The Chart Making The Fed Nervous

Tyler Durden's picture

While Cyprus has been brushed away as a "storm in a teacup" and asset-gatherers stare blankly at their screens pointing at record highs to confirm the "market knows best", it appears something rather important 'broke' that day (and hasn't stopped breaking since). While we have discussed the rather glaring divergences between US equities' exuberance and global equity markets and macro- and micro- data; supposedly the Fed's key indicator (the 5Y5Y forward inflation expectation) has reversed rather significantly. The last two times, forward inflation expectations dropped so significantly, the ECB launched LTRO and the Fed launched QE3. It seems the BoJ's QQE is not having the effect perhaps they had hoped on inflation expectations. Will the Fed have to come to the rescue once again? And how will gold react to that?


Cyprus appears to have stolen the jam out of the reflation-game donut...


as one of the Fed's key indicators (5Y5Y forward inflation) is diverging significantly... suggesting multiple compression (not expansion)

or moar money-printing...

It seems the BoJ's actions are not holding up...


Perhaps this is why the G-20 so subserviently acquiesced to everyone devaluing (or fighting deflation) since if everyone devalues then no harm, right? And perhaps, just perhaps, the gold smackdown was pre-empting this to bring it back to a level that can be defended when the next round of global coordinated money-printing begins - or we move to QE-infinity-squared.


Charts: Bloomberg

(h/t @GreekFire23)

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Turin Turambar's picture

I am so afraid of deflation.  The horror of things becoming nominally cheaper!  Print! Print! cry the banksters.  We must slay the deflation monster.  No thanks.  I prefer to pay less for things.

roadhazard's picture

If this is deflation I do not want to se what inflation looks like. The only thing going down in my world is my worth.

Turin Turambar's picture

Only somebody who listens to Fed and government propaganda would think that what we have going on is deflation.  By definition, deflation is a reduction in the money supply.  Uh, not happening!  Some prices decreasing?  Sure.  But what does one expect after popping a big ol manufactured bubble?

Quinvarius's picture

There is no deflation in fiat.  There never will be.  Only vs gold can things deflate.  Fiat deflation causes debt default, which explodes into hyperinflation.  That garbage they pulled in the paper gold market won't even show up as a blip on the chart when this is over.

No sovereign debt default has ever strengthened a currency.  When people default on loans, the money that was created when the loan originated stays in the system.  There is no demand on it anymore and it never gets destroyed in repayment.

css1971's picture

Yay. Someone else finally sees that defaults are inflationary.

Bam_Man's picture

Fekete makes some very insightful observations in that paper.

Especially with regards to what "Permanent Gold Backwardation" represents. (Basically a return to barter-for-Gold and an infinite Gold price in $)

Reven's picture

Argentina had deflation, right before they hyperinflated.

Conman's picture

Headline is dead wrong. Nothing makes these guys nervous. Its obvious all these guys are psychopaths.

psy·cho·path  (sk-pth)

A person with an antisocial personality disorder, manifested in aggressive, perverted, criminal, or amoral behavior without empathy or remorse.
EscapeKey's picture

I think sociopath is more fitting of the bill:


Characteristics of a sociopath are as followed :

1. Sociopaths are very charming. 
2. Sociopaths can be extremely manipulative and will try to con you whenever possible. 
3. Sociopaths feel that they are entitled to everything. 
4. Sociopaths will lie continuously to get what they want. They can even sometimes manipulate a lie detector. 
5. Sociopaths have no remorse, shame or guilt. 
6. Sociopaths will show love and happiness only when it serves their purpose. None of the feelings are genuine. 
7. Sociopaths have no room for love in their life. 
8. Sociopaths need to have excitement in their lives or live on the edge. 
9. Sociopaths have lack of empathy hen their victims suffer pain that they have caused. 
10. Sociopaths believe that they are all mightier than tho, there is no concern on how their behavior impacts others. 
11. Sociopaths usually have a long history of juvenile delinquency as well as behavior problems. 
12. Sociopaths will never take blame for anything they have done to anyone no matter if it is family or friend. 
13. Sociopaths have many sexual partners and tend to act out many sexual acts. 
14. Sociopaths rarely stay in one place for a long time (home/work). 
15. Sociopaths will change themselves if they know it will keep them from being found out.

Rubicon's picture

Ive often wondered what made me tick. Thx.

Clark Bent's picture

Clinton-Obama, together they model every aspect. 

JimBowie1958's picture

It is easy to manipulate a lie detecter, lol.

