasuries and other bonds? It seems to me that for the bond market to turn on itself these instutions would have to voluntarily blow their brains out.

Mon, 04/08/2013 - 20:17 | 3424372 you enjoy myself
you enjoy myself's picture

but you could have said that about tech stocks in '99 and MBS in '07.  everyone just thinks they can time their exit better than everyone else.

Mon, 04/08/2013 - 20:23 | 3424393 Yen Cross
Yen Cross's picture

       You're right about the instutions blowing their brains out Fonz. I'm sure there are a bunch 'vulture' hedge funds that are waiting to devour the weak 'Fixed income fund Cos.' when the bond market blows. Gross just opened that f/x fund, so he can use that to hedge some exposure.

      I saw earlier that some large fund managers are playing the yen short trade through the Nikkei now instead of the currency. Makes sense. Probably more bang for the buck in owning Nikkei stock as opposed to a rapidly depreciating currency for those guys.

Mon, 04/08/2013 - 20:35 | 3424443 fonzannoon
fonzannoon's picture

Thanks Yen. Appreciate the input.

Mon, 04/08/2013 - 20:05 | 3424339 TJ00
TJ00's picture

Where Black rock = Kaaba

Mon, 04/08/2013 - 20:11 | 3424359 XRAYD
XRAYD's picture

But Ben has studied it all in books, written lots of papers, has given lots of speeches, and understands how the world of money works - like when he said that housing was "contained" ..etc. etc.

Only if he was doing something with his own money instead of creating it out of thin air and using savers and business people as guniea pigs! He will be long gone when his "experiment" blows up the lab!

Mon, 04/08/2013 - 20:13 | 3424360 you enjoy myself
you enjoy myself's picture

i like that he thinks he's being brave by guesstimating a distortion of 1% when the Fed is almost literally buying everything on the long end, and the remaining buyers are simply frontrunning.  if you had a pair you'd note that the Fed can't possibly unwind, ala Stockman.  

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