Bearwagon's picture

Correct. These people suffer from serious mental illness. But the term 'psychopaths' has been officially abolished for quite a time. Makes one wonder why, doesn't it?

WhiteNight123129's picture

What makes them nervous is the sense they lose control. That makes them very very nervous. And that is how they make mistakes, the fear of losing control.

They did a big mistake by wacking Gold, because it forces them to do more QE than necessary.


btb2010's picture

One more block coming out as the global game of Jenga plays on - it always ends the same - this time is not different

polo007's picture

Doc Zone | Season 2012-13, Episode 25 | Apr 18, 2013 | 43:20

The Secret World of Gold

A look at the power and politics of gold. Where is the gold and who really owns it?

TLT's picture

Can't see the video from here. I think it is only available in Canada. It your be nice if someone released via Torrent.

sudzee's picture

The only thing deflating for me is the value of my gov't cheque.

fonzannoon's picture

I was just hoping the comex was running out. QE7 is kind of boring.

Divided States of America's picture

Yeah well stock prices still need to readjust to the new level.....and by 10%...looks like stocks arent immune to global central bank devaluations either

Never One Roach's picture

Looking around me seems the Fed is behind the curve on this....prices plunging all over...increased unemployment...empty malls...stagnant or falling wages...and so on....

OneTinSoldier66's picture

I would say that the Fed has been ahead of the curve ever since it was created.


But it has now gotten to where the curve has come full circle, 360 degrees, and is now starting to go up the the Fed's rear end. It is now a circle jerk of sorts. A kabuki theatre circle jerk. Is this the kind of entertainment we really want in society?

astoriajoe's picture

So the fed will perhaps offer to make an LBO of the entire domestic stock market?

That should go well.

yogibear's picture

They buy everything and make the debt vanish.

Just like their missing 9 trillion.


Iam_Silverman's picture

"Just like their missing 9 trillion."

I suspect it's not lost.  They may have just forgotten that they left it in their printer.......

fuu's picture

Maybe just admit they picked it up on 5/6/10.

yogibear's picture

America, welcome to Japan!

The Invisible Foot's picture

I thought Cyprus was a small little nothing?

Bearwagon's picture

Did you really think that - or was that just what you've been told?

otto skorzeny's picture

shalom vs abe in the world series of devaluation.

scatterbrains's picture

one thing they wont run out of is the DTCC's ability to nake short NUGT ??   but with a few lottery tickets I'll take the other side of that trade for now.

khakuda's picture

Like clockwork, every round of QE cause oil to rise and the economy to slow 6 months later.  As inflation expectations fall with the economic slowdown, the Fed does another QE, spiking oil and slowing the economy yet again.

No learning.

css1971's picture

No, the central banks are not able to fix the problem. All they can do is create more credit/debt, and that's what's causing the problem in the first place.

They are literally doing the only thing they can. Delay. Preferably until it's someone else's problem.

Credit can't be used to pay down debt. Credit is created as a debt in the first place so if you pay off your debt with credit there is simply a debt somewhere else that still needs to be paid.

Now, paper money can pay off debts. There is only 1 solution to this. Devaluation or default. The effect is the same but the time frame and victims are different. With default the wealthy lose. With devaluation, the poor lose.

Tic tock's picture

How far can the can go down the road?

BandGap's picture

Not too much further. Too many wild swings starting, too many omens pointing in the world direction.

Still it puzzles me that we see this type of data, and we know where Europe is heading too, and all we get is what amounts to a blank stare out of Wall Street. Fucking weird.

RaceToTheBottom's picture

The key piece of information will come where you least expect it:

Lululemon yoga pants

Wjunk's picture

Perhaps, but I have seen TA become far less useful as a tool in the last 5 years. At one time, it was a decent proxy as to market participant sentiment and one could consistently use it as an analytical tool.

I see it (and the various indicators) less as a tool for forecasting what might happen than a simple view of what is happening now.

"I'm Cold"


"What will happen in 20 minutes?"

"I don't have an F-ing clue"

LinesOnCharts's picture

Sooo...moar opportunity for further easing then?  Dow 25,000! =D

bnbdnb's picture

PMs selling 30% over spot, which is higher than when the shitstorm started pushing paper down. A lot of good that did huh?

Quinvarius's picture

QE5 banking recap.

polo007's picture

According to Morgan Stanley:

The Gold Standard, a system of fixed exchange rates, is blamed by some for creating the Great Depression. Caught between rising domestic unemployment and the commitment to a fixed exchange rate, the UK exited from the Gold Standard in September 1931.

Almost immediately, Scandinavian economies followed suit, devaluing their currencies in line with sterling. The US, Italy and Germany stubbornly resisted…until they gave in and left the Gold Standard as well (the US in 1934, Italy and Germany in 1936). The decision to leave or stay on the Gold Standard separated the winners from the losers. Between 1931 and 1935, economies that devalued early got the benefits of monetary easing and saw their production expand, while those that stayed on it faced economic contraction. When everyone was off the Gold Standard by 1936, everyone was able to ease monetary policy and help their ailing economies.

Today, GME3 – the third wave of the Great Monetary Easing – is in full swing. This is typically the time when central banks start thinking about keeping policy on hold for a while before withdrawing stimulus, not easing policy further. Yet, the lingering question marks about growth (bigger in some places like the euro area, smaller in most EM economies) along with currency strength have resulted in exactly that – a further round of easing.

Such aggressive action has raised the stakes around the world, nowhere more so than in Japan. But the risks are high too, nowhere more so than in Japan.

The risks, while certainly not negligible, are the lowest for the Fed and the ECB: Neither should mind easing (or in the case of the Fed, not tapering off the easing) at this juncture. The economic downturn in the euro area seems likely to stretch on for longer, and both conventional and unconventional easing are back on the table following last week’s ECB statement and press conference. The US economy is now going through a soft patch, and with the growth relapses of the past few years in mind, keeping QE3 purchases going to minimise the risk of a premature end to easing will likely outweigh the risks.

css1971's picture

Morgan Stanley is a bank, they don't want bank credit to be implicated in recessions and depressions.

It is the creation and destruction of bank credit which cause the business cycle, recessions and depressions and it does this because they hold a fractional reserve which produces leverage and allows people to have their cake and eat it, (for a while). The depressions and recessions are created during the boom times, as credit expands.

Banks create booms and banks create depressions. The underlying base money, whether it is gold or paper is largely irrelevant. Gold happens to restrict politicians ability to inflate and they have to explicitly devalue, of course the need to inflate or devalue a currency is because the banks have already expanded credit and the alternative is the crash as the credit is wound back in.

Mototard at Large's picture

Out of gold. Amost out of silver...

I went into ScotiaMocatta this morning to buy some AU and AG.  The polite and professional agent tells me that ScotiaBank/Mocatta had no gold for sale.  No bullion and no Maple Leaf coins.  He believes they may have gold available on 06 May 2013.

When I asked for modest amount of silver bullion (5  0Z bullion Sunshine) he smiled politely and said:  "Let me just check inventory before I agree to the sale."  He and an associate opened a cabinet, did a quick count and agreed to the sale.

I realize this is anecdotal information, but interesting to see a major national level seller of PMs unable to deliver their main product until 06 May.

Silver was selling for equivilent of USD 26.24 inclusive of all fees etc.


Tombstone's picture

Central banks are failing, as do all central planning schemes, to keep prices/assets/fiat money/debts propped up.  Do we see any heavily debted countries shrinking their burdens?  Not to my knowledge.  Where will we be in 5 or 10 years if debts continue higher?  What about the probability of interest rates rising during this time?  The worldwide socialists and Kommies are blinded by Keynesian thinking and desperately hoping that somewhere down the line growth will turn this puppy around.  Socialists and Kommies, by their very nature, are anti growth-wealth and free market capitalism.  Good luck may drive gold down 50% from its highs, but in the longer run, your fake dollars will eventually fall 98% in value.

polo007's picture

According to Macquarie Research:

Corporate Bond Rate + CPI Inflation Implies S&P 500 at 1742

Our research theme for several months has surrounded the ongoing Risk-off Rally in the equity markets, highlighting sector preference for defensives and yield plays, but the common question we have received is regarding fair value for the equity market. While bottoms-up consensus EPS augers for a fair value range of 1550 – 1600, the unnatural impact of monetary policy on bond rates suggests a cross-asset arbitrage model may provide a better perspective. Using our CPI Inflation model we find that the fair value of the S&P 500 could be ~1742, or around ~12% above its current price of 1552.

Given that our cross-asset arbitrage model uses the S&P 500 Dividend Yield as valuation, presumably yield stocks would significantly outperform during a rally to 1742.

While this analysis is more for thought than basing investment decisions, it does provide perspective that the ongoing global quantitative easing undertaken by central banks should continue to push investors out on the risk curve and support higher equity markets. The question then becomes, as the Monetary valuation regime, is increasingly detached from a Fundamental/ Economic valuation regime, what happens when central banks ultimately reverse course?